Winds of blame blow through retail chains

Alarmed by the power and market concentration of retailers, the National Agricultural Marketing Council (NAMC) recently commissioned a report into their practices. It recommended that the agriculture minister should ask the commission to investigate the matter.

The NAMC is coy about whether its report triggered the planned investigation of Pick n Pay, Shoprite/Checkers, Woolworths, Spar, Massmart and Metcash. But the author of the report, Prof Johann Kirsten, is convinced retailers have a case to answer.

“I think this investigation is long overdue because we do need to understand the value chain and see where the problem is,” says Kirsten.

In particular, he says, the value chain is skewed against farmers. They have to deal with high input costs like fertiliser, and with food processors who squeeze lower farm-gate prices out of them.

He singles out a retailer who entered into an exclusive contract for the supply of a product, only to cut back on orders because of low demand, but prevented the producer from selling surplus to a competitor.

Another example of anticompetitive behaviour was to place an urgent additional order of the same goods at a lower price — a practice crudely referred to as “screw our supplier” — knowing the supplier was locked in a long-term exclusive contract.

But retailers bristle at the allegations and are expecting the investigation to clear them of bad behaviour.

Pick n Pay founder Raymond Ackerman early this month defended the group, saying it had been built on a heritage of good corporate governance and always considered customers first when dealing with suppliers.

“Pick n Pay has never entered into price-fixing with competitors; for us this would be anathema,” he wrote to the Financial Mail. “If any organisation has evidence of collusion in the supply chain, we urge it to report this to the competition.”

The NAMC report draws parallels with the practices of major supermarket chains in the UK, whose market dominance was dealt a body blow through tough legislation.

The report says there was “substantial” evidence suggesting the buying practices of retailers could be a barrier to entry for smaller suppliers.

The report says the NAMC has evidence that suggests “shrewd business tactics” used by local retailers were similar to practices used in Europe and the US, such as confidential rebates to suppliers, and returning unsold goods. The South African National Consumer Union says it believes the time has come to lay to rest allegations of anticompetitive behaviour.

“I think it is necessary to clear the air and see whether there is collusion or not,” says chairwoman Lillibeth Moolman. “There has been a lot of finger-pointing and this investigation is the only way to move forward.”

Some analysts are not so convinced retailers have a case to answer.

“This sort of investigation was inevitable with some of the political (and) public noises ... around food prices and sticky inflation,” says Stanlib analyst Antoinette Joubert. She is unsure if the investigation will lead further down the value chain and find that suppliers' increases are unjustified.

Analyst Chris Gilmour says retailers are being unfairly targeted. “I don't know where the problem lies, but I am convinced it is not with the retailers,” he says, adding that SA's retailers operate at low margins and would have much higher margins if they were colluding in fixing prices.

Source: Business Day

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