Covid-19 profiteers unmasked for price-gouging

Companies that have exploited the coronavirus pandemic to inflate the prices of face masks and hand sanitisers, among other items, are starting to face the consequences.

The Competition Commission has been “inundated” with complaints about companies that have hiked the prices of face masks and other goods in cynical profiteering attempts during the Covid-19 pandemic.

By the end of March, the commission had already confirmed more than 500 complaints, a number it called “unprecedented”. The majority of these complaints related to hand sanitisers and face masks, followed by toilet paper and flu medication.

Some examples are a hardware store that allegedly increased the price of surgical gloves over a period of a week from R100 to R170, a pharmacy that had a more than 300% markup on the prices of face masks and hand sanitiser, and a supplier of face masks that had markups of more than 665%.

Commissioner Tembinkosi Bonakele said at the time that the commission was moving beyond “moral suasion and appeals to patriotism” to stop the abuse of market power by those seeking to exploit consumers “at the worst possible time”.

“People who sell these essential products ought to appreciate that these are literally life-saving items right now,” he said. “They shouldn’t be exploitative and take advantage of cash-strapped consumers during the worst time in our history.”

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Bonakele added: “The law must take its course. We will see a wave of prosecution of firms in the coming days.”  

Some of the investigations into these complaints have already been concluded and referred for prosecution to the Competition Tribunal. However, many companies have chosen to settle with the commission rather than contesting the charges at the tribunal.

National pharmaceutical retail chain Dis-Chem is currently contesting charges of excessive pricing before the tribunal, while a case against Babelegi Workwear & Industrial Supplies has already been heard and a ruling is awaited. 

But these two cases appear to be just the first wave and the commission confirmed to New Frame that further referrals to the tribunal are just days away.

The first prosecution

The commission had already begun receiving pricing complaints days before President Cyril Ramaphosa announced the nationwide lockdown on 23 March. One of these was against Babelegi and concerned its pricing of face masks. 

The commission investigated the complaint and found that between 31 January and 5 March Babelegi increased its price of facial masks from R41 a box to as much as R500 a box. It argued that this resulted in a markup of more than 500% and called it “price-gouging”. It also pointed out that, comparing Babelegi’s December 2019 prices with those on 5 March, a markup of 888% was evident.

Babelegi maintained that it did not raise prices to exploit consumers, but rather to prevent having to sell the masks below cost. It argued that the price increases were the direct result of an escalation in the prices charged by its supplier and that the complaint does not relate to conduct in the period during which the consumer protection regulations apply.

The charges against Babelegi were referred to the tribunal on 9 April and heard on 24 April, marking South Africa’s first case of excessive pricing related to Covid-19.

The second prosecution

Other early complaints lodged with the commission were against Dis-Chem. The commission’s investigation showed that prior to the declaration of a national state of disaster on 15 March, Dis-Chem was selling three types of masks. The commission argues that the average prices of these masks were inflated by between 43% and 261% between February and March this year.

On 23 April, the commission referred the retailer to the tribunal for prosecution, accusing it of excessive pricing. During testimony being heard in the case, which is still in progress, the commission’s chief economist, James Hodge, told the tribunal that there was no justification for the 261% price hike. 

“What we are seeing in South Africa is that every intermediary in the value chain is using the argument of a shortage and cost increases to escalate their own margins, and Dis-Chem is one of those,” argued Hodge, who pointed out that the retailer does not manufacture face masks. “That extra margin that Dis-Chem earns does not go back to the manufacturer. It does not go back to stimulate their production.” 

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Advocate Michelle le Roux, representing Dis-Chem, argued that the company was not wrong to increase prices because it was facing ballooning price quotations from suppliers and delays in delivery while demand was increasing.

“Clearly the commission is feeling some bloodlust and seems to have forgotten some sense of perspective and proportion,” argued Le Roux. “It is trying to find a good company to humiliate and make an example of for everybody else.” 

A rush of settlements

Many companies have decided not to contest the findings of the commission’s investigations into excessive Covid-19 pricing, and it has concluded numerous settlement agreements with small, independent retailers and pharmacies. However, the tribunal still needs to confirm many of these agreements.

The commission says the implicated retailers, as part of their agreements, will reduce prices to appropriate levels. Based on the merits of each case, they will also contribute various amounts of money or essential hygienic items to charity organisations nominated or approved by the commission, including the Solidarity Fund for Covid-19.

On 20 April, the tribunal did confirm the first settlement agreement, between the commission and Boksburg-based Centrum Pharmacy, which was found to have charged excessive prices for face masks. The pharmacy did not sell these masks before March and only began sourcing them from suppliers because of the sudden demand and panic-buying brought on by the declaration of a state of national disaster.

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The commission’s investigation found that Centrum’s average markup on face masks in March was in excess of 100%. As part of the settlement, the pharmacy agreed to donate hand sanitisers, surgical gloves and face masks worth R25 410 to two old-age homes in its area of business. It also agreed to “significantly” reduce its markup on face masks for the duration of the state of national disaster.

On 29 April, the commission announced a settlement with Matus, a national face mask and personal protection gear distributor, after the company admitted it had inflated prices during the disaster period. The company agreed to pay a fine of R5.9 million and contribute an additional R5 million to the solidarity fund.

Like Centrum Pharmacy, Matus further agreed to reduce its profit margin on masks to “acceptable levels” for the duration of the state of national disaster.  

The tribunal is yet to confirm the settlement.

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