Two wholesalers in bicycle price-fixing charges get R4m administrative fines each

[Slowbee]

4mil ?

 

like that makes any difference to anyone.

 

oh wait it does - it means we get to pay more for parts. what the 4 mil will be paid back with interest, say by next month. Maybe to optimistic.

[Malpiet]

For those hubbers that were around I do remember this being discussed in detail.

 

but to put things into perspective in 2009 an ultegra 6700 groupset was retailing in RSA for almost double what I was bringing them in (ex vat) but even so the prices went through the roof.

[raptor-22]

So one item doubling in price and some random internet chatter turns it into fact?

 

How exactly does a distributor force an lbs to fix prices? Do they send hundreds of staff members to stores to check till slips?

 

Each to their own I guess - if that is your opinion that is your opinion. My dealings with local distributors has been very different.

 

Ask specialised. They do it all the time . Just ask that oke in durbanville what his reward for selling below the rrp was.

[kosmonooit]

What's the story with Spaz Concept stores? I phoned 3 different stores for a price on Ground Control tyres and all 3 were exactly the same price - to the nearest cent. Is that not price fixing or what am I missing?

 

 

If they are the only ones selling that product and they are part of a the same business structure (franchise or otherwise) its their call what they set their retail at (I think)

 

Its when independent operations collude to fix prices that can get them into trouble.

[raptor-22]

If they are the only ones selling that product and they are part of a the same business structure (franchise or otherwise) its their call what they set their retail at (I think)

 

Its when independent operations collude to fix prices that can get them into trouble.

 

Nope that's not correct. Just because the stores are part of a franchise they are independently owned and therefore should be free to adjust their pricing to align with their market conditions. All the brand owner can do is what is termed "price coaching". This is where the brand owner can provide appropriate price analysis and this has to be conducted independently of walking into competitors stores to see what they are selling similar items for.

[raptor-22]

Did some training on the competition rules and regs a few years back. The range of seemingly innocent activities that you should not engage in was an eye-opener.

For example : You are at a trade conference and an old friend who works for a competitor walks past...you are not supposed to even talk to him, let alone have lunch or heaven forbid, discuss sales figures.....

As for attending a meeting, regardless of the topic, just being in a room with a bunch of competitors automatically makes you guilty, even if you never said a word.

Sent from my SM-G900F using Tapatalk

Not quite. You can talk to competitors about the weather, how hot their secretaries are. Basically you can shoot the breeze, even about another competitor or each other but you cannot talk about business information, supply constraints, production capacity ETC.

You also cannot talk to each other about who should be in business or not and cannot agree to hurt a competitor through offering different pricing structures.

 

As it stands a lot of the retail sector in South Africa operates in an uncompetitive manner or bordering on it . It's a culture but there's a lot of focus on this at the moment because the behavior is a huge barrier to new entrants into markets.

There's a whole list of simplified do's and don'ts. I can post what I have if you like. It's quite extensive

Edited June 1, 2016 by raptor-22

[DJR]

A question for those in the know.... Was the fixed pricing ever implemented or were the fines dished out based on intent?

 

Sounds a lot like standard government procedure - let the stooges off scot free and punish the rest for not pandering...

On "intent".

From someone who was there, I was told that just about everybody in the SA cycling industry were invited. The reason was to discuss the problems facing the industry, retailers and wholesalers and to see what could be done to iron some of it out. One of the things discussed was the increases as described.

 

Technically, legally, simply just meeting and talking about it, put everyone on the wrong side of the law. Listening and not immediately reporting it also. No agreement was reached. So, on a technical point, everyone were guilty. Those who ratted and kissed arse were let off with a warning. Most of the smallies did this because of the financial implications of fighting the commission with lawyers and so on for almost a decade. The whole matter dragged on for 8 years I think. That would ruin most. Those who refused to cooperate and felt they did nothing wrong, were dealt the fines.

 

That is how the commission works. They have done it with many other industries and they have NEVER ONCE ploughed any of those fines back to the consumers. Fines are used to fund their operations, salaries, rent etc. It has become a burocratic monster that feeds itself and no longer serve the consumer. 

[raptor-22]

Problem is you can't feel you've done nothing wrong while acknowledging that just meeting to discuss the industry and price structures was on the wrong side of the law. I recall those minutes being circulated on other blogs and my first impression was "these guys are in beeeeeg sh*t".

And here we are. The commission is what it is. It operates under a similar mandate to that of similar bodies in other countries where free enterprise is governed. Therefore it is not the bad guy here.
This defending of these robbers is like junkies defending their dealers. Too scared that their fix will cust more so rather let them continue to abuse their position.
Those who ratted and kissed arse (interesting term) surely knew that defending the indefensible was a no win situation. That's smart and not a bad behavior as you are trying to imply.
I empathise with Omnico and Coolheat however since they were not the ring leaders. That little bafoon should be the one paying the price here but instead has crawled between the skirting boards.
But they did chose to defend the indefensible.

