Why South Africa’s competition authorities rejected Distell’s AB InBev complaint
Distell is big enough to go toe to toe with AB InBev. But the brewer tried to use merger conditions designed to protect small producers to get ahead of its competitor.
That, in essence, is the South African Competition Commission’s reasoning in dismissing Distell’s referral of AB InBev for breach of merger conditions. The dispute centres on the definition of “ambient space” and exclusive stadium agreements entered into by AB InBev.
- Distell, listed on the Johannesburg Stock Exchange, is the continent’s leading producer of wines, spirits and ciders. It is also the world’s second-biggest producer of ciders.
When the competition authorities granted conditional approval for AB InBev’s merger with SABMiller in late 2016, they stipulated that the global brewer must make provision for a 10% allocation of fridge space for rivals at outlets.
Ruining the ambiance
According to the Commission, in the context of an outlet, “ambient space” refers to shelving, floor space and cold storage. This provision was intended to ensure AB InBev does not abuse its dominant market position to muscle out smaller players.
- Furthermore, competition authorities directed AB InBev not to induce outlet owners to exclude competitors from storing products.
- Distell contended that the definition of “ambient space” is not clear enough and should extend to marketing.
- Distell also accused AB InBev of paying “event organisers to exclude Distell from participating at their events”. The events in question are the WaterKloof Air Show and the Spring Day Festival, both held in Gauteng.
- “Distell also alleged […] SAB/InBev contravened clause 7.2 of the conditions by entering into contractual agreements or requiring certain stadiums […] to preclude its competitors, including Distell, from sales and promotional opportunities,” according to the referral.
In its submission, Distell said that SAB requires and/or induces outlets not to offer space to Distell to make its products available and visible to consumers. SAB removes or requires the removal of Distell’s promotional and pricing materials from outlet-owned spaces.
The commission agreed that “the list in the definition of shelving, floor space and storage is not […] exhaustive because of the word ‘include’. However, we are of the view the list provided indicates the type of space the conditions envisage when it refers to ambient space,” it said.
In terms of events, Distell accused AB InBev of:
- Proposing a deal to the organisers of the Spring Day Festival at Voortrekker Monument in Pretoria. SAB/InBev would pay R25,000 ($1,700) to exclude Distell from selling its products at the events.
- Excluding Distell from offering its products within certain stadiums on the basis that SAB/InBev had entered into exclusivity contracts.
The Commission countered that conduct as it relates to exclusivity does not fall under the jurisdiction of the conditions.
- Moreover, “the protection to competitors is limited in relation to events sponsored by SAB/InBev,” it said.
- The Commission also pointed out that Distell, “by its own admission, acknowledges its complaint in respect of stadiums pertains to the space for the offering, activation and promotion of competitors’ products as stipulated in the sponsorship agreement entered into between SAB and the Newlands Stadium.”
- The Commission concluded that SAB/InBev did not contravene the conditions and dismissed the complaint.
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Distell can play in big leagues
A crucial aspect of this is that “[…] nowhere in the [record] is mention of allowing promotional or branding materials of third party competitors being displayed in SAB fully branded outlets.”
The Commission further states that the conditions were formulated with small beer producers in mind. In this regard, “Distell has the economics of scale to […] rival SAB/InBev in respect of marketing and branding of its products to ensure they are also visible.”
The most important factor for the Commission was the fact Distell confirmed its products are being sold in SAB/InBev’s fully branded outlets. “[…] Therefore SAB/InBev is in compliance with […] the conditions.”
Distell has taken its fight to the Competition Tribunal because it still wants the Tribunal to “provide guidance on the proper interpretation of the merger conditions,” according to spokesperson Dennis Matsane.
The regulatory stance for now is that Distell is big enough to look after itself.