In June 2009, prompted by public perception of inter alia high grocery prices and high profit margins of the major South African retailers, the Competition Commission initiated an investigation against the four major South African supermarket chains (Pick ’n Pay, Shoprite/Checkers, Woolworths and Spar), as well as the two major wholesaler-retailers (Massmart and Metcash) into various alleged contraventions of the collusion and abuse of dominance provisions of the Competition Act. The Commission’s investigation focussed upon food retailing activities, with a particular emphasis on five key staple foods, namely poultry, bread and maize meal, dairy (milk), fats & oils (butter, margarine and basic cooking oil) and canned fish.
At the outset, the Commission identified various possible competition concerns which, in its view, warranted further investigation:
abuse of buyer power, by making it difficult for small suppliers to gain and retain access to retailers’ shelves through practices such as exclusive supply arrangements, listing fees, slotting allowances, payment policies, returns policies, and promotional discounts and other rebates;
category management (which involves decisions regarding product placement, promotion and pricing and is often executed by a “category captain” from the ranks of the largest manufacturers), which could facilitate collusion and/or competitive exclusion;
exchange of potentially sensitive retail information, which could facilitate collusion at the retail and/or supplier level by, for example, allowing for the monitoring of market shares; and
long-term exclusive lease agreements, which could raise barriers to entry at the retail level.
In conducting its investigation, the Commission requested and received a substantial amount of evidence from the supermarkets, wholesalers and third parties (including property owners, banks and the like). It also considered publicly available information and the outcomes of some of the enquiries conducted into the conduct of supermarkets in foreign jurisdictions by various international competition agencies.
On 27 January 2011, the Commission announced that it had concluded its enquiry. The investigation revealed no contraventions of the Competition Act in relation to abuse of buyer power, category management and information exchange. In this regard –
although the Commission found no evidence to suggest that supermarkets were abusing their buyer power in contravention of the Competition Act, the Commission urged the supermarket chains to facilitate the entry of small suppliers by changing their procurement policies and proactively disclosing information concerning entry requirements;
the Commission found no evidence of category management in contravention of the Competition Act and thus indicated that it would not pursue this issue; and
although the Commission found no evidence of information exchanges between supermarket chains, it noted that the dissemination of highly disaggregated information to suppliers (through third parties such as AC
Nielsen and Synovate) could chill competition between such suppliers. The Commission made no findings in this regard. It simply indicated that current investigations in regard to this type of information sharing are ongoing.
In addition, the Commission indicated that it remains concerned with long-term exclusive leases between supermarkets on the one hand and property developers / landlords on the other hand. The Commission found that these exclusive lease arrangements could result in anti-competitive effects in circumstances where the supermarket chains have market power within relevant local markets. According to the Commission, these lease arrangements could have the effect of excluding independent and small retailers from entering certain shopping malls where the main supermarket chains are anchor tenants (and enjoy exclusivity in that the property developer / landlord has contractually undertaken not to place another grocery store within that centre). The Commission indicated that it would endeavour to engage all relevant stakeholders (supermarkets, property developers and banks) with a view to finding a constructive solution to this issue, failing which the Commission indicated that it may prosecute the matter.
The Commission’s investigation was, on the face of it, extremely thorough. Extensive document requests were despatched by the Commission to the supermarkets, wholesalers, suppliers, property developers, banks and others. There was, without exception, full co-operation with the Commission from all stakeholders.
It is thus particularly encouraging that the Commission, after a full investigation and constructive engagement, has effectively (aside from some minor residual issues remain in relation to long-term exclusive leases) found there to be no improper behaviour in the markets for the wholesale and retail of food. As consumers, this is a big relief – particular against the backdrop of previous findings of cartel activity in regard to certain staple foodstuffs. And as a society and economy generally, it is something of a breakthrough – the first major competition investigation where an industry has been found to exhibit no material competition law contraventions. Perhaps South Africa is finally on the path to establishing, as the motto of the Commission aspires to, a free and fair economy for all?