Edited June 1, 2016 by raptor-22

[DJR]

I am mostly in agreement with you. (BTW, I'm not involved in the cycling industry) Where I differ is that I do not think the competition commission has served the public who really got ripped off, neither have they prevented price fixing.

 

Just 1 example of this is the bread price fixing from a few years ago. The big guys were caught fair & square. They got what look like a massive fine, but is small change. The bread price did NOT come down. The consumer helped pay the fines for them. The collusion still continues, but now much more subtly.

 

The commission has found against the vast majority of companies or businesses on the basis of admission of guilt. Many capitulated because they were intimidated and feared the hugely onerous fines (10% of turnover) which is often way above profit margins and will ruin many a business. Often they could not afford the legal fees to fight a protracted battle against a well funded commission. So, they negotiate and get their fines reduced or written off. Smart, whether you are guilty or not. 

 

At the same time we have a government fixed petrol price! FIXED! Why not change that? We have a minister of Health who can tell the pharmacists what they may charge for medicines! LEGALLY! Why not change that? We have medical aids with fixed fees negotiated with service providers! And so on and so on! We do NOT have a free market, we have a sick market, and for that the commission is prescribing the wrong medicine.

[raptor-22]

Yes I agree on those points but it is what it is. Regulated pricing on pharmaceuticals and petrochemicals us largely a relic to protect industries and jobs that would otherwise flow offshore where productivity is higher. Rightly or wrongly maintaining regulation to a certain degree does help the consumer even it is not immediately apparent. Diesel is only partially regulated and if we look at the big price difference between rural and urban areas for 50ppm we can see that without protection the consumer will ripped a new hole beyond the zone differential. Petrochemical companies have only gotten off when legacy processes have been found to be anti competitive . Even then 1% of turnover for a global company is a massive amount of money they does not get paid to shareholders and then hurts more .

 

Like many things in life the competition commission is not perfect but is rather have it than not.

[GrumpyOldGuy]

I am mostly in agreement with you. (BTW, I'm not involved in the cycling industry) Where I differ is that I do not think the competition commission has served the public who really got ripped off, neither have they prevented price fixing.

 

Just 1 example of this is the bread price fixing from a few years ago. The big guys were caught fair & square. They got what look like a massive fine, but is small change. The bread price did NOT come down. The consumer helped pay the fines for them. The collusion still continues, but now much more subtly.

 

The commission has found against the vast majority of companies or businesses on the basis of admission of guilt. Many capitulated because they were intimidated and feared the hugely onerous fines (10% of turnover) which is often way above profit margins and will ruin many a business. Often they could not afford the legal fees to fight a protracted battle against a well funded commission. So, they negotiate and get their fines reduced or written off. Smart, whether you are guilty or not. 

 

At the same time we have a government fixed petrol price! FIXED! Why not change that? We have a minister of Health who can tell the pharmacists what they may charge for medicines! LEGALLY! Why not change that? We have medical aids with fixed fees negotiated with service providers! And so on and so on! We do NOT have a free market, we have a sick market, and for that the commission is prescribing the wrong medicine.

Interesting points indeed, let me just say I know nothing about the cycle issue but I just wanted to make a comparison point, I think SA is unique in that there is such an unequal society, so if things like basic food (bread) fuel, medical care, pharmaceutical products etc were not somewhat regulated by Government, it could end up been beyond the reach of the population.

In the USA there is no such regulation that I am aware of on for eg. medical care and pharmaceutical products, its a free market principle, and consequently, as you know, health care in the USA is exorbitantly expensive, so from that perspective I think some regulation on essential products and services especially in the SA scenario is a good thing.

 

I have sort of read many of the posts here and I find it interesting to see the diverse opinions, but in my own personal opinion price fixing for niche market, non essential items (certainly luxury high end bicycles and parts) is indefensible simply because it removes the only option in the customers favour,... price!.     

Edited June 1, 2016 by GrumpyOldGuy

[Mongoose!]

this is indeed a very complex issue

[Shebeen]

FYI - here are the 'inaccurate minutes/notes', you can decide what you want what is or isn't accurate. thanks to the good dudes at M&G they are up on the interwebs for good

 

Fritz Pienaar (Fritz Pienaar Cycles): Welcome everyone, thank you for attending this meeting. First of all I would just like to say that this meeting is not aimed at the wholesalers, but the wholesalers do play a part and it is they that created the concern that retailers are not making enough money and that this leads to their accounts not being paid. I would just like to say that everyone agrees in principle with raising the margins in the cycling retail industry. We have support from many retailers, who have phoned or contacted me personally to say that they are behind the decision and that it’s time something like this occurs—Bowman’s, Hatton Cycles. Wholesalers all agree in principle that this is needed.

Andrew Mclean (Cycle Lab): The urgency of this meeting means that we should have had it by July [2008]. Everyone agrees that our industry is not healthy at the moment. We’re simply not making enough, and the margins are too low. Times are tight; there is never a right time to introduce higher prices. We can continue to moan about the industry, we have the smallest margins in the sporting [goods] industry. This is something that’s in our power to change and rectify, so that we don’t battle to cover expenses and pay our suppliers.

