Dis-Chem withdraws appeal over masks due to reputational fallout
The pharmacy group will pay a R1.2m fine and says it would ‘rather move forward and focus on delivering value to consumers’
Dis-Chem has withdrawn its appeal at the competition appeal court after being found guilty of excessive mask pricing. The Competition Commission said on Friday that it welcomes the withdrawal.
“I am pleased that Dis-Chem has made this decision,” said competition commissioner Tembinkosi Bonakele. “The price increases that occurred during the state of national disaster were regrettable. We believe that the tribunal made the right call by condemning the conduct.”
Bonakele said charging high prices during the pandemic “deprived consumers, particularly poor consumers, of access to essential goods”.
In late February and early March, before there was a case of coronavirus in the country, Dis-Chem increased its prices from R43.47 for 50 masks to R156.95, a 261% increase. Other mask packs increased by 43%, with no input in its cost price.
Dis-Chem will pay a R1.2m fine, though the commission had asked that it be fined 10% of annual turnover, which would have amounted to a penalty of more than R2bn.
Dis-Chem says it withdrew the appeal due to the bad publicity it was receiving, in which it was being compared to the personal protective equipment (PPE) corruption scandal that has embroiled some politicians.
It said in a statement that the “decision is informed by the justifiable anger at procurement abuses during the provision of PPE at taxpayers’ expense that have been recently exposed”, adding that its appeal was being compared to corruption scandals, which “could taint Dis-Chem’s reputation by misplaced association”.
Dis-Chem lawyers argued during the hearing that it had priced the masks more highly as it anticipated future higher prices from suppliers due to global mask shortages, and that it had chosen a lower price than competitor Clicks.
The Competition Act, under which it was found guilty, requires the firm to be found to be a dominant market player — one that can set prices independent of competitors — which Dis-Chem lawyers said had not been proven.
Previously charged under the act were large companies Sasol and Mittal (now ArcelorMittal) that had protection from the state under apartheid and were more likely to be shown to be dominant.
In the past 20 years, the tribunal has lost all its cases of excessive prices at the competition appeal court, so competition lawyers believed that Dis-Chem had a very good chance of winning the case on appeal.
Ivan Saltzman, CEO of Dis-Chem, said lawyers advised the company would have won the case on appeal. “We remain confident that we neither overcharged nor broke the law. We believe that our price adjustments during March 2020 were justified given the increased costs we were facing and our commitment to ensure stock availability.”
However, it no longer wants to be tainted by other corruption scandals, so it will settle and pay the fine. “We would rather move forward and focus on delivering value to consumers for the products they need, especially during the continued challenging environment,” Saltzman said.
In early afternoon trade on Friday, Dis-Chem’s share was up 1.43% to R17.70, having fallen about a third so far in 2020.
Update: August 21 2020
This article has been updated with comment and new information throughout.
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