COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: CO009Apr20
In the matter between:
Competition Commission Applicant
And
Evergreens Fresh Market (Pty) Ltd Respondent
: Y Carrim (Presiding Member)
: E Daniels (Tribunal Panel Member)
Panel
: F Tregenna (Tribunal Panel Member)
Heard on : 30 April 2020
Decided on : 30 April 2020
Consent Agreement
The Tribunal hereby confirms the consent agreement as agreed to and proposed by the
Competition Commission and Evergreens Fresh Market (Pty) Ltd annexed hereto.
30 April 2020
Presiding Member
Ms Yasmin Carrim
Date
Concurring: Mr Enver Daniels and Prof. Fiona Tregenna
Reason: I approve this document
Signed by: Yasmin Tayob Carrim
Signed at: 2020-04-30 17:03:00
IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CTCASE NO:
CC CASE NO: 2020APRC0224
In the matter between:
COMPETITION COMMISSION OF SOUTH AFRICA Applicant
and
EVERGREENS FRESH MARKET (PTY) LTD Respondent
CONSENT AGREEMENT BETWEEN THE COMPETITION COMMISSION OF
SOUTH AFRICA AND EVERGREENS FRESH MARKET (PTY) LTD IN RESPECT
OF AN ALLEGED CONTRAVENTION OF SECTION 8(1)(a) OF THE
COMPETITION ACT 89 OF 1998, AS AMENDED, READ WITH REGULATION 4
OF THE CONSUMER AND CUSTOMER PROTECTION AND NATIONAL
DISASTER MANAGEMENT REGULATIONS AND DIRECTIONS PUBLISHED IN
GOVERNMENT GAZETTE NO 43116 ON 19 MARCH 2020
The Competition Commission and Evergreens Fresh Market (Pty) Ltd hereby agree
that application be made to the Competition Tribunal for the confirmation of this
Consent Agreement as an order of the Tribunal in terms of section 490 of the
Competition Act 89 of 1998, as amended ("the Act"), in respect of a contravention of
section 8(1)(a) of the Act read together with Regulation 4 of the Consumer And
Customer Protection And National Disaster Management Regulations And Directions
published in Government Gazette No 43116 on 19 March 2020, as well as the
Regulations on Competition Tribunal Rules for COVID-19 Excessive Pricing
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Complaint Referrals published in Government Gazette No 43205 on 3 April 2020 and
the Tribunal Directive for Covid-19 Excessive Pricing Complaint Referrals on the terms
set out below:
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1 DEFINITIONS
The following words shall, unless otherwise stated or inconsistent with the context in
which they appear, bear the following meanings in this Consent Agreement:
1.1 "Act" means the Competition Act 89 of 1998, as amended;
1.2 "Evergreens Fresh Market" means Evergreens Fresh Market (Pty) Ltd,
a private company incorporated in accordance with the company laws of
the Republic of South Africa, with its principal place of business at 1846
Rooiberg Place, Witfantein X52, Kempton Park, Gauteng, South Africa;
1.3 "Commission" means the Competition Commission of South Africa, a
statutory body, established in terms of section 19 of the Act, with its
principal place of business at Building C, Mulayo Building, the DTI
Campus, 77 Meintjies Street, Sunnyside, Pretoria, Gauteng;
1.4 "Commissioner" means the Commissioner of the Competition
Commission, appointed in terms of section 22 of the Act;
1.5 "Consent Agreement" means this agreement duly signed and
concluded between the Commission and Evergreens Fresh Market;
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1.6 "Consumer Protection Regulations" means the Consumer and
Customer Protection and National Disaster Management Regulations
and Directions published in Government Gazette No 43116 on
19 March 2020;
1.7 "Tribunal" means the Competition Tribunal of South Africa, a statutory
body, established in terms of section 26 of the Act, with its principal place
of business at Building C, Mulayo Building, the DTI Campus, 77 Meintjies
Street, Sunnyside, Pretoria, Gauteng;
1.8 "Tribunal Directive for Covid-19 Excessive Pricing Complaint
Referrals" means the directive issued by the Tribunal on 6 April 2020;
and
1.9 "Tribunal Rules for COVID-19 Excessive Pricing Complaint
Referrals" means the Regulations on Competition Tribunal Rules for
COVID-19 Excessive Pricing Complaint Referrals published in
Government Gazette No 43205 on 3 April 2020.
