Tribunal hears final arguments in SAB's distribution case

Nico Pitsiladi, from the Big Daddy Group, complained that he was being shut out of the beer distribution market because it was impossible to make any margins. The reason for Pitsiladi's problem related to the distribution model used by SAB to distribute its product.

The case that eventually came to the tribunal in 2007 was substantially flushed out from the initial complaint in 2004, with accusations that SAB was contravening at least three sections of the Competition Act and by doing so was causing harm to consumers.

The Competition Commission says SAB substantially lessened and prevented intrabrand competition in circumstances where SAB was an overwhelmingly dominant firm in the manufacturing of beer. It was engaged in price discrimination and resale price maintenance.

The commission says SAB's dual distribution model, where it has depots and appointed distributors who enjoy exclusive territories, prevents customers from getting their products from the optimal source.

"SAB is a quasi-monopoly of beer in SA, which engages in profit-maximising behaviour. Given SAB's dominant position in the beer market, it is not surprising there is clear evidence that SAB is a price setter and, more importantly, that it prices according to what the market can bear," commission advocate Anthony Gotz says.

Exclusivity

Gotz has been arguing that the exclusivity given to the appointed distributors over independent distributors such as Pitsiladi, results in substantial foreclosure of the independents in these territories.

He says the commission is not buying SAB's argument that the appointed distributors are responsible only for the distribution of about 10% of SAB's volumes and that the foreclosure is not even 6%. The commission claims the foreclosure is closer to 60%.

Gotz argues that the idea that competition law is there to protect the competitive process and not the competitors is entirely sound, but very often it is conveniently misconstrued and misapplied on behalf of big companies such as SAB.

"In SA ensuring a fair competitive terrain for small and medium-sized enterprises is one of the specific objectives of the Competition Act," Gotz said.

SAB head of media and communications Robyn Chalmers says the Big Daddy's Group is a substantial business, which purchased R250,000 of beer from SAB alone in the past financial year. She says SAB remains confident that none of its practices are in breach of the law.

"SAB's distribution model is widely accepted as world class within the fast moving consumer goods industry in SA," she says.

Rural areas

As rural areas began to grow in the late 1980s, SAB investigated the establishing of new distribution points. It established 14 small and medium-sized businesses operating as warehousing and delivery agents on SAB's behalf in the rural areas.

David Unterhalter SC, appearing for SAB, says the commission's case is that the exclusive territories allocated to the appointed distributors under its wholesaler and franchise agreements are unlawful.

SAB argues that the appointed distributors are completely integrated with the brewing company. They are given exclusive territories that they are obliged to service, they are not allowed to sell above a specific price cap and they have to adhere to specific and stringent universal standards set by SAB.

It argues that without the exclusive territories, service levels will deteriorate and prices will increase. "A startling feature of the commission's case - among many other startling features - is the lack of clarity in relation to the relief it seeks," Unterhalter says.

"If SAB has to dismantle its distribution model it will simply continue with its depots and distribute to itself in future," Unterhalter adds.

If it were forced to pay the handling and distribution fees it was currently paying to its appointed distributors to a wider class of distributors, SAB's calculations show it may cost the brewer close to R1bn more per year - not something a profit maximiser is likely to do.

The tribunal will make an order once it has deliberated on the evidence before it.

Source: Business Day via I-Net Bridge