| Thu 27 Jan 2011, 13:16 | | THEE - The Competition Commission - Competition Commission findings of the |
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JSE
THEE
THEE - The Competition Commission - Competition Commission findings of the
supermarket industry probe
MEDIA RELEASE
27 January 2011
Competition Commission findings of the supermarket industry probe
The Competition Commission has concluded part of its investigation against the
four major supermarkets, Pick `n Pay, Shoprite/Checkers, Woolworths and Spar as
well as wholesale retailers, Massmart and Metcash for alleged contraventions of
the Act. The investigation focused on the retail of key staple foods, namely,
poultry; bread and maize meal; milk, fats & oils and canned fish. The
supermarket investigation followed from the Commission`s prioritisation of food
markets in the context of public perception of high (and rising) grocery prices,
increasing farm-to-retail price spreads, high market concentration, significant
barriers to entry and high profit margins of the major retailers.
During investigation the Commission identified several competition concerns
within this sector, including exclusive lease agreements; information exchange;
category management and concentration of buyer power. The investigation
revealed that there was insufficient evidence to show contraventions in terms of
the Competition Act pertaining to abuse of buyer power; category management and
information exchange. The Commission remains concerned with long term exclusive
leases which may amount to a contravention of the Competition Act particularly
where supermarkets have market power. Its investigation into this aspect is
continuing. We detail the key findings of the investigation below
1. Exclusive lease agreements
The Commission has found that the exclusive lease arrangements could result
in anti-competitive effects in circumstances where the Supermarket chains
have market power within the relevant local markets. The Commission
believes that exclusive leases in these local markets are not justified and
that they result in anticompetitive outcomes such as enabling supermarkets
to maintain their position of market power. Further independent and small
retailers are excluded from entering certain shopping malls where the main
supermarket chains are anchor tenants.
Exclusive leases arises from an industry wide practice and the Competition
Commision has decided to engage all relevant stakeholders (supermarkets,
property developers and banks) with a view to finding a constructive
solution to this problem. There are also indications that this practice is
acknowledged by the industry to be problematic; with a noticeable amount of
recent property developments operating successfully without exclusive
leases. The investigation of this issue will continue in the meanwhile. If
a solution cannot be found through constructive engagement the Commission
will proceed with prosecuting this matter.
2. Information Exchange
The Commission did not find evidence of exchange of information between the
Supermarkets chain. However, the Commission noted that third parties like
AC Nielsen and Synovate collect scanner data from supermarkets which they
disseminate to suppliers. The dissemination of highly disaggregated
information to suppliers may chill competition at this level of the
industry. The investigation reveals that suppliers receive detailed
information about their performance and that of competitors per retail
chain, per product category and by region. The Commission is currently
investigating allegations of information exchange in the maize and wheat,
poultry, pelagic fish and vegetable oils industries.
The Commission could not find evidence of collusion on pricing of the food
items it isolated for investigation between the retail chains. These are
high volume and low margin items across the retail chains. Supermarkets use
low prices on these items to attract consumers on a regular basis.
3. Abuse of buyer power
Concerns were raised that Supermarket chains may be abusing their buyer-
power by placing onerous demands on suppliers, especially small suppliers.
This include practices such as exclusive supply arrangement, listing fees,
slotting allowances, payment policies, return policies, promotional
discounts and other rebates. No evidence was found to suggest that
supermarkets were abusing their buyer power in contravention of the
Competition Act.
Larger suppliers considered their relationship with supermarkets to be
equal or tilted toward the retailers. While the large supplier alluded to
tough negotiations with the supermarkets over pricing, they have not
indicated that there has been an impact on their margins and investment
capability.
However, the Commission is concerned about the entry of small suppliers to
supermarkets. Smaller suppliers raised concerns with the difficulty of
complying with a range of allowances and rebates demanded by retailers.
They have also raised concerns regarding adverse payment terms and
retrospective deductions from payments when retailers realise that they
have offered deeper discounts to their competitors. The Commission is
concerned that these practices may place smaller suppliers at a
disadvantage relative to the big suppliers. In the long run, this may
undermine the competitive process at this level of the supply chain. For
this reason, the Commission urges the supermarket chains to facilitate
entry of small suppliers by for example changing their procurement policies
and proactive disclosure of information on entry requirements.
4. Category Management
Category management refers to decisions on product placement, promotion and
pricing executed by a "category captain" from the ranks of the largest
manufacturers. The Commission was concerned that the activities of
category captains, combined with the potentially sensitive competitive
information at their disposal, could facilitate collusion and/or
competitive exclusion.
The investigation found that this practice is limited in the products
covered by the investigation. Where it does occur, it is largely managed by
in-house supermarket personnel (i.e. buyers and shelf managers), rather
than by suppliers. The Commission found no evidence of category management
contravening the Act and will not pursue this matter.
ENDS
Further Info:
Oupa Bodibe, Manager: Advocacy & Stakeholder Relations
012 394 3267/ 082 563 6970/ oupaB@compcom.co.za
Molebogeng Taunyane, Coordinator: External Communication
012 394 3289/082 646 8663/ molebogengT@compcom.co.za
Background
The Competition Commission identified food, specifically grain and milling;
poultry, pelagic fish; vegetable fats and oils; as well as dairy, as priority.
To date, the Commission has concluded or is in the process of investigating
several food value chains from inputs, storage, processing/manufacturing and
retail.
Competition Commission initiated an investigation against Pick `n Pay Stores
Ltd ("Pick n Pay"), Shoprite Holding Ltd ("Shoprite"), Woolworths Holding Ltd
("Woolworths"), the Spar Group Ltd ("Spar"), Massmart Holding Ltd ("Massmart")
and Metcash Trading Africa (Pty) Ltd (trading as Metro) ("Metcash"), hereinafter
collectively referred to as the ("Supermarket Chains"). It was alleged that the
supermarket chains may have contravened the Competition Act 89 of 1998, as
amended ("the Act"). The Commission initiated the investigation after
preliminary research in this area highlighted certain issues of concern.
The Commission also received a number of complaints from different parties
related to the above investigation, which along with the Commission`s initiation
formed the "supermarkets investigation. The Commission`s investigation related
to the following allegedly anticompetitive conduct:
- Long term exclusive lease agreements with property developers and/or
landlords. The practice of entering into long term and exclusive lease
agreements is alleged to be in contravention of Section 5(1) and/or 8 (c)
and/or 8(d)(i) of the Act.
- The exercise of buyer power by retailers and wholesalers by imposing
allegedly onerous listing fees, rebates and other burdensome trading terms
on suppliers and/or manufacturers, allegedly in contravention of Section
5(1) and/or 8(c) of the Act.
- Information exchange through entities such as Nielsen, Synovate and through
category managers and merchandisers by exchanging sensitive information
such as sales volumes and receiving information on market shares, allegedly
in contravention of Section 4(1)(a) and/or 5(1) of the Act.
- The practice of category management, which refers to the category-wide
management of decisions related to product placement, promotion and
pricing. Category management may be executed by the appointment of a
"category captain" from the ranks of the largest manufacturers in a
particular category to manage all aspects of that category in the retail
store. Category captains may gain access to potentially sensitive
information such as sales volume data, which could possibly facilitate
collusion. This conduct was alleged to be in contravention of Section 5(1)
of the Act.
Date: 27/01/2011 13:16:02 Produced by the JSE SENS Department.
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