2 BACKGROUND AND CONTEXT
2.1 On 15 March 2020, the Minister of Co-operative Governance and
Traditional Affairs ("COGTA") declared a State of National Disaster in
the Republic of South Africa which declaration was published in
Government Notice No. 313 of Government Gazette No. 430096.
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2.2 On 18 March 2020, the Minister of COGTA issued regulations
("Disaster Management Regulations") published in Government
Notice No. 318 of Government Gazette no. 43107, regarding the steps
necessary to prevent an escalation of the disaster or to alleviate,
contain and minimize the effects of the disaster. These regulations
were made in terms of section 27(2) of the Disaster Management Act,
1957 (Act No. 57 of 2002) ("Disaster Management Act"). Paragraph
10(6) of the Disaster Management Regulations authorised the Minister
of Trade, Industry and Competition to, inter alia, issue directions to
protect consumers from excessive, unfair, unreasonable or unjust
pricing of goods and services during the national state of disaster.
2.3 On 19 March 2020, the Minister of Trade, Industry and Competition
published the Consumer Protection Regulations. The purpose of the
Consumer Protection Regulations is to promote concerted conduct to
prevent an escalation of the national disaster and to alleviate, contain
and minimise the effects of the national disaster and to protect
consumers and customers from unconscionable, unfair,
unreasonable, unjust or improper commercial practices during the
national disaster.
2.4 In relation to excessive pricing, the Consumer Protection Regulations
states the following:
"4. Excessive Pricing.
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4.1. In terms of section 8(1) of the Competition Act a dominant
firm may not charge an excessive price to the detriment of
consumers or customers.
4.2. In terms of section 8(3)(f) of the Competition Act during any
period of the national disaster, a material price increase of a
good or service contemplated in Annexure A which -
4. 1. 1. does not correspond to or is not equivalent to the
increase in the cost of providing that good or service;
or
4.1.2. increases in net margin or mark-up on that good or
service above the average margin or mark-up for that good
or service in the three-month period prior to 1 March 2020.
is a relevant and critical factor for determining whether the price
is excessive or unfair and indicates prima facie that the price is
excessive or unfair."
2.5 Annexure A lists the goods and services that fall to be regulated by the
Consumer Protection Regulations.
2.6 On 23 March 2020, the President of the Republic of South Africa
announced the enforcement of a nationwide lockdown for 21 days with
effect from midnight on Thursday, 26 March 2020.
2.7 On 3 April 2020, the Tribunal Rules for COVID-19 Excessive Pricing
Complaint Referrals were published and thereafter, on 6 April 2020,
the Tribunal Directive for Covid-19 Excessive Pricing Complaint
Referrals was issued.
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3 THE COMMISSION'S INVESTIGATIONS AND FINDINGS
3.1 On 20 March 2020, the Commission received information in terms of
section 498(2)(a) of the Act, against Evergreens Fresh Market in
relation to the inflated prices of Alphacel hand sanitisers that it was
charging its customers in March 2020.
3.2 Hand sanitisers fall under the category of 'medical and hygiene
supplies' in Annexure A as well as item 1.2 of Annexure 8 of the
Consumer Protection Regulations. Regulation 4 of the Consumer
Protection Regulations is therefore applicable to the conduct
described in this Consent Agreement.
3.3 In terms of Section 7(3) of the Act, market power can also be inferred
from the economic behaviour of the firm. In this case, the mere ability
to raise prices is indicative of market power as it demonstrates a lack
of constraints such that there is an ability to control prices and/or
behave independently of competitors and customers.
3.4 States of disaster often provide the conditions for temporary market
power to be held by market participants that may not otherwise have
market power outside of the disaster period. The removal of
constraints may occur for several reasons, many of which are
conceptually related to a narrowing of the geographic market for
products as a result of disruptions to the normal functioning of markets.
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Due to the national lockdown, the scope of the geographic market is
narrow as citizens' movements are heavily restricted.
3.5 In a state of national disaster, an established test within the
assessment of excessive pricing under the Act is determining whether
price increases have a corresponding cost justification. This is
because an excessive profit margin is detectable if the ordinary prices
are increased materially absent cost increases.
