Carrefour supermarket to pay Ksh1.1 billion penalty for abusing buyer power

The Competition Authority of Kenya (CAK) has penalized Carrefour supermarket Ksh1.1 billion for abusing its buyer power over its suppliers.

CAK has also ordered Carrefour to refund the Woodlands and Pwani Oil a total of Ksh16.7 million in rebates deducted from their invoices as well as Ksh500,000 that was billed as marketing support (store opening/listing fees).

At the same time, Carrefour has also been ordered to expunge all clauses in its contracts that facilitate abuse of buyer power.

In a statement on Tuesday, December 19, the authority noted that its investigations had established that Carrefour charges its suppliers at least three types of non-negotiable rebates that are as high as 12 percent.

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“In executing this mandate, the Authority has pursuant to investigations penalized Majid Al Futtaim Hypermarkets Limited, which trades in Kenya under the brand name Carrefour, a total of Ksh1,108,327,873.60 for separately abusing its superior bargaining position over two of its suppliers – Pwani Oil Products Limited and Woodlands Company Limited,” read part of the CAK statement.

Carrefour opened its first branch in Kenya in 2016 and has developed into one of the fastest growing supermarkets in the country.

Buyer power is the ability of a powerful buyer to obtain terms of supply outside the scope of normal business practices or that are disproportionate, unfair and detrimental to a supplier, or unrelated to the objective of a supply contract.

It is the ability of a buyer to reduce profitability below a supplier’s normal selling price, or more generally, obtain terms of supply more favourable than a supplier’s ordinary contractual terms.

On the other hand, rebates are a refund of a percentage of sale offered by a supplier to its customer, for example a retailer, in exchange for a benefit such as early payment by the retailer, or as reward for surpassing designated purchasing targets, or an incentive for increase of volumes ordered by the retailer.

The rebates are deductible annually and monthly and have been increasing on an annual basis, thereby significantly reducing the final pay-out to suppliers.

“Investigations also determined that Carrefour’s suppliers are required to provide free products and pay listing fees for every new branch opened as well as post employees to the supermarket’s branches.

“These practices amount to transfer of the retailer’s costs to suppliers, which is prohibited by the Competition Act,” CAK noted.

For instance, Woodlands was required to provide one carton per stock-keeping unit (SKU) and pay Ksh50,000 as a condition to commence supplies at new branches.

Pwani Oil was required to provide two free cartons per SKU and pay Ksh200,000 for similar purposes.

Given that one product has several SKUs based on variants produced, this requirement has significant financial implications on the profitability and competitiveness of suppliers.