The Competition Tribunal has found pharmacy and health retail group Dis-Chem guilty of charging excessive prices for surgical face masks during the Covid-19 pandemic.
The Tribunal ordered that Dis-Chem is liable for a R1.2 million fine.
In its order and reasons, the Tribunal found that Dis-Chem contravened section 8(1)(a) of the Competition Act in that it charged an excessive price for three types of surgical face masks (SFM 50, SFM 5 and Folio50) to the detriment of consumers during March 2020.
The Tribunal considered the background to the Covid-19 pandemic as the economic context in which Dis-Chem had increased its prices on three occasions. This included, among others, the fact that the virus was spreading globally and at an alarming rate
“Although the first case of Covid-19 in South Africa was only reported on 5 March and the National Disaster proclaimed on 15 March 2020, South Africans were already affected by the rampant spread of Covid-19 from January, with global supply chains being disrupted, international travel and events being cancelled,” it said.
“Fears of infection already started to influence consumer behaviour in January and February. It is common knowledge that the Covid-19 outbreak has led to an increase in global demand for personal protective equipment (PPE) of which surgical masks constitute an essential component.”
This increase in demand reflected in the massive increases in Dis-Chem’s own sales volumes from January onward, it said.
According to the Tribunal, the Competition Commission established that Dis-Chem exerted market power in its pricing of face masks by increasing prices to significant levels in the context of the Covid-19 pandemic.
One such increase took place on the very day that South Africa’s first Covid-19 case was announced.
“We find that in the context of a global health crisis, with excess demand of surgical masks, considered to be essential in the fight against Covid-19, Dis-Chem has demonstrated that it enjoyed and exerted market power by materially increasing its prices, without a significant increase in costs, and significant increase in margins,” the Tribunal said.
“But for the economic conditions brought about by the outbreak of Covid-19, it would not have been able to implement such material price increases in surgical masks.”
The Tribunal has found that Dis-chem failed to show that its price increases were reasonable.
Material price increases for the masks were measured at 47%-261%.
The Tribunal said it was hesitant to issue the penalty requested by the Competition Commission (10% of turnover), given the economic climate of the country, but said that the price hikes “were not only exploitative to the detriment of consumers but also reprehensible in the context of Covid-19, and requires serious sanction”.
“Accordingly, we find that an appropriate penalty in this case would be R1,200,000,” it said.