The Competition Commission referred the case to the tribunal in 2007 after it investigated a complaint lodged by Nico Pitsiladi, director of the Big Daddy’s group – a wholesale liquor merchant based in the Eastern Cape.
Pitsiladi alleged, and the commission agreed, that SAB’s distribution system favoured its own appointed distributors (ADs) to the detriment of independent distributors and ultimately to the detriment of consumers.
The arrangement was viewed as anti-competitive because SAB tied the distributors into strict agreements that governed pricing (maximum prices were set), geographical markets, marketing and exclusivity.
In 2000 SAB removed the clause governing exclusivity, allowing its ADs to supply other products. (None of them ever did). In return the ADs were paid a fee in the form of a discount on the product.
The delays in proceedings were caused by several skirmishes between the competition authorities and SAB on procedural issues and a longer battle when SAB attempted, unsuccessfully, to get the case squashed. Ultimately the tribunal hearing saw ten witnesses take the stand over a three-year period.
South Africa’s National Liquor Act requires manufacturers, distributors and retailers of liquor to obtain a license to trade – the former from the national government, and retail licenses from provincial government. There is nothing to prevent a company from manufacturing and distribution if they so choose. And SAB does so choose. It distributes 90% of its product itself – to retailers and taverns. This fact was to prove decisive in the case.
The remaining 10% is distributed by its 13 ADs. These distributors, the tribunal found, were created to service customers in rural areas.
The question the tribunal had to answer was whether the distribution of SAB’s products on a more competitive basis than exists would foster intra-brand rivalry, (competition between firms that distribute SAB branded beer) leading to lower prices and improved service, and thus be of benefit to consumers.
The tribunal found that there was no evidence to suggest that the arrangement between SAB and its ADs exists to increase prices – the hallmark of a collusive arrangement.
On the contrary, the arrangement seems designed to ensure lower prices to the outlying areas.
It also found that SAB’s transactions with ADs and its transactions with other customers who performed a distribution function could not be compared. That’s because in practice there is little to differentiate the ADs from SAB’s wholly owned depots. ADs are not autonomous actors who would have been in competition with each other were it not for the ‘rules’ dictated by SAB.
In that case then, it could not be said that competition had been restricted and the tribunal dismissed the commission’s allegations.
This is fortunate, because while the case was a thorn in SAB’s side, if the tribunal had found that the distribution practices harmed small operators like Big Daddy’s, then a ten-year delay would have been a travesty of justice.