Choppies, Sefalana turf wars resurface
Brian Benza | Wednesday July 13, 2016 18:00
This time around, a deal that Choppies CEO, Ramachandran Ottapathu is pursuing in his personal capacity has emerged as the eye of a storm that has reignited the fresh battle with competitor, Sefalana Holdings.
On Monday, Sefalana Holdings implored the Competition Authority (CA) to block a transaction in which Ottapathu seeks to buy four local companies, two of which are suppliers to the former.
At the centre of the new conflict are fears that Ottapathu might end up “abusing” the acquired entities for the betterment of Choppies at the detriment of competitors.
Citing competition concerns, Sefalana managing director Chandra Chauhan pleaded with the Authority to block the proposed deal arguing that although Ottapathu would be buying in his personal capacity, the Choppies boss might use his new acquisitions to disadvantage Sefalana in an uncompetitive manner.
The proposed transaction involves Bluehearts Pvt Ltd, a company wholly owned by Ottapathu, looking to buy Warbler Holdings, a holding company for the four firms, IT4 Africa (Pty) Ltd, Goldtech Enterprises (Pty) Ltd, Healthwest Africa (Pty) Ltd and Solid Logistics (Pty) Ltd.
Goldtech Holdings and Healthwest are suppliers to Sefalana with the former distributing home and kitchen appliances, personal grooming products and consumer electronics under the brand names of Samsung, Kenwood, Wahl and Sinotec.
On the other hand, Healthwest Africa supplies Sefalana with home appliances, consumer electronics and personal grooming and kitchen appliances under the brand name of Hisense and Philips.
In a letter presented to the CA during Monday’s public hearing, Chauhan lobbied for the acquisition to be rejected because the transaction would enable Ottapathu to offer Choppies better and preferential deals on products currently sourced from Goldtech and Healthwest by Sefalana.
Although Choppies does not currently sell these products, Chauhan fears there is nothing that would stop them from venturing into that line of business in future and the new structure would enable Ottapathu to gain personally from both the supply of the products by the targeted enterprises and also the sourcing of the products by Choppies, where he is CEO.
“Sefalana group is of the view that the proposed transaction should be rejected because such structure would manifest a monopolistic position over time and would not allow Sefalana and Choppies to compete on a fair and level playing field,” he argued.
Chauhan said if the proposed acquisition was allowed, it would mean that Ottapathu would be a supplier to the Sefalana group and would therefore have access to, and influence over pricing offered to them.
“Sefalana currently procures a wide range of products from the companies that are targeted by Ottapathu and we have done so for many years. These include brands such as Samsung and Hisense. Goldtech is the sole supplier of Samsung products in Botswana and if the acquisition is allowed it means that we will be at the mercy of a dominant shareholder of a competitor business,” Chauhan said.
The Sefalana boss added that Ottapathu would have access to their promotional calendar and would be privy to the items that are being promoted, the cost of the items that are being sold to Sefalana and discounts applied.
“Access to that would enable Ottapathu to unfairly counter the promotional activity in our outlets by running promotions in his Choppies outlets at preferential terms,” he added.
Chauhan argued that it is important for retailers to be seen as trendsetters and have the latest product lines available for their customers noting that once the acquisition is done, new product launches will not be done fairly and that these will be channelled into the business where Ottapathu has a stake in.
In his defence, Ottapathu said the proposed acquisition is just a business move noting that he intends to expand the businesses while creating jobs in the process.
“I don’t have intentions to do anything that have been argued by Choppies’ competitors, all I want to do is expand the business and create jobs. Choppies is just concentrating on its core business, which are groceries. However, I cannot say anything about the future of Choppies because I don’t own it, I am just a part shareholder,” he said. When contacted for further comment by Mmegi Business, Ottapathu declined to divulge financial details of the transaction citing confidentiality concerns with Warbler Holdings’ director, Meempat Narayan.
Choppies, which is now the dominant player in FMCG business, has had a long-standing rivalry with Sefalana.
In 2013, Sefalana dragged the CA to the courts after it was riled by the watchdog’s decision to allow the acquisition of supermarket chain, SupaSave and Megasave by the Choppies group.
Citing market share concerns, Sefalana went to court after it lost the bid to acquire SupaSave and its distribution wing, MegaSave to Choppies.
The acquisition was expected to take Choppies’ mass grocery retail market share beyond 30%, a statutory figure for caution according to the Competition Act. Sefalana later withdrew the lawsuit.