Takealot ordered to make massive changes to ease competition
The Competition Commission has published its final report of its Online Intermediation Platforms Market Inquiry, which requires Takealot to make sweeping changes to its operations to resolve issues of uncompetitive behaviour identified.
Broadly, the online retailer will need to:
- Stop forcing pricing limits on marketplace retailers;
- Split its marketplace and retail operations;
- Change how it displays highlighted products;
- Boost previously disadvantaged businesses by giving them a leg up on its platform.
While the inquiry investigated a host of online platforms and activities in South Africa, online retail giant Takealot was identified as the dominant player in the e-commerce space.
According to the commission, Takealot has a dominant share of overall online sales in South Africa, including other e-commerce platforms and direct retailer or manufacturer sales channels.
“Takealot has an even stronger position in providing online marketplace services to sellers. In essence, they allow businesses to trade within the Takealot platform by listing products on their customer website and using their warehouse and logistics services to fulfil orders for a fee,” it said.
Because smaller businesses wishing to trade on online marketplaces in South Africa are highly dependent on Takealot, the retailer has a certain competitive advantage over others, and various conflicts of interest were identified in the inquiry.
For one thing, Takealot imposes on sellers ‘narrow price parity’, which prevents them from pricing lower on their own websites, effectively blocking them from reducing their dependency on Takealot by developing this alternative online channel.
The inquiry found that Takealot’s narrow price parity clause distorts competition and the first big operational change requires Takealot to remove this clause and inform all marketplace sellers on its platform.
Another behaviour flagged by the inquiry relates to Takelot’s internal trading.
While Takealot opens its online marketplace to third-party sellers, it also trades extensively itself through the Takealot Retail division. This creates a conflict of interest as it sets the rules for the marketplace and, at the same time, competes with the marketplace sellers, the commission said.
“Takealot, too, has incentives to favour itself, and at the very least, its retail buyers on sales commission have strong incentives to tilt the balance in their favour,” it said.
This reveals itself in several ways:
- Unilateral product gating – not at the supplier’s request – which prevents marketplace sellers from selling certain brands on Takealot in competition with its own retail.
- The use of seller data by Takealot buyers to inform their own retail offering on the marketplace and Takealot private label team to develop their own private label lines. This unfairly free-rides on sellers that have invested in developing or identifying products that may appeal to SA consumers, take risk on trialing those products on the marketplace and invest in promoting those products to build awareness and popularity, both on and off the platform.
- The pressuring of suppliers by Takealot retail buyers where they are outcompeted on the platform by marketplace sellers selling the same product, resulting in the suppliers either raising their price to the marketplace sellers or threatening sellers with non-supply if they do not soften competition.
- The Takealot ‘Buy Box’ for branded items with multiple sellers selects the cheapest price of those in-stock in the warehouse, rather than the cheapest price regardless of lead time. As consumers mostly select the Buy Box item, this favours Takealot retail as their products are generally in the warehouse.
- Marketplace seller applications for promotional participation are materially less likely to be successful than Takealot’s own retail buyers.
- The failure to resolve numerous disputes within a reasonable time frame where the marketplace seller is left bearing the cost of the dispute in the interim.
To address these distortions arising from the conflict of interest, the Competition Commission said that Takealot is required to segregate its Retail division from its Marketplace operations and to prevent its retail services from accessing seller data and unilaterally stopping sellers from competing for certain brands.
Further measures include:
- Takealot is required to contain the incentives by its own retail buyers and staff include extending the employee code of conduct and independent complaints channel to include contraventions based on unfairly harming marketplace sellers that may result in disciplinary action.
- Takealot must introduce a 60 day dispute resolution process for marketplace sellers complaints on returns and stock loss which will be deemed resolved in favourof the seller if not resolved within 60 days.
- The Buy Box must be re-engineered to reflect the cheapest (regardless of delivery time) and fastest options for the consumer.
In addition to the operational changes, the inquiry found that more ineeds to be done to boost the businesses of historically disadvantaged people and businesses (HDP).
The commission said that the business model in e-commerce currently provides additional restrictions to the participation of HDPs – amongst them that onboarding favours established businesses along with other promotional features.
To address this distortion, Takealot is to implement an HDP Programme that provides:
- (i) personalised onboarding, the waiver of subscription fees for the first three months and at least R2000 advertising credit for use in the first three months;
- (ii) offering promotional rebates and the inclusion of HDPs in HDP-specific campaigns on the platform; and
- (iii) a programme to specifically support targeted groups within HDPs such as female, youth and rural enterprises with business mentoring and funding support.
Notably, the commission said that rumours have persisted during the inquiry that global retail giant, Amazon, would be entering the South African market.
The commission said that even though Amazon has not officially entered the market, were it to do so – or any other large online retailer for that matter – it would be expected to comply with the same provisions set out for Takealot.
If Takealot does not comply with the remedial actions, the commission will follow the necessary processes, which may see the retailer brought before the Competition Tribunal to face further action.
Read: Major investigation into Takealot, UberEats and Google in South Africa – final deadline set
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