Monday, November 13, 2017

Even with its impressive brain power BIG BUSINESS never learns not to do the dirty on its own customers

Dear Readers,
Save's Hyper director Ebrahim Kajee
Picture The Times
          The South African arm of Smeg, the Italian manufacturer of multicoloured kitchen and other appliances has just been revealed as a price fixer, a practice outlawed almost 50 years ago.
          Caught out it agreed to pay the Competition Commission a fine of R100 000.  This was certainly not a proud addition to its colourful history.
          As an investigative reporter on the Business Times (part of the Johannesburg based Sunday Times) my expose` resulted in the country’s first price fixing conviction way back in 1975.  Yet, as Smeg has proved, companies are still at it to the detriment of consumers and the firms like Smeg that have their names tarnished by this type of greed.

          In 1975 Hampo Trading a subsidiary of Premier Milling was fined R300 by a Johannesburg Regional Magistrate for price fixing on the accessories it sells with its Japanese made Pentax cameras. The fines have certainly inflated since then. My impression was that the magistrate was overawed by the occasion by restricting the conviction to the accessories because he said the law did not apply to the cameras as they were patented.
          The authorities had clearly been very lax in policing this type of illegal activity because price fixing was rife in those days. This was the first conviction under a five year old law that stipulated that “any agreement, understanding, business practice or method of trading which is calculated to have the effect of compelling or inducing a reseller to observe a specified resale price is unlawful.”
          Hampo had told its retailers that it must not grant discounts of more than 10% off its suggested retail price. And it warned in a circular that “those who do not observe our pricing conditions will not be supplied at all.”
          At the time I obtained irrefutable evidence that manufacturers and supplies of anything from cameras, mattresses, furniture, electrical appliances, toiletries and pantyhose either would not supply discounters or stopped supplying any retailer that did not abide by their pricing structure.
          Pick n Pay’s chief buyer at the time phoned some firms in my presence and asked for stock. The head of the firm that was the agent for a well known brand of men’s toiletries didn’t mince matters when he said Pick n Pay could not be supplied because they did not allow their toiletries to be discounted. He couldn’t afford to antagonise chemists and some other big chain stores by allowing Pick n Pay to cut the price.  

Another one in the same type of business said he could “never permit” any price cutting of his product because it could cause his firm an enormous amount of trouble.
          Apart from Hampo trading I named six other firms that were clearly in the business of price fixing, but no action was ever taken against them to my knowledge. I haven’t identified them in this post because I don’t know whether or not they still fix prices. In all probability they don’t because they would have been out of business by now.

          The Competition Commission that I rate as possibly the best Government department has really been making up for what was not done in my day as a newspaper investigator.  
          The impressive way it has been tackling the furniture removal firms (dishonestyrecalled another of my Sunday Times investigations all those years ago. Companies that have been having a collusion field day for decades are now finally being made to pay serious money for breaking the law.
The Commission also fined South Ocean Electric Wire Company R13-million after it admitted price fixing and collusive tendering between 2003 and 2012. And what was possible a record was the R98-million Tiger Consumer Brands had to pay for fixing bread prices in the Western Cape from 1994 to 2006.
Smeg was nailed because Save, an eight supermarket family business based in Pietermaritzburg, had the guts to take a stand by reporting it for price fixing when Smeg tried to stop it unduly cutting the price of Smeg’s products.
          Three years ago a Hirsch's customer complained that it was selling a Smeg gas stove for R17 999 when Save’s Hyper price was R14 999. Then, according to reports, Hirsch's took this up with Smeg.
          Hirsch's is another family business founded with R900 by Allan and Margaret Hirsch in a tiny showroom in Durban in 1979. It now has 17 appliance and furniture stores all over the country making it a lot bigger than Save, which is confined to the Northern KwaZulu Natal area.
          Smeg told Save to cease rocking the boat by selling its products at such low prices that they were upsetting its other retail customers. When Save refused to comply Smeg stopped supplying its main store a Pietermaritzburg Hyper.
          Save took this up with the Competition Commission and that’s when the fine was imposed and Smeg was ordered to lift its supply ban on Save, which had lasted for almost two years.
          A Commission spokesperson commended Save for its stand against Smeg.
                       Dolce & Gabbana might be great creators but they 
                                 lack a sense of humour (bananas).

          In an email I told Margaret Hirsch her firm’s Chief Operations Executive that the reports could have given the impression that Hirsch's use its buying power to stop competition that under cut it.
          She replied that before she commented she would rather get her attorney to do this as it was a “sensitive issue.”
          Meanwhile her Chief Executive Officer husband Allan told me in an email exactly what happened and it was clear that Hirsch's never tried to stop Save selling Smeg because it was cutting the price so drastically.
          Smeg was contacted to find out if it was giving any special deals to retailers which Hirsch's would obviously have liked to be part of.
          “The bottom line is we buy a gas stove from Smeg at R14 600 plus VAT,” Allan said. “We add 8% and we sell it for R17 999. Save was selling it for R14 999 including VAT. That’s why we queried it with Smeg as we were unsure how they could retail it at R3 000 below our price at R1859 odd below our cost.
The Hirsch's first team

          “Smeg advised there was no special deal and they would speak to Save.”
          What happened hasn’t put Hirsch's off Smeg. “We are trading very well with it,” he said. “Our customers love it and we love it.”
          On the phone he told me that Save’s main business was in grocers and every now and again they had these very special deals like the Smeg one on which they would not have made any profit.
          I then emailed his wife saying: “Not to worry. Save your attorney’s fees. Your husband spoke to me and he cleared up everything as far as I’m concerned.”

          Jon, who has been a Consumer Watchdog since before the Boer War so he knows a little bit about the subject.

P.S. The Save Group was founded by Moosa Noorgat in 1987. And apart from sorting out price fixers its charitable side lived up to its Save name by giving R100 000 worth of grocery vouchers last year to help feed the 82 children at the Salvation Army home in Pietermaritzburg. The previous year it donated R2 500 monthly. Smeg might like to do something like this instead of harassing its customers or wasting money on a fine.

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