Dis­cov­ery ac­cused of quash­ing Vir­gin, Planet Fit­ness ri­vals

CityPress - - Busi­ness - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

Small, in­de­pen­dent gym com­pa­nies want the Com­pe­ti­tion Tri­bunal to stop the al­legedly “toxic” al­liance be­tween med­i­cal aid Dis­cov­ery and gym fran­chise Vir­gin Ac­tive.

Fit SA, a not-for-profit group rep­re­sent­ing small gyms out­side the Vir­gin and Planet Fit­ness brands, has lodged a com­plaint against Dis­cov­ery, the two gym groups as well as other med­i­cal aids.

The crux of the com­plaint is that Dis­cov­ery, through its Vi­tal­ity pro­gramme, sub­sidises mem­ber­ship to Vir­gin and Planet Fit­ness and, in so do­ing, makes all other gyms un­com­pet­i­tive.

This amounts to a “re­stric­tive ver­ti­cal agree­ment” con­trary to com­pe­ti­tion law, Fit SA says in the com­plaint.

Fit SA then makes a sec­ond com­plaint against Dis­cov­ery for al­leged abuse of dom­i­nance, claim­ing that the com­pany ac­tively blocks mem­bers of other med­i­cal aids from us­ing their var­i­ous re­ward or point schemes in a gym where Vi­tal­ity points can be earned.

The tri­bunal pub­lished a no­tice about the com­plaint in the Govern­ment Gazette on Fri­day.

The same com­plaint had ear­lier been re­jected by the Com­pe­ti­tion Com­mis­sion be­cause it did not ac­cept that the Dis­cov­ery agree­ments are ex­clu­sion­ary.

In­stead, it replied to Fit SA that its mem­bers can ev­i­dently qual­ify for the same treat­ment from Dis­cov­ery if they meet the re­quire­ment that they have a re­gional or na­tional foot­print – mean­ing sev­eral branches.

Vir­gin is by far the largest gym group in South Africa, with about 109 ac­tive gyms, says Fit SA. Planet Fit­ness comes in a dis­tant sec­ond, with 23. Dis­cov­ery is, in turn, the largest open med­i­cal aid scheme, with 2.4 mil­lion mem­bers.

The scheme is dom­i­nant and “cer­tainly has mar­ket power”, says Fit SA’s com­pany sec­re­tary, Bar­bara Haswell, in an af­fi­davit to the tri­bunal.

In terms of mem­ber­ship, Vir­gin con­trols 61% of the gym mar­ket, with 600 000 mem­bers, she claims.

Planet Fit­ness con­trols about 10%, while all of Fit SA’s mem­bers to­gether ac­count for 39%, she says in her af­fi­davit.

Fit SA claims to rep­re­sent 44 small gym groups, most of which have one fa­cil­ity only.

The largest Fit SA mem­ber is Zone Fit­ness, which has 19 gyms.

Dis­cov­ery’s deals with Vir­gin and Planet Fit­ness are “de­signed to ul­ti­mately elim­i­nate com­pe­ti­tion”, claims Haswell.

Cru­cially, Fit SA al­leges that Dis­cov­ery is block­ing its mem­bers from also join­ing in the Vi­tal­ity sys­tem, hence mak­ing the deals “ex­clu­sion­ary” agree­ments that fall foul of com­pe­ti­tion law. This was de­nied by Dis­cov­ery in the ear­lier at­tempt to have the com­mis­sion re­fer the case, but Haswell in­sists that the seem­ingly neu­tral re­quire­ments put to gyms are, in truth, only hy­po­thet­i­cal.

In prac­tice, the Vi­tal­ity scheme is sub­si­dis­ing gym fees at Vir­gin and Planet Fit­ness by 60% or more, as part of its larger sys­tem of in­cen­tives to have mem­bers live healthily – and claim less med­i­cal ex­penses.

In ef­fect, all the other gyms have to com­pete against 40% of the nor­mal fees at the two ma­jor groups, says Haswell. “The mas­sive mar­ket power of Dis­cov­ery ... cre­ates huge po­ten­tial for abuse and in­deed has been used abu­sively.” Haswell also claims that Dis­cov­ery’s rel­a­tively re­cent new Vi­tal­ity Fit ben­e­fit, which would seem­ingly al­low in­de­pen­dent gyms to take part, is ac­tu­ally de­signed to lure yet more gym­go­ers in lower-in­come groups to­wards Vir­gin and Planet Fit­ness.

The com­plaint also cites Mo­men­tum Health and its Mul­ti­ply pro­gramme, as well as Lib­erty Med­i­cal Scheme and its Own Your Life Re­wards pro­gramme, Spec­tramed, Agility and San­lam’s Real­ity Lifestyle pro­gramme as re­spon­dents.

Fit SA wants the tri­bunal to or­der them to make any gym sub­si­dies they of­fer mem­bers open to all gym groups.

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