A duty-free supplier that sold booze to diplomats has accused Distell of anticompetitive behaviour after SA’s largest alcohol producer cut off supplies when it found some had been sold illegally in the mainstream market.
Four Pretoria-based stores with special licences sell duty-free liquor, cigarettes and perfumes to diplomats for personal and embassy use. But abuse, uncovered first by the SA Revenue Service (Sars), led to diplomats from Malawi and Lesotho being booted out of the country last year.
Now one of the duty-free suppliers, Nu Africa, has hauled Distell before the Competition Tribunal because the producer of brands such as Three Ships whisky, Amarula, Klipdrift and Nederburg stopped supplying it in mid-2018.
Distell first “throttled” supply to Nu Africa in 2016 on legal advice, after it found alcohol with specific batch numbers was sold illegally in four separate instances.
Sin taxes make up up to 36% of the retail price of spirits, so tax-free vodka or whisky sold by diplomats to locals would be that much cheaper. Excise taxes account for about 11% of wine’s selling price.
In a separate dispute at the Constitutional Court in September, Sars noted that 45 diplomats from six embassies bought R289m worth of excise-free alcohol in six months from four stores in 2019, far above what would be considered personal and diplomatic mission use.
Nu Africa denies any illegal activity. It says it now supplies only the export market and is arguing before the tribunal, which acts like a competition court, that Distell’s refusal to sell to it is anticompetitive.
It says the move by Distell impedes its ability to compete with the three other stores and in markets in Africa. Such “exclusionary conduct” by a dominant firm, it claims, is a breach of section 8 of the Competition Act.
The duty-free store’s economic adviser, Sarah Truen, told the tribunal on Tuesday that Distell’s actions had taken the firm “off its growth path” and slowed its local and export sales.
The Competition Act prohibits players in the market from abusing dominance and excluding certain suppliers or competition. But experts say dominance cases are very difficult to win, with very few ever being victorious in SA.
“The hurdles involved in proving abuse of dominance cases are significant and such cases require extensive legal and economic analysis,” according to the Competition Commission’s website.
Last week, Nu Africa director Pearl Shongwe told the tribunal that “Distell has to open the playing field for everybody to compete and they are not doing that”.
Distell places batch numbers on each of its products and its counsel, advocate Margaretha Engelbrecht, told the tribunal that it found specific alcohol batches sold to Nu Africa, for diplomats, in local trade.
Taxes
This robs Sars of taxes and undermines Distell’s other customers, which sell at full price to SA consumers.
Truen told the tribunal on Tuesday that Distell’s motive behind the cessation of sales was to weaken competition in Malawi, Zimbabwe and Zambia, where they both sell liquor.
Engelbrecht countered that “another motive that makes sense is that my client wants to prevent illicit alcohol [sales]”.
Engelbrecht also argued on Tuesday that Distell’s actions has had limited effect on the competition between the four stores that sold to diplomats.
For example, Nu Africa sold 129 types of whisky and Distell is not the dominant provider of premium whisky, mainly selling in the value segment.
In 2019, then finance minister Tito Mboweni announced regulatory restrictions on the quantity of cigarettes and alcohol diplomats could buy, with these coming into effect in August 2021. The four stores appealed the ruling and the high court last year found the regulations unlawful and written in an arbitrary manner, with parts of the regulations deemed unconstitutional.
Sars appealed this finding in the Constitutional Court in September and is awaiting the outcome.
The case at the tribunal continues on Wednesday.
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