Pharmaceutical giant Dis-Chem has been found guilty of price gouging during the Covid-19 pandemic and ordered to pay R1.2 million for its actions.
The case was heard by the Competition Tribunal after the Competition Commission received complaints from the public about excessive pricing for masks.
In its findings, the tribunal found that Dis-Chem failed to explain why its price increases were reasonable.
It says, therefore, that the retailer 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.
“In our view, Dis-Chem’s massive price increases of surgical masks during the complaint period, which constitute an essential component of life-saving first-line protection in a pandemic of seismic proportions, without any significant increases in costs, are utterly unreasonable and reprehensible.”
The tribunal highlights that although the first case of Covid-19 in South Africa was only reported on March 5 and the National Disaster proclaimed on March 15, South Africans had already been affected by the spread of the coronavirus from January, with global supply chains and international travel disrupted and events being cancelled.
“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 is reflected in the massive increases in Dis-Chem’s own sales volumes from January onward,” it says.
According to the commission, Dis-Chem exerted market power by increasing its face mask pricing to significant levels.
One of the increases, it noted, took place on the very day that South Africa’s first Covid-19 case was announced.
As a result, the commission found that in the context of a global health crisis, with high demand for surgical masks, considered 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 a significant increase in margins.”
The commission said it has shown that Dis-Chem engaged in excessive pricing to the detriment of consumers, as there were material price increases of the magnitude of 47% to 261% without corresponding increases in costs of any goods in a country. It said this would seriously affect the public interest adversely, considering the country’s long history of economic exclusion and deep inequality.
“Material price increases of surgical masks, without corresponding costs justifications, in the context of Covid-19 for which there is no discernible cure and where health services are skewed towards the wealthy, would seriously impact vulnerable and poorer consumers even more.
“Poorer customers would have been excluded from accessing the masks by such exorbitant increases; other customers would have spent more on these items as a percentage of their disposable income,” it said.
In determining an appropriate penalty, the commission considered the extent of Dis-chem’s overcharge, aggravating and mitigating factors, and the deterrent effect on consumers who desperately needed to purchase masks.
“The exploitative conduct of Dis-Chem of excessive pricing was particularly reprehensible. It exploited customers desperate to lay their hands on an essential item in the fight against a pandemic of global proportions, with potential consequences for consumers and public health ….
“Notwithstanding its professed commitment to the interests of consumers, Dis-Chem elected to increase its prices of surgical masks by exorbitant percentages in the context of the life-threatening outbreak of Covid-19. To this end, we consider its conduct was not only exploitative of vulnerable consumers, especially the poor, but was especially egregious.”
It added that the aggravating factors far outweigh any mitigating factors.
It describes Dis-Chem’s behaviour as “exploitative” to the detriment of consumers and “reprehensible”, therefore requiring a hefty penalty.
“We find that an appropriate penalty, in this case, would be R1 200 000.”