Dis-Chem accused of price gouging on face masks
The competition watchdog has charged Dis-Chem with excessive pricing of sought-after face masks, making the country’s second-largest pharmaceutical products retailer the first highprofile company to have to answer Covid-19-related price gouging allegations.
The Competition Commission, which investigates antitrust cases before referring them to the Competition Tribunal for adjudication, said the probe was sparked by “several complaints” from customers against some Dis-Chem stores that were allegedly inflating prices for face masks.
The commission has recommended that the tribunal impose the maximum penalty, which is 10% of annual turnover, on DisChem
for charging excessive prices on essential hygienic goods to the disadvantage of consumers.
Dis-Chem, which competes with Clicks, makes just over R21bn in annual turnover.
“People who sell these essential products ought to appreciate that these are literally life-saving items right now. They shouldn’t be exploitive and take advantage of cash-strapped consumers during the worst time in our history,” commission head Tembinkosi Bonakele said in a statement.
The charges against DisChem fall under new regulations signed into law by trade & industry minister Ebrahim Patel to prevent excessive prices and profiteering by dominant firms during the lockdown.
It comes weeks after DisChem embarked on a rental goslow, in some cases refusing to pay rent even though its shops are open during the stay-athome order.
Dis-Chem has denied the charges, saying that information and data used by the commission to conclude that the company had broken the law was misunderstood.
“Dis-Chem will be responding in detail to the allegations in the referral in due course,” the company said in a statement.
While some of the prices of mask packs rocketed by more than 200%, the commission said Dis-Chem’s profit margin went up 125%, suggesting some of the price increases must have been due to an increase in input costs.
The commission said the average price of a pack of 50 blue surgical masks, before VAT, surged 261% to R156.95, while a pack of five masks fetched 43% more between February and late March. The price helped DisChem boost its profit margin on the products to 45% from 20%.
On March 19, Patel signed emergency regulations into law that prevent excessive pricing of goods needed during the coronavirus outbreak including food and health and hygiene products such as masks. But the limitation is restricted under the Competition Act to dominant companies.
Because the regulations apply to dominant suppliers, lawyers and competition economists say the Competition Commission would have to prove that Dis-Chem is a dominant player in the sale of masks to make their case.
Advocate Margaretha Engelbrecht, who is not involved in this matter but works in competition law, said: “If a price goes up but the profit margin goes up over and above that, that could be a problem.”
But she said to win its case,
“the commission must show dominance. And it may be argued that it is reasonable to increase a price in order to curb demand.”
Sha’ista Goga, a director at Acacia Economics, said DisChem is not a monopoly in the sale of masks.
“I think the key issue is whether Dis-Chem can be considered dominant in terms of the Competition Act, and that depends on what alternatives customers have.
“Dis-Chem isn’ t in a monopoly position in the sale of masks, and higher prices would generally be a form of rationing in scarcity.”
Goga said the purpose of higher prices is to “send signals that it is profitable, which gets other manufacturers to enter the market or sell the products”.
PEOPLE WHO SELL THESE ESSENTIAL PRODUCTS OUGHT TO APPRECIATE THAT THESE ARE LITERALLY LIFE-SAVING ITEMS RIGHT NOW
I THINK THE KEY ISSUE IS WHETHER DIS-CHEM CAN BE CONSIDERED DOMINANT IN TERMS OF THE COMPETITION ACT