Small firms frustrated by Massmart supplier rules
SAILING AGAINST THE WIND: Prasheen Maharaj, CEO of Durban-based Southern African Shipyards, says the local industry faces tough times. He is seen here last year with the tug Mvezo, the first of nine tugs which his company built as part of a R1.4-billion order from Transnet MASSMART’S local Supplier Development Fund has come under scrutiny after the retailer, which owns Game and Makro, was accused by two small businesses of misleading them.
Justice Gininda and Debbie Ridley — small business owners who participated in the retailer’s Gordon Institute of Business Science programme — have claimed that Massmart was not transparent about the details of its funding procedures and had left them in debt.
The R200-million fund, which was proposed by the company during the competition approval process of Walmart’s acquisition of Massmart, was made a condition by competition authorities when they approved the deal in 2011.
The fund is used to assist existing or potential small, micro and medium-sized businesses to improve the quality of their products and production capacity in order to supply the group.
Gininda, who wanted funding for his proposed spice and instant soup business, has claimed that he was promised R700 000 by a Massmart employee to test the viability and performance of the products in the market.
According to Gininda, Massmart referred him to Swift Silliker, a laboratory, to test his products — “but they misled me; I used all my own money to meet all the food safety requirements”.
Gininda said he had spent about R60 000 to meet Massmart’s requirements.
When Makro and the Supplier Development Fund rejected his products, Gininda took Massmart to the Competition Commission.
Commission spokesman Itumeleng Lesofe said that “following its investigation, the commission wrote to Mr Gininda informing him that the commission was satisfied that Massmart is in compliance with the conditions imposed by the Competition Appeal Court”.
Lesofe added that the commission was “satisfied that Massmart exercised its discretion correctly in the case of Mr Gininda”.
Lesofe said Massmart was ordered to establish a supplier development fund for a specific amount and period, but that the “conditions do not make provision for the commission to order Massmart to take on any particular micro, small and medium-sized entity”.
Brian Leroni, group corporate affairs executive at Massmart, rejected Gininda’s claims against the company, saying that “the R700 000 has come up now, this has never come up before” and that the employee who Gininda claimed had promised him the R700 000 “did not have the authority to do so”.
He added: “All of our funding has to go through a committee, and [the employee] knows that because [the employee] prepares some of the proposals for the fund committee.
“This fund is closely scrutinised. I don’t think there is a supplier development fund under closer scrutiny. As a result, we do not have the opportunity not to do what we have been asked.
“No application can be made on the grant without first doing the due diligence on the business.”
Leroni said the supplier had to meet VAT requirements, and that Massmart would have to consider an applicant’s factory location, as well as health and safety standards.
According to the fund’s annual report, it has paid more than R95-million to small suppliers since 2012.
Leroni said Massmart had estimated R8-million for offtake this year.
“During 2015, an estimated R36.1-million was disbursed and we procured R87-million from small businesses.”
He said Massmart had discontinued its Gibs programme “as a result of creating wrong expectations . . . we have spent an inordinate amount of time managing the risk that [new suppliers] pose to our business”.
Durban-based Ridley, who owns a toffee manufacturing company called Toffee Twisters, said she could not supply Mass- mart because her product had not been tested in the market.
“I couldn’t have it tested in the market because I did not have the funds to do the correct packaging. Massmart could not fund me until the product had been tested, so it was a vicious cycle.”
Ridley said she had been in discussions with Massmart for several months.
“We used our own money to keep going while we waited for the factory inspection. They took four months from when they said they [would] inspect the factory . . . The whole application process took close to eight months.
“The major issue was that they would have known they could not fund us long before the factory inspection if this was their requirements, and if they had told us this upfront we could have reduced the debt we had got into while waiting.”
Leroni said that in Ridley’s case there needed to be a demand for the product in the supply chain.
“Often they are competing with Nestlé; even if they can produce products of exceptional quality, organisations [such as Nestlé] can build compelling brands,” he said.
But Ridley said Massmart needed “to be clearer to all applicants about the fund and availability of it, and define it better”.
She added: “I wouldn’t want to jeopardise anything for others, though. If they are helping some guys, I want them to continue doing that. I’m sure they are [helping] in some roundabout way.”
They misled me; I used my own money to meet the safety requirements
SUPPLY AND DEMAND: Game is owned by Massmart, whose Supplier Development Fund has come under scrutiny after complaints by two small business owners