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 (dishonesty) recalled 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.”

          Regards,

          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.

After treating dishonesty as the norm for 50 years South Africa's furniture removers are finally getting what they deserve

Dear Readers,

Mel Potgieter a Stuttaford Director

          The question I want to ask all CEO’s of furniture removers is this: “Are any of you running an honest business?”

          What a shocker. Companies I exposed in the Financial Mail magazine in 1976 are now facing similar allegations before the Competition Commission. And this time it looks as though there is no escaping a very heavy fine.

            As an investigative journalist I probed the widespread tendering collusion among removers, which has cost the government and the private sector millions of rand.

          Significantly the FM never received any complaints about the accuracy of my report

          It’s disturbing, to say the least, that the removers association has been accused of turning a blind eye to the skulduggery that has been going on for all these years. Now the Chairman's own company has been proved to be involved.       

When I was on the FM it was so rife that Eddie Pettitt, President of the 127 member SA Furniture Removers & Warehousemen’s Association (SAFWA) from 1968-1971, when he headed Algoa Transport in Port Elizabeth, told me that tender rigging was “unfortunately accepted practice.”

          They hadn’t been able to stop it because neither the Department of Transport nor the Public Service Commission would back them. The head of the Military Police told me that SAFWA was also ignoring the racket.

          It was so acceptable that last year Peter Brauteseth a Director of Joel Transport told the Commission’s Tribunal that in his 25 year’s removal experience he had found tender covering to be a “sort of normal practice.” His firm was one of the 13 highlighted in my FM expose`.

          The way the swindle works is that when transferred employees have to get quotes to have their belongings moved the first removal firm approached will get all the ones needed from a friendly competitor ensuring that theirs is the lowest to get the job.

In my FM days it was known as the 3Ts as that was the number of quotes required by government departments. With competition effectively eliminated it ensured that removals were done at inflated prices.

        The Nationalist Party government of the day did nothing about this corruption even though there was considerable evidence to show it was going on.

It has taken years for our African National Congress rulers, who came to power in 1994 to get this scourge in it sights. But now it looks as though the no nonsense approach of the Competition Commission, which has the power to impose heavy fines, will finally stamp it out.

The Commission found that 3 500 relocation quotes were fixed between 2007 and 2012 with as many as 69 companies being involved. Raids were carried out at the premises of these firms.

Transgressors who co-operate with the Commission by telling all get a lesser penalty than those who try to bluff it out. It is left to the Tribunal to pass judgement on the intransigent ones.

The Commission has just charged the Cape Town based Stuttaford Van Lines with 649 counts of collusive tendering involving numerous government departments including the Presidency, Parliament, the Secret Service, the Police, the  National Prosecuting Authority, Revenue Services, the Reserve Bank, the Department of Justice, the Defence Force, the Public Protector’s office and state owned businesses and private companies.

This is a new record for this authority, being the largest number of charges against a single company in the history of its anti-cartel enforcement. It is pressing for the Tribunal to fine Stuttaford 10% of is annual turnover on each of the 649 charges.

It has so far concluded settlement agreements with 16 firms with Stuttaford not yet being one of them. The cases of 13 still have to be finalised.

Stuttaford promotes itself on its website as a super goody-good market leader that does all the right things.

          Under a large “Anti-Bribery & Anti-Corruption” heading it claims to be a member of the United Nations Global Compact initiative launched in 2000. This requires companies to embrace a set of values in the areas of Human Rights, Labour Standards, Environment and Anti-Corruption.

          It boasts that it is a certified member of Fido Fame and it adheres to its Anti-bribery and Corruption Charter. “This,” it goes on “is customised to the removal industry and guarantees a common understanding on the topics of bribery and corruption. We adhere to the Charter’s principles and communicate this to our staff, clients and agents.”

          Founded in 1857 Stuttaford tells us, “As one of the first removal companies in Africa to get Fame accredited, we have continually lived up to our reputation as Africa’s most superior removal company.”  

          This is what my FM inquiries revealed about “Africa’s most superior removal company.”

          I canvassed 17 removal firms in what was then the Transvaal and Free State and told them I needed three quotes.

