Saps hand sanitiser supplier added markup of 120% – Tribunal

A Saps hand sanitiser supplier, BlueCollar Occupational Health, added a markup of 120% to ten thousand 25L containers of hand sanitiser and earned a gross margin of more than 50%. After the Competition Tribunal found BlueCollar guilty of excessive pricing during the Covid-19 pandemic, the company and its partner, Ateltico Investments, must now pay an administrative penalty of R3 550 000 jointly and severally.

The Competition Commission received a complaint from Saps against several firms, including BlueCollar, that responded to individual Saps requests for a quotation. After investigating the complaint, the commission referred the matter to the Tribunal, alleging that BlueCollar supplied the hand sanitiser at a price of R3 550 (including VAT) per container.

The Tribunal found that the commission established a prima facie case of excessive pricing by BlueCollar, which means that the onus of showing that the price difference between the actual price charged and a competitive price was not unreasonable, was on BlueCollar. However, BlueCollar failed to show that its price charged to the Saps for hand sanitiser was reasonable.

Even on a best-case scenario for BlueCollar, in terms of what cost items should be included under its “costs of sales”, its actual gross margin as determined by the company’s financial expert, for the supply of the hand sanitiser to the Saps is more than 40% and its mark-up is more than 70%, the Tribunal said.

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Markup substantially higher than 10 to 15% – Tribunal

This is substantially higher than the competitive gross margin for resellers of between 10% to 15% previously determined by the Tribunal in a similar case against Tsutsumani. In addition, a comparison of BlueCollar’s price of R3 550 (including VAT) to National Treasury’s list price of 15 April 2020 of R1 635.45 (including VAT), reveals that BlueCollar’s price is more than double the National Treasury list price.

The commission says hand sanitiser became crucial in mitigating the spread of Covid-19 and Saps urgently needed to buy hand sanitiser at very short notice for its members who were at the forefront of enforcing the lockdown restrictions nationally and to protect the public from the spread of the corona virus.

The Tribunal describes BlueCollar’s conduct as particularly egregious considering its social consequences as the company exploited the pandemic by charging excessively for hand sanitiser that was crucial for combatting the pandemic.

According to the commission, BlueCollar supplied hand sanitiser to the Saps from 5 to 29 April 2020 as a so-called trader or reseller. This means that it bought the sanitiser stock from third party suppliers and supplied it to the Saps, without adding any value to the product itself.

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Usual business activities

BlueCollar’s usual business activities relate to the provision of occupational health services, including to the Saps and it is registered on National Treasury’s Central Supplier Database. The Tribunal found that BlueCollar and Ateltico were in a partnership to supply the hand sanitiser to the Saps.

“BlueCollar acted on behalf of, or within the ambit of, its partnership with Ateltico when it charged the Saps an excessive price and Ateltico benefitted from the prohibited conduct through its partnership and profit sharing with BlueCollar. Ateltico usually provides investment solutions,” the Tribunal said in its finding.”

The Tribunal found that the market circumstances during the Covid-19 pandemic conferred market power upon BlueCollar for the urgent supply of hand sanitiser to the Saps and that the true relationship between BlueCollar and Ateltico had features that go above and beyond a mere “funder” relationship and the typical features of a loan. Ateltico also did not merely play a passive role in the transaction but participated and benefitted by a 40% share in the profit from the prohibited conduct.

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Profit of more than R9 million

The Tribunal ultimately concluded that the prices BlueCollar charged the Saps for hand sanitiser were significantly higher than a competitive price and that the price difference is unreasonable, while the excess profit BlueCollar and Ateltico earned amounts to more than R9 million, even on a best-case scenario for BlueCollar in terms of cost items included under its “costs of sales”.

In addition, the Tribunal found that BlueCollar, acting on behalf of and/or within the ambit of its partnership with Ateltico, engaged in excessive pricing to the detriment of customers or consumers.

The Tribunal reiterated the importance of context and the fact that the Saps played a crucial role during the pandemic.

“There can be no doubt that conduct such as excessive pricing impacts negatively on government’s resources, puts pressure on the fiscus and negatively impacts taxpayers. Moreover, the Covid-19 pandemic created a crisis situation placing consumers in a vulnerable situation, in this case where the product in question was critical to prevent the spread of the corona virus.”

Although BlueCollar is a first-time offender, the Tribunal found that the aggravating factors, specifically the exploitative conduct of BlueCollar, far outweighed any mitigation.

The Tribunal also noted that the Competition Act places a cap on the maximum penalty that can be imposed and that in this case the penalty amount is significantly lower than the excess profit, pointing out that Section 65(6) of the Act, someone who suffered loss as a result of a prohibited practice can take action in a civil court for damages arising out of a prohibited practice.