Class action against bread producers

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Since the onset of the case with the Competition Commission for collusive behavior, three of South Africa’s major bread producers; Pioneer Food Group, Tiger Brands and Premier Foods, have found themselves under the spotlight. Earlier this year, Pioneer Foods was the last to receive judgement upon which they were ordered to pay a hefty sum in the region of R1 billion. However, the saga was not yet over.

Last week Friday consumer organizations, Cosatu and activist groups, as well as 5 individual consumers, applied for 2 class actions against the bread producers.

On Tuesday, in the latest development, the accusatory organizations pushed for certification as representatives of all bread eaters in the Western Cape. Some might recall that Tiger Brands’ official case was concluded in 2007, and the three year prescription period comes to a close on Friday, which made the application all the more urgent so that a summons could be served. However, the hearing has since been adjourned until next week Tuesday, effectively taking Tiger Brands out of the fray.

The motions against the producers are driven by claims that penalties already paid to the state did not do enough to compensate for the average consumer who also suffered due to the collusion. In particular concerns were raised for the impoverished who suffered severely as a large portion of whatever income they receive goes to buying bread as it’s a staple food for many of them.

Taking all this into account, what do the plaintiffs truly expect to happen? Is it realistic to expect these producers to pay out yet another large sum which would go to the consumers? And if so, how would this payment be administered and redistributed? After all, how much did the collusion really affect the prices paid by average consumers, with only a few cents being added per loaf here and there.

If successful a class action could be very costly, particularly for Pioneer Foods, who earlier this month revealed that they are looking to acquire KWV and expect to pay a premium for the prestigious winemaker.

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South African retailers enter deflationary period.

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Defining Deflation
Coming off of an extended period of relatively high inflation, retailers are suddenly forced to contend with a new issue, deflation. What are the consequences thereof and how will retailers deal with this new obstacle?

An important distinction to be made early-on is the difference between disinflation and deflation. The former refers to a period during which inflation is still positive but decreasing over time. Deflation on the other hand, defines a period of negative inflation, i.e. Inflation is at, or lower than, 0%. Generally speaking, 2% inflation is regarded as a safe buffer against deflation.

Effectively what results during a period of internal deflation, is that the cost of keeping a SKU on shelf increases while its value decreases. This puts retailers in a difficult position as they literally cannot afford to drop prices to drive revenue. Furthermore, it may lead to consumers assuming that prices will continue to drop which in turn leads them to put off purchases, further exacerbating the situation.

Shoprite has managed to keep its head above water during increasingly trying economic times. Its turnover in the quarter ended September grew by 9.7%, and its core business, which includes the Shoprite chain, the U-Save Shoprite format and Checkers, grew turnover by 8.5% while internal food inflation averaged negative 1.5%. It has been a while since such negative growth has been experienced and it will certainly make efforts to stimulate turnover growth and increase gross profit margins more challenging.

Pick n Pay are facing similar problems as they admitted last week that “there had been significant pressure on the [their] margins as food inflation was below the growth in the consumer price index.” In August last year, internal food inflation was at 9.8% but has since fallen to 0.1%.

Although early signs are showing, it is yet uncertain if retailers are headed for full deflation. If the current rapid disinflation can be stemmed, it might be possible to disregard the former all together.


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South African Retailers have managed to maintain positive growth for 6 consecutive months in a tough economic environment. Although the retail sector as a whole experienced growth, not all the fortunes were positive. Massmart were particularly hard hit and experienced a drop in their annual earnings, which caused their share prices to drop by almost 9%. One company however, outshone the rest.

Africa’s biggest grocer, Shoprite Holdings, managed to outperform the competition yet again. Over the year to June 2010 it held an impressive 32.6% share of the market, the highest of all supermarket groups in South Africa, up from 31.4% a year ago. Annual turnover increased 13.6% to R64, 402 billion and their trading profit rose 18.7%. Headline earnings per share rose 15.6% to 451.6 cents, good news for investors who have been snapping up retailers due to increased consumer demand.

The consistent, positive growth of the retail giant has afforded it the opportunity to invest in a aggressive expansion strattegy. Over the next financial year, Shoprite will seek to borrow up to R3.5 billion to facilitate the plans which include opening 85 stores in Africa.

Through the years Shoprite Holdings has proved itself as a formidable retailer in South Africa and have secured their position as Africa’s leading retailer.


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