- There was an expectation that essential services would resist the temptation to engage in questionable behaviour during the lockdown.
- It is therefore difficult to reconcile the conduct of Dis-chem – a supplier of healthcare products – during the current crisis.
- The company has nonetheless decided to appeal a R1.2 million penalty imposed upon it for price gouging.
A few weeks ago, The Financial Times published a list of 100 companies that have prospered during the current coronavirus pandemic.
These companies range from technology companies, healthcare groups, alternative education providers and anyone able to offer the type of entertainment people needed to pass the hours during the lockdown.
How these companies ended up prospering during the crisis is a story of business models that were agile enough to respond to the changes in human mobility and social lockdowns.
Others were fortunate enough to already be operating in sectors that were required to play a leading role in helping humanity navigate its way through the crisis. For these entities, the classification as “essential service providers” by governments and health agencies provided them an opportunity to continue operating and not feel the acute impact of the economic lockdowns.
For such companies, the business continuity question facing non-essential service companies, was not the dominant feature of their deliberations. Rather, learning how to continue operating whilst faced with the ever-present threat of infections amongst customers and staff became the pressing management issue.
On the other end of the spectrum, businesses that were not regarded as essential services were forced to wait for the easing of lockdown regulations. However, the longer the lockdown endured, the greater the existential threat facing them. The various relief measures proposed by the government – aimed at covering unavoidable costs like rent and salaries – were never going to be substitutes for normal business operations.
Rather, the relief measures were aimed at containing the impact on the businesses. The best intentions of all stakeholders notwithstanding, far too many businesses will not outlast the lockdown marathon. The intervention measures that involved sacrifices made by taxpayers and philanthropists are an example of the solidarity compact that is generally impossible to find between business, the state and society.
- READ | Dis-Chem fined R1.2 million after losing price gouging case for surgical masks
Questionable behaviour
The longstanding tensions and hostilities that emerge when business is seen to be doing well at the expense of society; did not take centre stage during this time. The setting up of the Solidarity Fund in South Africa for example, was an initiative that would be difficult to imagine during normal times. The anxieties around how government manages public funds, were only tempered by the inclusion of “outsiders” into the process that introduced some element of legitimacy.
The expectation was simply that in this one extraordinary time, all those who found themselves in the value chain, would resist the temptation to engage in questionable behaviour.
The inflation of prices; the use of conflicted suppliers; and the bureaucracy of the payments and settlement processes; have become entrenched in the public service and let to unquantifiable economic losses. Business leaders in various platforms have spoken out against such excesses.
It is therefore difficult to reconcile the conduct of Dis-Chem during the current crisis. As a supplier of healthcare products; Dis-Chem benefitted from the classification as an essential service from the outset.
This meant that not only would its business remain open throughout all levels of the lockdown; but the volumes were expected to increase in line with the rise in infections and the commensurate demand for healthcare products and services.
As a business that was fortunate enough to avoid any interruption in its business, but was actually expected to do “well” through the crisis, the last thing one would expect is for Dis-Chem to try and extort additional profits from a crisis.
Their first objectionable action related to the increase in prices for masks that suddenly became an important arsenal in the fight against the virus.
According to Dis-Chem, such increases were warranted and based on input costs rising which forced them to “update” their selling prices. The Competition Commission however, found no credibility in this assertion by Dis-Chem.
In the absence of proof that there was a sudden spike in input costs which warranted an increase in prices, the conduct of Dis-Chem was found to be guilty of excessive pricing. This has resulted in the imposition of a penalty of R1.2 million that has been confirmed by the Competition Tribunal.
Secondly, in spite of the fact that Dis-Chem was able to continue operating uninterrupted throughout the lockdown, the company then tried to “re-negotiate” its rentals across various malls.
According to the SA Reit Association – a representative of listed property companies – Dis-Chem had opted to not pay April rentals before “negotiating for lower rentals”.
According to Dis-Chem CEO – Ivan Saltzman – this was based on the fact that there’s “far fewer people frequenting the stores and the difficulty of ramping up deliveries”.
The merits or otherwise of this allegation notwithstanding, it is difficult to imagine how Dis-Chem really believed that such a step would be interpreted by landlords facing the prospect of zero rentals from all other tenants who were not allowed to operate at all.
The sum of these two matters, has left a lot of people seeking to understand whether Dis-Chem executives possess anything resembling the presence of mind necessary to identify battles that you are better off not fighting at all.
The company has decided to appeal the R1.2 million ruling, presumably on the basis that its reputation has been “dented” by the adverse finding.
What remains elusive, however, is the question of whether Dis-Chem understands that whilst you may litigate your way through a process; you cannot litigate your way into public acceptance for questionable practices.
– Khaya Sithole is an accountant, academic and activist who writes and Tweets on finance, economics and politics. Views expressed are his own.
