Takealot targeted for its dominance in South Africa

Takealot is the biggest online store in South Africa by a significant margin, and it offers a wide selection of products across many categories and exceptional delivery services.

The company has grown substantially over the past few years, aided by the success of its in-house delivery team which ensures quick turnaround times for online orders.

Takealot’s dominance is cemented through its successful economic strategy, although a number of retailers have expressed concern over the amount of power the company wields over South African ecommerce.

An example of this power is evident through the process required to sell items through the Takealot Marketplace – a platform for third-party sellers to make their stock available through Takealot’s online portal.

While this marketplace has competitors, retailers have said the sales generated through Takealot completely dwarf those of other platforms.

“Takealot is probably 95% of our turnover,” one seller told MyBroadband. “For every 30-40 orders on Takealot, we maybe do one on our own website.”

Takealot’s significant investment in logistics and the quality of its service have led to it dominate the ecommerce industry locally, and smaller retailers who want to sell through its platform have to pay a cost to do so, forgoing a percentage of their revenue and autonomy.

The online retail giant’s success has not gone unnoticed by regulators, however, and the Competition Commission has taken a special interest in Takealot.

Competition concerns

In a whitepaper titled “Competition in the Digital Economy”, the Competition Commission identified the need for new regulations which would enable competition and prevent anti-competitive behaviour in a number of emerging industries.

The document is sweeping, and it posits that the Commission’s purview may extend to everything from the storage of personal data to promoting inclusion in the financial services sector.

Takealot is mentioned explicitly, with the Commission noting that it wields significant power in the online shopping sector.

“The most popular digital platforms around the world are widely used in South Africa but Internet usage takes on a local flavour in financial service platforms and e-commerce, where some traditional stores with an online presence and Takealot – which is part of the Naspers group – dominate the scene,” the Commission said.

It explained that digital markets are often “tipping markets”, which means there is an often a single dominant platform which expands to dominate the industry.

In this respect, the Commission likened Takealot’s dominance in South Africa to that of Amazon in the United States and Alibaba in China.

Abuse of dominance

A number of concerns related to the abuse of dominance by companies such as Takealot were listed in the document.

They included the following anti-competitive behaviours potentially enabled by the relative scale of these companies:

  • Information edge – Companies can benefit from owning a platform and simultaneously competing with sellers on that platform. This enables the platform owner to use the information it collects from the seller to its advantage and the disadvantage of the seller.
  • Self-preferencing – Digital platforms can give preferential treatment to their services over the services of other companies and as such maintain their positions of dominance.
  • Conglomeration – Conglomeration has the potential to negatively impact inclusive growth, even where several big players are competing. This is particularly concerning in the South African context where market concentration levels are already high, and the likely impact of increased conglomeration raises barriers to entry for potential entrants.
  • Online resale price maintenance – Manufacturers and distributors can agree to sell the manufacturer’s product at certain prices.

The Commission stated that regulatory intervention should be structured in a way that reduces the ability for dominant platforms like Takealot to engage in this type of behaviour.

It also alluded to the strong and immediate action needed to improve competition in the local digital market.

“A decisive and proactive stance needs to be taken in order to ensure the balance of economic forces favour a shift to facilitating entry and a more competitive digital market,” Competition Commission.

“This requires removing the entry barriers, including those erected by dominant platforms, and preventing consolidation at this critical moment in the development of the online economy in South Africa.”

Takealot did not respond to requests for comment sent by MyBroadband.

“The Commission is currently engaged in a 30-day stakeholder engagement exercise on how best to regulate the digital economy,” the Commission told MyBroadband.

“We would welcome all proposals, comments, and suggestions from interested parties during this consultation window period.”

Now read: Awesome tech deals from Takealot and Incredible Connection

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Takealot targeted for its dominance in South Africa