          Eight offered to supply all three themselves and in all cases the firm contacted gave me the lowest price.

Stuttaford Van Lines arranged three quotes for a Mr Steele for a removal from Johannesburg to Durban after being told a company would be paying. They were Stuttaford R600; Petfords R630 and Express Transport R645. For another Johannesburg-Durban move Express quoted R685 with J.L van Nijmegen at R720 with Stuttaford’s price being R725. For the same job Morkel’s price, which I got completely separately, was almost half at R355.

          I then spoke to the Stuttaford regional manager in Johannesburg Dave Bradford, who was also on Safwa’s executive committee. I asked him if there were removal companies supplying three tenders and he replied: “I don’t know how they can do that because they would have to be in league with other companies. What you are suggesting is virtually a bit of cheating.”

          I showed him the two sets of quotes in which Stuttaford was involved and he said rival companies often phoned one another and asked for quotes. They gave the volume of the goods to be moved and then the quote was sent directly to the customer.

          He denied there was any price ring in the removal business. 

          After my FM disclosures appeared the Public Service Commission sent a circular to all government departments informing them of the FM’s findings. According to a spokesman department heads were told that “immediate steps should be taken” to stop the abuse of the tender system.

          Had anything been done then Stuttaford and various other firms would not now be facing possibly huge fines that might even put some of them out of business.

           The new name of SAFWA, which was founded in 1959, is the Professional Movers Association (PMA).  

   

          The corruption picture has become even more tainted by the fact that Crown Relocations, headed by the PMA’s Chairman Ian Pettey, has just pleaded guilty to being involved in 81 cases of cover pricing for various government departments. The Commission fined it R840 873, the equivalent of 7% of its 2013 turnover.

          His company is part of the Hong Kong based Crown Worldwide Group.

The PMA’s Code of Ethics requires members to have “a commercial reputation beyond reproach” and Stuttaford is one of them.

          One wonders just how culpable some of the people are in the various government departments mentioned by the Commission, such as the Defence Force, the Police and the National Prosecuting Authority.

In the FM I included details of the comical interviews I had with Col Piet Prinsloo, head of the Military Police at the time and his deputy Major Gert Pretorius at their Pretoria headquarters. The way they kept contradicting each other indicated that something very wrong was going on.                                                                    

The Military Police had investigated the 3T scam because the Defence Force was involved. It was suspected that government officials might have been bribed. But they had not been able to get a single cartage contractor convicted due to lack of evidence.  

In his office Pretorius told me that in their last investigation they discovered that a Pretoria removal firm had given about R5 000 (A lot of money in those days) worth of liquor to Defence Force personnel the previous Christmas.

Then, when he took me into Prinsloo’s office next door, the Colonel said somebody had spoken out of turn as the amount had never been established. Pretorius played it down by saying it wasn’t much as not more than two bottles per person had been given to certain members of the Force.

Our conversation became even more ridiculous when Pretorius said their investigation, which began about 10 months earlier, was continuing. But Prinsloo denied this saying it had been dropped, “Not because there was any pressure on us, but because we didn’t have the staff to carry on.”

Pretorius said he had obtained considerable evidence against a Pretoria company but it was still getting a lot of business from the Defence Force. When I asked why this was he replied: “I don’t know. I’m afraid some very high up authority must answer that question, which is also a question I would like to ask the Chief of the Army; the Chief of the Air Force and the Chief of the Navy.”
According to Prinsloo removal firms had carved up the government work so that they each had their own section from which they got business. “We have gone a long way in curbing this practice (the 3Ts) which got out of hand. All of a sudden one of these contractors starts again with their funny business. It takes a couple of months before we hear about it and then we just clamp down again.

 “In our own way we have saved the Defence Department quite a lot of money by telling head office who to supply with tenders and who not to supply,” Prinsloo added.

Judging by what the Competition Commission is now uncovering and what my inquiries revealed they were not at all effective.

And it’s extremely suspicious that all those government departments continued to be duped for, on the face of it, as long as most people can remember. 
         Unfortunately it’s not the Commission’s job to deal with them.

Regards,

Jon, a Consumer Watchdog of long standing, who does his best to cut his removals to the minimum.