CA in desperate bid to halt Choppies monopoly

Retail giant Choppies once again found itself at loggerheads with the Competition Authority (CA) last week after the Authority rejected its joint application with Payless and wholesaler Woodstock to form a buying group. However, the CA’s efforts to halt Choppies’ ambitious expansion plans, amid fears that it would halt competition and enhance monopoly, were derailed when its decision was held in abeyance by the Competition Commission, setting the stage for yet another legal brawl between the two parties.

On September 16th, the CA rejected a joint application for exemption by Choppies, Payless and Woodstock to form Choppies Buying Group. The CA’s exemptions review committee said the proposed transaction would likely result in price collusion and lessening of competition, especially since Choppies is already a dominant enterprise in the market. The CA further said the buying group would create financial dependency on Choppies because the rationale for its formation appears to be aimed at rescuing Payless, which was reported to have insufficient capital and credit facilities. Payless shareholders were also reminded that they are free to sell the business if they feel they cannot operate it profitably. The applicants were also faulted for failing to provide empirical evidence to indicate how the buying group would benefit the public.

“The adverse effects of such an arrangement on competition are not proportionate to the benefits for the public.  Furthermore, the buying group is not the only remedy available for Payless. The application is rejected and Payless and Woodblock should have weaned themselves from Choppies Buying Group by November 30th,” ordered the CA.

Payless and Woodstock immediately launched an urgent appeal to the Competition Commission, saying they will be forced to retrench over 500 employees as they will not be able to operate as a profitable entity going forward. They also argued that buying groups are imperative for business to survive and remain competitive.

“All retailers are part of one buying group or another; Singling us out is discriminatory and flies in the face of government’s policy to encourage business and economic growth,” they said.
Attorney Dutch Leburu, appearing for the appellants, said the CA failed to demonstrate any anti-competitive prejudice that would result from formation of the buying group and pleaded with the Commission to set its decision aside. He also asked the CA to submit the entire bundle of documents that informed its decision to reject his clients’ application to enable both his clients and the Commission to inform themselves on where the matter started. In response, attorney Jeffrey Bookbinder, acting for the CA, argued that it was not clear whether the applicants were appealing the CA’s decision or just referring it to the Commission. Whatever the case, argued Bookbinder, the matter should be dismissed with costs because Payless and Woodstock did not file their papers procedurally and in compliance with the Competition Act.

In the end, the two parties signed a consent order in which Payless and Woodstock withdrew their application and undertook to file a referral to the Commission in accordance with the provisions of the Act. The CA also undertook to place in abeyance the order for Payless and Woodstock to have weaned themselves off Choppies Buying Group by November 30th. There have been growing concerns that Choppies was being given leeway to grow into a monopoly, especially after the CA approved the super chain store’s acquisition of SupaSave and MegaSave. Pundits have also opined that Choppies will use its market dominance to charge lower prices created by its growing economies of scale and undermine competition. Generally, buying groups are cooperative arrangements in which retailers combine their purchases in input markets as a way of strengthening their buying power over suppliers so as to obtain favorable prices. Buyer groups could pass the lower price benefit to consumers. However, in the absence of offsetting efficiency benefits, seller power by retailers could result in higher prices for consumers and perhaps reduced choice than would be the case where normal competitive conditions prevailed. Such a scenario could also lead to price fixing and exclusive dealing, effectively dismantling the free market.