The labour appeal court has endorsed the retrenchment of scores of workers by soft drink giant Coca-Cola Beverages Africa (CCBSA) in response to the introduction of a sugar tax causing it operating losses.
This is after the National Union of Food, Beverage, Wine, Spirits and Allied Workers took the company to court, asking it to set aside the retrenchments. The court last week dismissed the application, saying the labour court applied the law correctly in ruling for CCBSA.
CCBSA told the labour appeal court that it was forced to implement retrenchments due to the financial pressure exerted by the sugar tax at the end of 2018 financial year that compelled the company to fork out R2.1bn in sugar tax.
That was in addition to the R850m worth of discounts it had to give, while sales volumes fell 2% during the year.
Profit drop
Combined, these factors caused it to report a R293.8m drop in profit in the year, the company said. It was servicing about 190,000 clients weekly at the time in circumstances in which just 80,000 clients provided 90% of the volume, it said.
The company embarked on a strategy to reduce costs regarding small outlets and invest in big revenue outlets, a process it said that also led to job losses.
“In the case of the pre-sellers, CCBSA’s analysis indicating that only 80,000 of its outlets produced 90% of its volume and revenue and that the existing route-to-market structures were overinvested in 110,000 outlets that produced minimal volume and revenue, was not contested,” reads the judgment.
The labour appeal court found “nothing irrational or unreasonable in CCBSA’s decision in these circumstances to reduce the number of pre-sellers, employed as they were in overinvested outlets that provided little by way of return.
“In short: CCBSA’s response to the crisis precipitated by the introduction of the sugar tax, increased costs and a declining market was a rational response to arrest the economic decline that it experienced, and its decision to restructure the commercial division, and in particular the structure within which merchandisers and pre-sellers were engaged, is not unreasonable having regard to its operational requirements.”
Appeal
The union sought to appeal the retrenchments because it believed that the layoffs constituted a breach of merger conditions and that the retrenchments were thus unfair.
CCBSA was formed in May 2016 after the Competition Tribunal conditionally approved the merger of the Southern and East African bottling operations of the nonalcoholic ready-to-drink beverages businesses of the Coca-Cola Company, SABMiller and Gutsche Family Investments.
One of the conditions imposed by the tribunal was that the merged entity, which created the eighth-largest Coca-Cola bottling partner worldwide by revenue, would not let go off workers within three years of the tie-up. However, CCBA in 2019 retrenched nearly 400 employees, arguing it was forced to do so for operational reasons and its bottom line, which was affected by the introduction of the sugar tax.
The decision by the court hands Coca-Cola a second significant victory after the Constitutional Court in April ruled the retrenchments were part of business requirements, after the Competition Commission accused the company of sidestepping conditions of the 2016 merger.
In that matter, the competition watchdog accused the company of devising a plan to make several roles redundant and retrench workers who occupied those jobs and replace them with cheaper employees.
The legal warfare involving CCBSA, which accounts for about 40% of all Coca-Cola sales in Africa, comes as the company is planning to list on the JSE. The listing — said to be worth $8.1bn — has been delayed as the company waits for SA’s economy to rebound.
The SA Sugar Association has said the sugar industry has already lost more than 10,000 jobs and nearly R5bn in revenue since the implementation of the tax. In 2018, SA implemented the health promotion levy, an excise tax on sugar-sweetened beverages, to reduce obesity and the associated risk of diabetes, heart disease and cancer.
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