Black-owned KZN supermarket group claims it was unfairly targeted by Massmart
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Durban - A local black-owned supermarket group that has gone out of business has accused a Walmart-controlled company of crippling its once profitable operations.
The Checkout chain of supermarkets has filed a multibillion-rand counter damages claim after being issued R110 million summons by Shield Buying and Distribution Proprietary Limited, a Walmart-owned company, for outstanding debt.
It has been a rags-to-riches story for a family that grew the Checkout chain of supermarkets to 48 country-wide outlets, since 1976.
Checkout claimed in court documents that Shield cut its credit facilities without notice in 2017, which had a devastating effect on its operations.
In its contract with Shield, which was amended in 2014, it was agreed there would be no meddling with Checkout’s credit facility unless it was by mutual agreement.
Short on stock, Checkout’s stores were unable to service customers’ needs. Its profitability plummeted and, as its financial position worsened, about 1 700 staff members had to be released.
Checkout’s management applied for business rescue in December 2019 and the appointed practitioners are about to conclude the sale of the 45-year-old supermarket chain.
Shield served the summons in January 2020 via the Durban High Court.
Check One Supermarket (Pty) is listed as respondent one. Mohammed Riaz Abdoola and the Wishing Stone Investments (Pty) are the other respondents.
Abdoola was the chief executive of Check One and a director in Wishing Stone.
Shield uses its purchasing power to buy in bulk from manufacturers and supply goods on credit to affiliated independent supermarket groups, like Checkout.
Rebates, discounts and other incentives are how Shield rewards customers, according to contractual stipulations, for managing their credit facilities well.
Checkout has had business relations with Shield for 40 years and was rated its best customer.
In the summons, Shield claimed Checkout owed R110762 657 for goods sold and delivered.
Having dealt with Shield, Abdoola was nominated to respond on behalf of Checkout.
He rejected Shield’s claim as “unjust, unethical” and smacked of “heavy handedness”. He said that Checkout was invoiced for goods it had not received and was owed more than R100m in rebates.
He provided reconciled August 2019 purchases statements for five Checkout stores, which showed that Shield had over-stated its account by more than R30m.
He said Shield was aware of the discrepancies and inaccuracies in its accounting.
Abdoola said it was Shield’s responsibility to provide reconciled accounts before making demands, but it was clear it did not have the necessary invoices to support its claim.
In launching its counter claim, Checkout stressed that Shield’s move to reduce its credit by more than half was a killer blow.
Its growth as a business brand was greatly dependent on the credit facility with Shield, which enabled it to compete with top players in the industry through the promotions and discounts.
Checkout’s direct purchases from Shield in 2014 were nearly R570m and a year and later they were more than R700m.
In 2016/17 financial term, Checkout reported turnover of nearly R2.2 billion, of which nearly R400m was operating profit.
But according to Checkout’s management, that’s when Shield began to work against it.
Shield had been privately owned until Massmart took over in 1992, and it was listed on the JSE in 2002.
Massmart bought a minor supermarket group called Cambridge Foods in 2009.
Walmart bought the controlling interest in Massmart in 2011 and went on a buying spree of independent supermarkets, which then traded in the name of Cambridge.
Walmart restructured its South African operations in 2017, which placed Shield in a position of conflict with Checkout because the same executive that managed Cambridge, handled Shield.
Walmart had already been on a mission since 2014 to grow Cambridge from 47 stores to 100 by 2017, and targeted sites where Checkout was already trading.
Shield had full knowledge of Checkout’s business details and its rival, Cambridge, was privy to that.
Checkout claimed its credit facility was deliberately reduced from around R330m to R150m, without notice or explanation.
This facility was eventually suspended, despite numerous meetings with Shield and the company that insured Checkout’s debt, to have its credit reinstated.
Shield’s list of suppliers was about 1 000 and, according to the agreement it had with manufacturers, it was contractually bound and could not supply goods to Checkout.
Checkout has asked that Shield’s claim be dismissed and that it be compensated for its reputational damage and loss of earnings for both the business and Abdool.
It estimated its turnover in 2020 would have been beyond R3bn and its gross profit over R550m.
Since January 2020, both parties have been locked in a legal wrangle over their respective claims.
In April, Shield’s legal team applied for condonation in not submitting its response to Checkout’s counterclaim, within the prescribed time.
Brain Leroni, Massmart’s senior vice-president group corporate affairs said: “The allegations made by Check One Supermarket (Pty), Mohammed Riaz Abdoola and Wishing Stone Investments (Pty) are baseless and without merit.
“Legal proceedings were initiated by the Shield Buying group in January 2020 as a last resort, after unsuccessful attempts, over an extended period of time, to recover R110m owed to Shield for merchandise supplied.
“The fact that they appear to have resorted to the media to state their case is indicative of their lack of confidence in their legal prospects in the matter before the court.”