The last time the Competition Act was changed was this month, when an amendment to Rule 39 of the Competition Act came into force, allowing the Competition Commission to compel firms to comply with merger conditions through Tribunal applications.
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The Democratic Alliance (DA), which is a part of the Government of National Unity, is considering amending the Competition Act to address anti-competitive exclusivity agreements between retailers and their suppliers.
The last time the Competition Act was changed was this month, when an amendment to Rule 39 of the Competition Act came into force, allowing the Competition Commission to compel firms to comply with merger conditions through Tribunal applications.
Large retailers or anchor tenants have previously come under fire for exclusivity agreements between them and shopping mall owners.
For instance, a Competition Commission inquiry in 2019 found evidence that these agreements excluded small and large retailers from competing in shopping centres, and the justifications for the leases were often questionable. These agreements were considered restrictive vertical practices in competition law, although the Competition Act has not yet been changed on this matter.
The DA’s proposal followed reports of a dispute between Woolworths and Grey’s Marine, a supplier of fish, that forced the small business to close down after supplying Woolworths for over 30 years. Some 230 jobs were lost, and the company went out of business.
The issue also came to the fore two weeks ago after the liquidation of Beyers Chocolates. Beyers, a supplier to Woolworths for 34 years, was forced to close after Woolworths withdrew its business, claiming Beyers had infringed its exclusivity agreement by supplying products to other retailers.
Beyers had contended that exclusivity agreements should be confined to product categories and should not apply to companies with production facilities that also supply non-competitive products to other customers.
Woolworths Holdings in turn rejected claims it was responsible for the liquidation of Beyers, saying the decision to end the long-running partnership was made to protect its brand and proprietary products.
A statement from the DA said Friday that there is no good economic reason why any retailer should tell a supplier they can’t sell goods elsewhere, and there is no reason any supplier should force a retailer to carry only their brand of a certain class of product.
Under South African competition law, if a firm controls 45% or more of a defined market, they are automatically deemed to possess significant market power. The 45% threshold represents an irrefutable presumption of dominance.
However, where a dominant firm imposes unfair or discriminatory contract terms on smaller contracting parties, this may constitute an abuse of dominance under Section 8. This is particularly relevant in supply chain relationships where smaller businesses contract with large corporates, the DA said.
In the Beyers instance, the Competition Commission appeared to take the view that because Woolworths only controlled 9% of the groceries market, it could not be regarded as dominant.
“In the DA’s view, the ‘dominance threshold’ of 45% shouldn’t be required to show that an exclusivity agreement is abusive,” the party said.
“(If) big retailers make small businesses contract for exclusivity and later seek to renegotiate terms once operational dependence has been established, they are taking advantage of their position, and competition law must step in,” the DA said.
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