The proposed liquor bill, scheduled to go before parliament shortly, appears to have incorporated many of the principles of the last bill which the then president, Nelson Mandela, submitted to the constitutional court and then did not sign into law. To the extent therefore that there were potential difficulties between the avowed objects of the bill and the likely outcome of its conditions, the same is likely to be true of the new draft.
Of these, the most important is the principle, enshrined by the DTI at the outset of the process, that liquor sales in South Africa would be restructured in such a way that a three tier licensing set-up would apply. Whether or not the Department was inspired by the post Prohibition American model is actually irrelevant, though the fact that the United States is now moving away from the system which is inefficient, inflationary, and uncommercial, should have some bearing on this discussion.
It appears that those drafting the legislation believe that the imposition of the three tier structure would expedite empowerment opportunities in the industry. By preventing producers from distributing, and distributors from retailing, they see the prospect of opportunities for PDIs to enter the industry.
Sadly, the reality will be different. Retailers will only buy products which they believe will sell. Distributors will only service products for which they have a retail demand. Therefore, distributors will only purchase goods which already enjoy brand equity.
The consequences of this on newcomers and small businesses will be destructive. New producers or those who, for historical or financial reasons, do not have powerful brands, will be unable to get their goods to market since the distributors will refuse to carry them. This in turn will entrench the power of the existing brand owners whose present position is indisputably monopolistic. Moreover, since these producers will control the centre of gravity of the trade. they will be in a position to play distributors off against each other, thus eroding their margins and limiting competition in the second tier.
Retailers will only be offered strongly branded products since this will be all that is regularly available from the distributors. They will find themselves stocking those products whose brand equity produces maximum profit at the first tier (production / brand ownership) and least margin at retail where they are often offered as loss leaders to bring traffic into the stores. A retail environment dominated by the big brands will offer few economies of scale. This in turn will erode trading margin and limit the prospects for newcomers to attempt to gain a toehold in this sector.
There are other equally important issues of which the management of this unwieldy structure is undoubtedly the most significant. Since a multi4iered trade is inimical to the efficient working of the marketplace, the natural tendency of industry would be to breach the regulations. In other words, to maintain the cumbersome three-tier model will require a massive policing effort which, if it is to be successful, will have cost implications that must be inflationary in nature.
If, however, it proves impossible to force a strict application of the new legislation, the new act will contribute to the already serious problems we have in a country in which there is little respect for law and order and a widespread perception that crime pays.
There are other less significant issues associated with the current draft but which certainly need to be addressed before the bill becomes law. For example, the provision that retail licensees (third sector) may only sell to consumers makes it impossible for retail traders to transfer goods between one store and another, or even for bottle store owners to supply small restaurants.
It is clear from these concerns that the bill requires dramatic amendment if it is to fulfil its purpose and to facilitate trade.