Duty-free booze sales to diplomats: Distell, black-owned business locked in battle

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  • Liquor giant Distell and black-owned duty-free business Nu Africa are locked in a bitter battle over the sale of liquor to diplomats.
  • Duty-free liquor is a key diplomatic privilege in South Africa, but some diplomats have resold the booze at a large profit.
  • Distell refuses to sell its products to Nu Africa amid these concerns, but Nu Africa denies that it is part of the problem - and accuses Distell of abusing its dominant position.
  • For more financial news, go to the News24 Business front page.

Liquor giant Distell and black-owned duty-free business Nu Africa are locked in a bitter battle over the sale of liquor to diplomats.

Duty-free liquor is a key diplomatic privilege in South Africa, but diplomats must purchase reasonable or moderate quantities and are not permitted to resell products.

However, the system has been abused. Last year, South Africa expelled diplomats from Malawi and Lesotho for the illicit sale of alcohol that cheated the taxman out of R100 million a month.

Currently, the targeted excise tax burdens for wine, beer and spirits are 11%, 23% and 36% of the weighted average retail prices, respectively - which amounts to a significant discount, particularly at wholesale prices in large quantities.

Nu Africa sells most of its alcohol into seafaring and diplomatic circles. Distell, the country's biggest liquor producer, has refused to sell its products to Nu Africa – prompting the latter to take its complaint against Distell to the Competition Tribunal. Hearings into the matter started this week.

By bringing the matter before the tribunal, Nu Africa is hoping to compel Distell to resume supplying them with alcohol, saying their unwillingness to do so amounts to abuse of dominance that is undermining their profits.

Distell owns brands like Savanna, Amarula, Bain’s, Three Ships, Harrier, Richelieu, Nederburg, and Durbanville Hills. Nu Africa director Prudence Shongwe says some of these products have earned particular favour with foreign diplomats, who instead go to competitors still receiving supply. 

To counter this, Shongwe says they have been forced to purchase Distell products from competitors and are now losing out on wholesale duty-free deals. Distell’s dominance in the market, Shongwe says, forces them to keep buying Distell products even if Distell is not interested in the business.

"Even though Distell has stopped supplying us, we still support them. And even though we make a loss, we still support Distell," Shongwe said during testimony.

During the hearings, Distell accused Nu Africa of being complicit in the illicit sale of alcohol to diplomats.

To counter duty-free products entering the duty-paid market, Distell tracks lot numbers and places unique tracking codes on individual bottles, traceable to individual customers. Distell claims that Nu Africa’s unique tracking code, and items from their unique lot, has turned up in the open market at least four times.

Diplomats buying large quantities of spirits

But Shongwe vehemently denies that Nu Africa is the source of duty-free products entering the duty-paid market. This practice would amount to the sale of illicit alcohol, otherwise known as "tax leakage".

Central to Distell’s concerns is that Nu Africa sold more liquor to diplomats than stipulated in their risk implementation plan. This plan is an undertaking between Nu Africa and the South African Revenue Service (SARS) that limited customers to buying just two cartons of cigarettes and one mixed box of alcohol each.

But in one instance in 2017, the Burundi embassy bought 50 cases, or 720 bottles, of spirits in a single day, Distell contends.

Distell legal representative Greta Engelbrecht asked Shongwe if alcohol purchases of this quantity raised a concern that diplomats may be "doing something improper with this alcohol".

Shongwe responded that once the sale has been concluded, Nu Africa has no responsibility to keep tabs on the liquor and whether customers resell it.

"I’m not in line to police what the diplomats do with their products. They have a Diplomatic Immunity and Privileges Act that protects them. What the diplomats do with their stuff, I can’t police," she said.

Shongwe admitted to selling more liquor to diplomats than stipulated in the risk implementation plan, but says other duty-free outlets are flouting the limits, and card-carrying diplomats have found ways around restrictions.

"What we normally see is diplomats coming with a spouse’s cards, their family cards, their member’s cards, which are also diplomats allowed to buy [alcohol]. And they use those cards to buy. Why would I want to lose the sale that my competitors would be doing? If I don’t supply this diplomat, he’s going to go to the competitors," Shongwe said.

Nu Africa first locked horns with Distell in 2016 and requested the Competition Commission look into a case of abuse of dominance. 

The Competition Commission decided not to refer the matter, and instead, Nu Africa chose to self-refer it to the tribunal, which is currently ongoing.

Earlier this year, the commission approved the Dutch beer giant Heineken's proposed acquisition of Distell.

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