Discovery accused of quashing Virgin, Planet Fitness rivals

2015-12-08 15:53

Small, independent gym companies want the Competition Tribunal to stop the allegedly “toxic” alliance between medical aid Discovery and gym franchise Virgin Active.

Fit SA, a not-for-profit group representing small gyms outside the Virgin and Planet Fitness brands, has lodged a complaint against Discovery, the two gym groups as well as other medical aids.

The crux of the complaint is that Discovery, through its Vitality programme, subsidises membership to Virgin and Planet Fitness and, in so doing, makes all other gyms uncompetitive.

This amounts to a “restrictive vertical agreement” contrary to competition law, Fit SA says in the complaint.

Fit SA then makes a second complaint against Discovery for alleged abuse of dominance, claiming that the company actively blocks members of other medical aids from using their various reward or point schemes in a gym where Vitality points can be earned.

The tribunal published a notice about the complaint in the Government Gazette on Friday.

The same complaint had earlier been rejected by the Competition Commission because it did not accept that the Discovery agreements are exclusionary.

Instead, it replied to Fit SA that its members can evidently qualify for the same treatment from Discovery if they meet the requirement that they have a regional or national footprint – meaning several branches.

Virgin is by far the largest gym group in South Africa, with about 109 active gyms, says Fit SA.

Planet Fitness comes in a distant second, with 23.

Discovery is, in turn, the largest open medical aid scheme, with 2.4 million members.

The scheme is dominant and “certainly has market power”, says Fit SA’s company secretary, Barbara Haswell, in an affidavit to the tribunal.

In terms of membership, Virgin controls 61% of the gym market, with 600 000 members, she claims.

Planet Fitness controls about 10%, while all of Fit SA’s members together account for 39%, she says in her affidavit.

Fit SA claims to represent 44 small gym groups, most of which have one facility only.

The largest Fit SA member is Zone Fitness, which has 19 gyms.

Discovery’s deals with Virgin and Planet Fitness are “designed to ultimately eliminate competition”, claims Haswell.

Crucially, Fit SA alleges that Discovery is blocking its members from also joining in the Vitality system, hence making the deals “exclusionary” agreements that fall foul of competition law.

This was denied by Discovery in the earlier attempt to have the commission refer the case, but Haswell insists that the seemingly neutral requirements put to gyms are, in truth, only hypothetical.

In practice, the Vitality scheme is subsidising gym fees at Virgin and Planet Fitness by 60% or more, as part of its larger system of incentives to have members live healthily – and claim less medical expenses.

In effect, all the other gyms have to compete against 40% of the normal fees at the two major groups, says Haswell.

“The massive market power of Discovery ... creates huge potential for abuse and indeed has been used abusively.”

Haswell also claims that Discovery’s relatively recent new Vitality Fit benefit, which would seemingly allow independent gyms to take part, is actually designed to lure yet more gymgoers in lower-income groups towards Virgin and Planet Fitness.

The complaint also cites Momentum Health and its Multiply programme, as well as Liberty Medical Scheme and its Own Your Life Rewards programme, Spectramed, Agility and Sanlam’s Reality Lifestyle programme as respondents.

Fit SA wants the tribunal to order them to make any gym subsidies they offer members open to all gym groups.

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