SAB justifies its distribution model

SAB is defending its dual distribution model before the Competition Tribunal in which its appointed distributors are given "spatial monopolies" and special discounts not enjoyed by independent licensed distributors.

The Competition Commission found that by carving up of the market and setting pricing arrangements SAB - along with its appointed distributors - had contravened the Competition Act.

Distribution services manager Pieter Wessels said in his witness statement that the appointed distributor model started in the 1980s and was focussed on servicing SAB customers in the rural areas. SAB started off with 22 distributors‚ but seven had subsequently failed financially. They were responsible for 8‚4% of the distributed sales with the depots responsible for the rest.

He said since it had appointed the distributors‚ SAB had been able to create points of distribution closer to the market‚ enabling it to have stock available in outlying areas and to improve response times.

This has given the national brewer "accelerated growth".

Wessels said the appointed distributors were seen in the same light as the SAB's own depots‚ but they were owned independently. Some of the distributors had been in business for more than 20 years‚ even though they had changed ownership over the years.

Commission advocate Anthony Gotz put it to Wessels that the distributors were protected from competition and were offered "spatial monopolies" which had consequences for other wholesalers‚ who were not given the same benefits and for customers‚ who had to contend with the SAB distributors in their area.

Wessels admitted that the other wholesalers were not given the same benefits‚ but they were also not subjected to the same obligations as the SAB-appointed distributors. He also said the contract with appointed distributors allowed SAB to terminate the contract within six months.

He said appointed distributors were forced to service all the customers within their area and they were not allowed to cherry-pick the easiest and closest deliveries. He said if the SAB-appointed distributors were inefficient‚ their contracts would be terminated.

The commission has recommended a remedy for the anti-competitive exclusive arrangements between SAB and its distributors that would see the disappearance of the borders - there will be no spacial monopolies and all wholesalers who meet predetermined criteria will be eligible for the wholesaler discounts.

SAB has already indicated that according to its calculation this remedy could cost an additional R729m a year.