OPINION: Distributors can’t dictate retailers’ price to customers

We all love a good David and Goliath story; those people who stand up to entities far more powerful than them, at great personal risk and expense, because toeing the line about an injustice is simply unconscionable to them.

That’s essentially what happened when the exclusive distributor of SMEG- branded products in South Africa – SBS Household Appliances, trading as SMEG – tried to force a Pietermaritzburg based, family-run business not to sell their upmarket appliances at “too low” a prices. In 2014 Save Hyper was selling a SMEG gas stove at R14999 while Hirsch’s was selling the identical stove for R17999.

When a customer complained, Hirsch went to SMEG, requesting the distributor’s intervention.

The issue wasn’t that Save Hyper was getting a preferential price from SMEG – it was that they chose to impose far lower profit margins than their competitors – just 2% to 3%.

So SMEG ordered Save to increase their prices so as not to disrupt the market and annoy other appliance retailers who were imposing much higher mark-ups.

When Save refused to bow to pressure, SMEG made good on its threat to stop supplying the Pietermaritzburg outlet – that was in October 2014 and the “ban” continued until about three months ago. The swish Italian appliances are now back on Save Hyper’s floor and SMEG is no longer saying a word about their low mark-ups.

The company never had a right to dictate in the first place: that’s called minimum resale price maintenance, which is a form of price-fixing, and it’s outlawed by the Competition Act.

Save Wholesalers Cash and Carry – operating eight supermarkets and their flagship outlet, Save Hyper, which has an appliance and electronics showroom above their groceries shop floor – knew it was illegal and turned to the Competition Commission for help.

The upshot was a consent agreement entered into between SMEG and the commission in which the appliance distributor admitted to practising minimum resale price maintenance and was fined R100000.

Save’s legal bill was many times that amount, but the company’s executive Ebrahim Kajee says the company has no regrets.

“SMEG is a great product, and so are the distributors, on a personal level, but what they did to us wasn’t right, and we refused to accept it.”

Retailers have the right to charge whatever they want to, Kajee says, and if that’s below average prices on a particular item or range, consumers have the right to benefit from that.

“We were just fighting for what is right,” Kajee said, when In Your Corner visited the store last week.

Asked to comment, Margaret Hirsch, Hirsch’s chief operations executive, said: “What we do is we just stick to our knitting.

“We do what we do best. We try and give our customers the best possible deals and service every day.”

Clearly the Consumer Tribunal panelists have huge admiration for the Save owners.

“Save acted correctly in standing up to SMEG – despite threats that they would lose all supply of product by SMEG if they continued discounting the gas appliance in question – and should be commended for that,” the commission said in a press release.

“Their actions have helped society at large to acquaint themselves with the provisions of the Act which afford them protection against such practices.”

Kajee said the case had led to a change in attitude among some suppliers.

“Finally they’re aware that they can’t bully and dictate to us about pricing.

“The tables have turned. ‘Sell it for whatever you like’ is all they’re saying now.”

It’s very rare for a company to turn to the Competition Commission to challenge this form of price-fixing – either because retailers aren’t aware that minimum resale price maintenance is prohibited in South Africa, or more likely because they fear losing their source of supply of the products.

The tribunal chose to go public with the reasons for its order to make other retailers aware that it is in fact illegal for a supplier to bully or threaten them into not discounting their recommended selling price.

And if that they experience that, they should complain to the commission.

Thanks to Save’s brave stand, they probably won’t have to.

I daresay the suppliers are now playing nice when it comes to dealing with the retailers about price. At least for a while…

NOTHING NEW…

Jon Abbott of Cape Town, a former Star journalist, told me price-fixing was rife in the 70s, “but it wasn’t policed with much enthusiasm”.

“My investigations at the time resulted in the first price-fixing conviction under the then five-year-old Monopolostic Conditions Act.”

In March 1975, Hampo, a Premier Milling subsidiary that had the Pentax camera agency in South Africa, was fined the princely sum of R300 for fixing the price of Pentax accessories – 150 items ranging from lenses to flash guns and binoculars.

“The magistrate came to the peculiar decision that Hampo could fix prices on the Pentax camera itself because that was patented, but it could not do so on the accessories,” Abbott said.

Hampo had sent out a circular to retailers stating that dealers must not grant discounts of more than 10% off Hampo’s suggested prices and warned that those who did “will not be supplied at all”.

CONTACT WENDY:

E-mail: consumer@knowler.co.za

Twitter: @wendyknowler

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