- CA Rejects Choppies-Payless Application
- Finds substantial lessening of competition
- Choppies Payless had identical or similar prices
- Choppies in house brands found in Payless stores
Troubled retail supermarket group, Choppies Enterprises Limited was found by the Competition Authority (CA) to have colluded with Payless Supermarket by using a buying group comprising of Choppies Distribution Centre (Pty) Ltd, Payless Supermarket (Pty) Ltd and Woodblock (Pty) Ltd to distort competition and price fix goods.
The CA found that the three companies using their combined purchasing power were able to influence supply companies rates by buying the same goods from manufactures and then subsequently selling them to the public at an agreed price at their respective stores.
In 2014 Choppies bought the Payless business together with Supa Save, but the CA has ruled against the merger stating that it would create a dire lessening of competition within the market sector. After a careful Competition Assessment, the Authority established that, there is no competition between Choppies and Payless, instead the CA found that the duo had monthly promotions wherein they had the same goods on promotion at identical or similar prices and that the pamphlets were an exact replica of each other.
The Authority further found that though the two retailers had alleged that Choppies would not benefit from the merger of the stores, it had emerged that Choppies was benefiting in an uncompetitive manner, particularly given the quantity of Choppies in house brands found in Payless stores. Investigations revealed that Payless did not have any in house brands, but sold a variety of Choppies goods in large volumes.
Further, the Authority found that the granting of an exemption to the applicants would be in effect granting Choppies and Payless the leeway to continue with their price fixing and distortion of competition.
As a result, Competition Authority this week rejected an application for a buying group exemption from Choppies Distribution Centre and Payless Supermarket. In terms of the Competition Act competitors can apply for an exemption where there are off-setting public benefits that out-weigh the anti-competitive effects of the undertaking they seek to engage in. The thrust of the application was that the envisaged buying group would enable better purchasing power which would, so it was presented, translate into lower prices, better quality products and therefore availing benefits to consumers and employees.
Prior to the current proceedings before the CA, the Choppies and Payless had launched a similar application in 2014, which was rejected. The retail companies were nevertheless given time to wind up the buying group agreement but despite the ruling the buying group remained active for a period exceeding three years with no sign of winding down the agreement. As a consequence, Choppies and Payless are now applying for an exemption to run the agreement for an additional three (3) year period.
During exemption period, which continues operate, Payless’s performance reportedly improved and stabilized financially allowing it to increase its staff complement, argued Choppies and Payless. The CA held that it was aware of the applicants position in the current application that if Payless is not granted an additional exemption for the buying group, the retailer would suffer devastating harm which may result in its liquidation.
In the current application Competition Authority said the two retailer stores maintain that the existing joint buying group arrangement is the main reason behind Payless’s improved performance and stability. The stability and improved performance the retailers suggested was due to their combined leverage and the economics of scale when buying; stabilizing cash flow; improving the ability to rebrand and allowing for the refurbishment its stores as well as enabling it to retain employees and creating an additional 250 more jobs since the last exemption (when the weaning-off period was granted), which resulted in an increase of the staff complement from 400 to 650.
“In considering an exemption application, the Authority is directed by section 32(1) of the Act on the assessment criteria of exemptions, which provides that, “ Where the Authority finds, on investigation that an agreement other than a horizontal agreement or vertical agreement prohibited by section 25 and section 26 (1) respectively prevents or substantially lessens competition, the Authority may, subject to section 34, grant an exemption from the prohibition if it can be reasonably expected that there will be offsetting benefits for the public directly attributable to the agreement,” the Competition Authority found.
From the documents placed before the CA it emerged that the two stores hinged their application on the assertion that the agreement would yield considerable public benefits that would off-set anti competition concerns. However, the competition watchdog found that on a closer examination of the alleged public benefits claims, it was clear that the claims were not supported by any documentary evidence.
“The Parties failed to prove that Payless’ financial stability in the last three years was solely based on it being a member of the Buying Group. With regard to employment, it is worth noting that initially when the application was made, the two stores claimed that Payless had been able to retain the same number of staff and even increased its staff complement. Upon scrutiny this claim was found to be untrue,” revealed the Authority.
Whilst the parties allege that profits have remained low due to projects that Payless had undertaken to revamp such as refurbishing its stores and rebranding, there are no documents to support these plans and their cost, according to Competition Authority.
“The parties have mostly made unsubstantiated allegations in support of their application without any concrete evidence. The application is therefore rejected on the basis that there is no evidence that proves that the agreement has any offsetting benefits for the public directly attributable to it in the form of maintenance of lower prices, higher quality or greater choice for consumers, as provided under section 32(1) (a) of the Act, because Choppies and Payless sell the same goods at similar prices especially during the month-end promotion period; and further the parties or the two stores have failed to prove that the agreement has any off-setting benefits in the form of maintenance or promotion of employment in Botswana as stated under section 32(1)(d) of the Act, instead, the information shows that Payless has reduced its employees and the parties tried to mislead and provided false information to the Authority.”
The Authority has therefore directed the parties to dissolve the agreement as it fails to provide for substantial economic benefits to the public. The Parties were further granted a period of three (3) months to have dissolved the agreement and in addition were required to, at the expiry of the three (3) months period report to the Authority that they indeed dissolved the agreement.