Yes, there have been previous meetings that have just fizzled out, nothing has come of it. In summer all goes well, we make some money, then winter comes and the urgency of this matter becomes apparent again.

The one complaint is that there are too many retailers. Yes, this is true. Shops should not undercut each other, as we’re doing ourselves in at the end of the day. If no one gives discounts no one will shop around; then it’s up to each shop’s service and relations with their customers to set them apart. We should perhaps look at ways to structure the industry in the winter, which would draw more feet, perhaps by introducing a “Cape Epic” stage race in the winter? This could stimulate margins.

As a strict analysis bike shops are a bad investment with no return on investment. For example a shop with R3-million in stock would be a bad investment to buy ... it would be more lucrative to invest in a bank.

Fritz Pienaar: Our South African cycling retail industry is not on par with international standards. For example the United States has about a 75% bike margin and a 100% accessories margin. I propose a gross increase for accessories from a 50% to a 75% margin. And a bike margin increase from 35% to 50%.

The only way we can do this is by all agreeing and uniting with the price increase and getting the wholesalers to back this decision and help us by providing the new suggested retail price to the retail shops they supply and advertise that price to the public. Many of you are concerned that this is some form of price fixing; it isn’t and this is not illegal. It could be seen as price fixing from the suppliers that we need to sell at only 35% margins.

Andrew Mclean: We can create a sustainable, healthy industry; the kingpins in major areas agree that higher margins are needed to create this. We need your cooperation and support to introduce this on October 1 [2008]. Support wholesalers and retailers: the bigger shops will apply pressure on the wholesalers and the wholesalers will in turn enforce the new retail prices on the smaller shops.

Question: Can we not creep bike prices up over time so that there is not such a dramatic price hike? 
Answer: The quicker this happens the better it will be for everybody.

Fritz Pienaar: There is sufficient time to change stock pricing and change price tags. The industry is already expecting a price increase with all the 2009 stock, which is coming in at around 20% increase on average.

In 2002 we experienced a similar price increase with the rand/dollar. When the rand was at its lowest we were a new shop, and we had some of our best sales over the years in that time. Top-end bikes were still bought regardless.

We can do this without any upsets if we all do it at the same time. We can start in Gauteng and it will in time spread through the whole country, with help of the wholesalers, increasing the suggested retail pricing and supplying their customers with price lists showing the new suggested retail amounts. 

Questions and concerns 
Fritz Pienaar: Online shops seem so cheap, but it’s actually a schlep. Products lost that you order by mail. Shipping problems—they ship or deliver the wrong stuff. There’s always hidden costs, you sit with warranty issues—warranty void with grey products. Internet competition creates concern, people do research on the web, and then consolidate buys with some friends. Yes, this is causing some problems.

Andrew Mclean: The percent of business you lose is actually very small. As an example Cervello’s overseas online pricing is almost identical to its retail pricing. A shop will not make it in business today if it does not sell Shimano. I often refer to Steven [shimano] as the Godfather. Shimano is in the favoured position to regulate support for retailers. Steven can choose whom to supply and whom not. Passion is why we make profit: can you run your business at 35% mark-up? Most businesses run at 100% to 200% mark-up.

Derek Edwards: Do we need a suggested retail price?

Fritz Pienaar: Wholesalers can then enforce a suggested retail price, weed out dealers that piss off others by undercutting.

Andrew Mclean: We need to create reputable stores, not discount stores. As far as shops like Cajees are concerned I would embrace another eight Cajees around my store in Fourways, because you only ever buy one bike from them and then you learn and move on to bike shops who have reputable service and advice.

Andrew Mclean: It’s very important to stick to these mark-ups. There are 180-plus retail shops and on October 1 [2008] Fritz Pienaar Cycles and all Cycle Labs in the country will start with the new margins.

Jacques Maritz: If I can negotiate a better deal from my suppliers that’s my “cream”, which I then put away for the winter days.

Mike Bradley: We’re here to make money. Labour has more mark-up than bikes; sell your labour.

Andrew Mclean: The entire industry is to benefit from this.

Fritz Pienaar: Does everyone agree? Is there any retailer or wholesaler who disagrees?

[raptor-22]

Pretty damning evidence if I ever saw any. One of our legal council just walked past my desk and ask if I knew about this! He reckons a clearer case of cartel behavior he's never seen. And to run salt into the wound they reckon what they did wasn't illegal. Lol

[edgarblount]

Ek voel naar... <- That's puke not drool!

 

Can't believe what I am reading. I have known about this price fixing scandal but reading FP and AM 's words makes me skyns-be-f00k.

 

Is there price fixing in bowls? I am taking it up.

[Ed-Zulu]

Thing is they achieved their goal...margins lifted regardless of guilt or not.

 

Ons k@k en betaal