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South Africa’s hysteria over mass marketing techniques

By Khadija Sharife
Posted on Thursday, 20 October 2011 16:46

South Africans worry that the arrival of Walmart will mean the arrival of American retailing practices – including category management

Need someone to run your store for you? Not sure what sells well? Why not ask Coca-Cola to manage your drinks section? Many, if not all, large retailers in the states use this technique – called ‘category management’ – to boost their bottom line. ‘Category captains’ like Coca-Cola, using its knowledge of the drinks sector, give a spread of the best-sellers – not just choosing Coca-Cola products, naturally.

In well regulated product areas, these ‘captains’ are monitored, but this is not the case across the board. In 2002, a US judge upheld a $350m fine against US Tobacco for misreporting sales and mis- leading retailers into giving it more shelf space while acting as a category captain.

As the argument rages over whether South African jobs are on the line with the arrival of Walmart – for which both sides make a strong case – others fear the real danger comes from the US company’s business methods. Walmart, which has bought a majority stake in South Africa’s Massmart and uses the category management method in its US operations, may introduce this practice in the Rainbow Nation.

Judgements against price fixing in South Africa’s milk (2008) and bread industries (2010) have not dissipated concerns that wholesalers may continue their collusive ways. Speaking on the impact of category management in the US, Barry Lynn, director of markets at the New America Foundation, told The Africa Report that, “the system was not only blatantly anti-competitive, but downright collusive.”

“Basically,” he says, “you have one mega-supplier that makes all of the crucial decisions affecting other suppliers, drastically transforming the relationship between the retailer and corporate captain, as well as between suppliers. It changes from adversarial to collusive. The Bush administration came in and pushed the issue aside.”

Walmart itself has not been able to put a number to this claim, only that it is likely

Asked about category management and price-fixing in South Africa, the Competition Commission’s Oupa Bodibe referred to the Commission’s 18-month investigation of major retailers, including Massmart, which concluded in early 2011. The Commission found no sufficient evidence of category management or price- fixing on the part of Spar, Shoprite, Pick n Pay and Massmart.

So much for forcing prices up. How about down? Walmart has insisted that it will bring lower prices. But for most South Africans the key expenditure is food. The extent of Walmart’s $2.4bn acquisition benefit to consumers “is by no means clear”, according to the Competition Tribunal. “Walmart itself has not been able to put a number to this claim, only that it is likely,” it said.

ABSA retail analyst Chris Gilmour told The Africa Report, “I am not convinced as yet of their ability to force down food prices meaningfully. Theoretically at least, consumers should benefit from lower prices, though this is debatable. Walmart’s enormous global buying power should help in sourcing electronic goods from China at favourable prices, but food, and especially fresh food, is entirely another matter.”

Massmart’s move to acquire 100 per cent of The Fruitspot, a wholesale distributor and supplier of fruits and vegetables to major re- tailers, as well as hospitals (Netcare), airlines, mines, hotels, fast food joints and other outlets, was recently presented by Massmart via an application to the Competition Commission.

The South African food sector is highly concentrated, with four retail giants controlling 60 per cent of the domestic market. The Competition Commision will have its work cut out in proving that category management is infringing the law.

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