Dis-Chem denies increasing mask prices as a form of exploiting the Covid-19 pandemic for profit, saying that at the time of the mask increases the state of National Disaster was yet to be declared and the regulations were not yet published.
The pharmaceutical retailer appeared before the Competition Tribunal on Monday, after the Competition Commission charged it with abusing its dominance and accused it of hiking mask prices by as much as 261% during the State of National Disaster, in early March.
The commission is asking the tribunal to issue the maximum penalty against the chain.
In its defence, the retailer noted that it had increased surgical mask prices prior to the Department of Health (DoH) suggesting the importance of such masks to the public.
When were prices increased?
The retailer’s advocate Michelle le Roux, however, explained in a presentation that Dis-Chem saw a “substantial” increase in demand for masks towards the end of January and early February 2020.
She says the vast majority of the customers buying masks in January were not consumers doing so for personal use, but were bulk buyers.
However, Dis-Chem says it cannot conclude that the masks purchased were for export or domestic resale opportunities, therefore, it would be a “logical inference” to draw since that volume of masks could not be for personal use.
The pharmaceutical retailer says it did not “alter” prices in January despite the increased demand. It, however, introduced the Surgical Face Mask Foliodress Blue on January 30, 2020, which it repackaged.
It says, even currently, these surgical face masks, with a single unit retail price of R1.31 (excluding Vat), are sold as single items, as well as in boxes of five, 10 and 50 to ensure that it has sufficient stock to satisfy the needs of its retail customers, as opposed to bulk buyers which are likely resellers or exporters.
By breaking down the larger pack sizes into single units the retailer wanted to meet the increased demand while avoiding stock outages.
Though it was able to meet the surge in demand in January, it did, however, start to increase the volume of new mask stocks available to purchase.
Dis-Chem says that this number was insufficient to replenish the stock sold in January as it was unable to procure the volumes required.
Seeking alternative ways to meet its customers’ needs for surgical masks, the retailer says it temporarily shifted away from the sale of larger pack sizes of masks in order to ensure that its day-to-day customers had access to masks.
Le Roux says that when the first case of coronavirus was reported in South Africa in early March, the focus was on washing hands, coughing and sneezing etiquette, and avoiding contact with people who were sick.
“No recommendations regarding the use of masks were being made at this point in time.”
After the World Health Organisation (WHO) characterised Covid-19 as a pandemic and later, when the South African government declared a state of National Disaster, the demand for masks further surged – particularly between March 1 and 18.
“Dis-Chem was unable to meet total demand for masks, and, due to its movement to smaller pack sizes, sales for the whole of March, were, in units, less than 50% of its February volumes,” Le Roux says.
It then increased its prices again, giving “careful consideration to the competitive landscape around it”.
“At no point did Dis-Chem operate without explicit regard to the prices being charged by its competitors. Indeed, Dis-Chem sought to ensure that its unit price was at all times lower than those charged by its main rivals so as to continue to deliver value and affordable products to its customers,” Le Roux says.
March was also the first month in which Dis-Chem was forced to use new suppliers in order to meet the surge in demand.
The next hearing will be on Wednesday, May 6, 2020.