New twist in retail turf wars
Mbongeni Mguni | Friday September 19, 2014 15:53
Payless says should the Competition Authority enforce 30 November 2014 the deadline for it to have extricated itself from the Choppies Buying Group, it would be forced to shut down and throw 500 jobs onto the street.
Payless, the mid-tier FMCG group which in the 1970s was the sole grocery store in the dusty Main Mall, says its continued existence has for sometime been largely dependent on its membership of the Choppies Buying Group.
Under the Buying Group, one of many in Botswana and the region, retail groups pool their buying power and using the enhanced economy of scale, are able to negotiate better discounts as well as terms and conditions from suppliers. A supermarket operating within a Buying Group could negotiate a 20 percent higher discount and 24 month longer repayment period on supply, while one outside of the group faces the ravages of stark supply and demand.
Its removal from the Buying Group, Payless is arguing, would leave it exposed to other competitors enjoying the protection of their respective buying groups and thus precipitate its collapse.
In fact, Payless feels unfairly targeted by the Authority as its legal counsel says other supermarkets outside of Choppies exist blissfully in their own buying groups. “The singling out of the appellant for rejection to be part of a buying group is discriminatory and unreasonable and flies in the face of government’s policy to encourage business operations and economic growth in Botswana,” Payless’ lawyers say.
“The Authority’s decision is actuated by bad faith and malice and is intended to collapse the appellant’s business, the result of which will lead to over 500 employees being laid off.”
Not so, says the Authority. When it gave Payless the November 30 deadline in a judgment announced on Tuesday, the Authority said the structure of the Choppies Buying Group would likely lead to collusive activities in the market, particularly as its major player is already a dominant market force.
In addition, because the rationale for Payless to continue in the group appears to be financial soundness, the Authority found that the arrangement created a financial dependency on Choppies “which concerns the Competition Authority”.
“No empirical evidence was provided to indicate that the formation of this buying group had any offsetting benefits for the public and the parties failed to demonstrate that the group’s formation would directly lead to lower prices, higher quality or greater choice for consumers”.
On the issue of Payless shutting down as a result of being weaned off the Choppies Buying Group, the Authority said Payless shareholders could float the business for sale as a going concern.
While lengthy legal arguments and counter-arguments precede this week’s events at the Competition Authority, it is understood Payless’ membership of the Choppies Buying Group first came to light when some of the larger group’s branded merchandise was spotted in the smaller group’s stores.
“Subsequent reports alerted the Authority which made enquiries and found out about the Buying Group’s existence,” an insider close to the matter reveals.
“The Authority informed Payless that under the Competition Act, such a group had to apply for exemption. Such application was made and rejected.”
More cynical observers claim lines of credit are flowing from the larger member of the group to the lesser, which have kept the former alive and to some extent, beholden.
A straight-forward acquisition of Payless, however, is impossible, as Choppies has already passed the Competition Act’s threshold for market dominance, a line breached during its previous acquisition of the SupaSave group.
“As much as Choppies may have wanted to take over the struggling Payless as it did the struggling SupaSave, the Competition Authority would have almost definitely thrown out the proposal on the grounds that it would significantly lessen competition in the market,” the insider says.
“The Buying Group to some extent helps the two groups partner and collaborate to an extent, without crossing thresholds that would alert the Authority.
A day after the Authority’s rejection of Payless’ request, the supermarket’s groups immediately filed an urgent appeal to the Competition Commission restating their arguments and contending that the Authority had misdirected itself.
Yesterday, between 0930 and 1220hrs, attorneys for the Authority and Payless, locked horns in front of the Commissioners before appearing hopelessly deadlocked on matters of law and procedure.
While the Authority argued that Payless was flouting the law by bringing an appeal to the Commission instead of the High Court, the supermarket group’s lawyers argued that Authority should provide a full record of the matter before the Commission, before arguing its points of law.
A 20-minute adjournment granted by exasperated commissioners allowed the two sides to broker a deal under which the supermarket group withdrew its appeal and the Authority granted it a referral to the Commission. While the referral is pending, the Authority has pledged not to effect the November 30 deadline, granting Payless limited but precious breathing room.