Dis-Chem notes with disappointment the Competition Tribunal’s decision in which it found that Dis-Chem had engaged in excessive pricing of surgical masks and imposed an administrative penalty of R1 200 000 (one million and two hundred thousand rand).
Dis-Chem Pharmacies CEO Ivan Saltzman said that Dis-Chem will take the matter on appeal to the Competition Appeal Court in that the decision seems to contain a number of errors of fact and law. The Competition Tribunal failed to take into consideration that Dis-Chem was reacting in a responsible manner to significant disruptions to the market and that it increased its retail prices whilst it was facing significant price increases and shortages from its suppliers.
“We reiterate that Dis-Chem did not charge an excessive price for face masks. Like everybody else, we were challenged to find supply because of the unprecedented global scale of the disaster and the unprecedented rapid rise in demand for masks. Our imperative was to obtain masks to meet customer demand, even though our local suppliers had no available stock and we had to pay higher prices to import millions of masks. There is no avoiding the commercial need to cover these higher input costs. When input costs reduced, we passed that reduction onto our customers in a series of price reductions. Importantly, we had already begun passing on these cost-savings before the Competition Commission launched its investigation. There also were no price increases for the products targeted in this case after that time because Dis-Chem had already begun to find new sources of supply for millions of masks at better prices than our competitors.”
Before the outbreak of the Covid-19 global pandemic, Dis-Chem stocked but sold very few face masks. Once demand increased massively in late January and early February from resellers of face masks, Dis-Chem was unable to replenish its stocks of masks in the volumes required locally and had to find new sources of supply. Only more expensive imported products were available and Dis-Chem was competing globally to find any available masks. Several orders which were placed never arrived in South Africa and all the prices charged by suppliers to Dis-Chem were significantly higher than Dis-Chem’s historical purchase prices. To ensure that customers could protect themselves as the virus spread, Dis-Chem purchased significant volumes of these imported masks, despite the much higher prices. It therefore had to increase its sales prices in line with these vastly increased input costs.
At the same time, Dis-Chem decreased pack sizes to make masks available to more customers, focusing on selling single masks to individual customers with limits of six units per customer. At no stage over this period of crisis were its prices higher than any competitor’s price.
Saltzman further states that it is unfortunate that Dis-Chem’s conduct was considered without regard to the market realities at the time and that it is cast in a negative light as part of the panic and uncertainty that surrounds the Covid-19 pandemic.
“The Competition Commission’s case focussed on a very short time period in March without considering the full context in which the business had to find masks and cover its costs. The priority was to get masks into our stores to meet the demand, and we did our best to make masks available to as many people as possible by reducing pack sizes,” Saltzman says. “Then, as our accounts show, when the input prices dropped, we dropped our prices accordingly. Within weeks, Dis-Chem had restored supply at reduced prices and immediately passed on those savings to customers. Unfortunately, this was ignored by the competition authorities.”
Saltzman added that Dis-Chem has built its business on its long-standing policy of being a caring corporate citizen with a deep commitment to everyday low pricing. “Dis-Chem prides itself as being an ethical business that complies with the law. We were one of the first corporates to contribute to the Solidarity Fund and we have diverted resources and spent significant amounts in support of government and the private sector’s endeavours to combat the negative effects of Covid-19 on the South African community and economy.”