Be brave: It’s time to stand up to entities more powerful than you

13 November 2017 - 05:00
Image: iStock

 We all love a good David and Goliath story; those people who stand up to entities far more powerful than they are, 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" prices.

In 2014 Save Hyper was selling a Smeg gas stove at R14999; Hirsch 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 was getting a preferential price from Smeg - it was that it chose to impose far lower profit margins than its competitors - just 2% to 3%.

So Smeg ordered Save to increase its 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" lasted until early 2016.

But the swish Italian appliances are back on Save's floor and Smeg is no longer saying a word about its low mark-ups.

Smeg did not have a right to dictate in the first place: that's called minimum resale price maintenance, 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 its 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 distributer admitted practising minimum resale price maintenance and was fined R100,000.

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 but what it did to us wasn't right and we refused to accept it."

Retailers have the right to charge whatever they want, 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: "We do what we do best. We try to give our customers the best possible deals and service every day."

"Save acted correctly in standing up to Smegand should be commended for that," the commission said.

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."

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, or more likely because they fear losing their supply source.

The tribunal chose to go public with the reasons for its order to make other retailers aware that it's 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.

Nothing New

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

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 because that was patented, but not on the accessories.”

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

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