3.6 Following receipt of the information, the Commission conducted an
investigation into Evergreens Fresh Market's alleged conduct and
found the following:
3.6.1 Evergreens Fresh Market is a hybrid store that trades in the
Kempton Park area offering fresh produce to both retail and
wholesale customers. The stores generally sell perishable and
non-perishable food items;
3.6.2 Evergreens Fresh Market operates in the market for the supply
of fresh perishable and non-perishable produce to retail and
wholesale consumers in the Kempton Park central business
district. Evergreens Fresh Market is therefore a new entrant in
the market for the supply of medical and hygiene supplies,
specifically hand sanitisers.
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3.6.3 Evergreens Fresh Market has temporal market power in the
abovementioned market, given the current pandemic and state
of national disaster;
3.6.4 During March 2020, in light of the COVID-19 pandemic and
upon the request from its customers, Evergreens Fresh Market
ordered hand sanitisers from a supplier, Work Cloud (Pty) Ltd,
with the intention to resell to its customers;
3.6.5 Evergreens Fresh Market purchased the product from the
supplier for R110 excluding VAT, R126.50 with VAT and sold it
to its customers for R189.95;
3.6.6 Evergreens Fresh Market sold a total number of 45 units of
500ml bottles of Alphacel hand sanitisers to its customers for
R189.95 each and made a gross profit of R2 855,25 (R189.95
minus R126.5 multiplied by 45 units)
3.6.7 Evergreens Fresh Market's mark-up on hand sanitisers, is
50.1 % and gross profit margin of 33.4%. Evergreens maintains
that 33.4% margin is consistent with its other products which
do not fall under the disaster Regulations;
3.6.8 Evergreens Fresh Market did not sell hand sanitisers before
March 2020. However, due to the sudden demand by its
customers, Evergreens Fresh Market had to source hand
sanitisers from a supplier named Work Cloud; and
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3.6.9 Evergreens Fresh Market's average margin in respect of hand
sanitisers for March 2020 was approximately 33.4%;
3.7 The Commission found that the gross profit margin of 33.4% in respect
of hand sanitisers for March 2020 is not reasonable. The average
margins of sanitisers from a number of retailers are between 20% to
25% which the Commission deem to be reasonable.
3.8 Evergreens Fresh Market enters into this Consent Agreement to avoid
protracted litigation and nothing in this Consent Agreement should be
construed as an admission of liability for the alleged contravention of
the Act by Evergreens Fresh Market.
4 AGREEMENT REGARDING FUTURE CONDUCT
Evergreens Fresh Market agrees to:
4.1 immediately desist from the above-mentioned pricing conduct
described above;
4.2 reduce its margin on hand sanitisers to 25% or lower with immediate
effect;
4.3 donate hand sanitisers amounting to the value of R1 800 which is
calculated as follows:
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Original price =R189.95
Price with 25% margin = R149.95
Overcharge per unit =R40
Number of units sold at 189.95 = 45 units
Total overcharge (R40X 45 units) = R1 800
4.4 within 7 calendar days of confirmation of this Consent Agreement as
an order of the Tribunal, donate hand sanitisers to Tembisa Provincial
Hospital;
4.5 submit proof of the donation by the general manager of Evergreens
Fresh Market to the Commission by email confirming that the above-
mentioned donation has been made to Tembisa Provincial Hospital
within 7 calendar days of the donation being made; and
4.6 develop, implement and monitor a competition law compliance
programme incorporating corporate governance designed to ensure
that its employees, management, directors and agents are familiar
with the Act. In particular, such compliance programme will include a
mechanism for the monitoring and detection of any contravention of
the Act;
4.7 to submit a copy of a compliance programme to the Commission within
60 working days of the date of confirmation of the Consent Agreement
as an order by the Tribunal; and
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4.8 to circulate a short statement summarising the content of this Consent
Agreement to all management staff employed at Evergreens Fresh
Market within 60 working days from the date of confirmation of this
Consent Agreement by the Tribunal.
5 FULL AND FINAL SETTLEMENT
This Consent Agreement is entered into in full and final settlement and concludes
all proceedings between the Commission and Evergreens Fresh Market relating
to any alleged contravention of section 8(1 )(a) the Act read together with
Regulation 4 of the Consumer And Customer Protection And National Disaster
Management Regulations And Directions published in Government Gazette No
43116 on 19 March 2020 that is the subject of the Commission's investigation
under Commission Case No. 2020APRC0224.
Signed at keW1f'rl" on this the 1.L; '''' day of April 2020.
General Manager, Evergreens Fresh Market
Signed at~ on this the __ day of April 2020.
Tembinkosi Bonakele
The Commissioner, Competition Commission of South Africa
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