Competition Authority of Kenya (CAK) said in a statement the supermarket, registered as Majid Al Futtaim Hypermarkets Limited, which trades in Kenya under the brand name Carrefour, had separately abused its superior bargaining position against two suppliers.
The competition watchdog consequently fined the supermarket a total of Sh. 1,108,327,873.60 for abusing its superior bargaining position over Pwani Oil Products Limited and Woodlands Company Limited.
The statement said Woodlands processes and supplies retail stores across the country with refined natural bee honey from Kitui County while Pwani Oil processes and supplies Fast-Moving Consumer Goods, specifically edible oil/fats, skin-care products and washing soap products.
“While appearing to enable an offender to offer lower prices to consumers, this apparent benefit is short-term and unjustifiable when placed against the long-term damage caused to the upstream supplier market, including forced exits, especially by SMEs in the manufacturing sector,” CAK said in the statement.
The Authority’s Acting Director-General, Dr. Adano Wario, noted that abuse of buyer power is typically meted out on Small and Medium-Sized Enterprises (SMEs) who accept adverse conditions from their powerful buyers who control critical infrastructure and access to consumers, such as a country-wide network of branches.
Investigations conducted by CAK revealed 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 said.
Specifically, Woodlands was required to provide one carton per stock-keeping unit (SKU) and pay Ksh. 50,000 as a condition to commence supplies at new branches.
Pwani Oil, added the statement, was required to provide two free cartons per SKU and pay Ksh. 200,000 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,” CAK added.
SMEs account for 98% of all businesses in Kenya, contribute up to 40% of GDP and are the source of livelihood for millions of Kenyans, directly and indirectly. However, despite their centrality to economic progress, SMEs in the country contend with various challenges leading to the closure of many businesses in infancy.
“At the core of the Authority’s mandate execution is promotion of inclusive economic development. Abuse of buyer power defeats this aspiration by crippling suppliers, who are mostly SMEs, and whose contribution to our economy cannot be overstated,” said Dr. Wario.
Further, the supermarket chain is required to amend all its supplier contracts and expunge clauses that facilitate abuse of buyer power, including but not limited to application of listing fees, collection of rebates, and unilateral delisting of suppliers.
The retailer has also been ordered to refund Sh.16.7 Million in irregular rebates and expunge all clauses in its contracts that facilitate abuse of buyer power.
The Authority has also ordered Carrefour to refund the Woodlands and Pwani Oil a total of Ksh. 16,757,899 in rebates deducted from their invoices as well as Ksh.500,000 that was billed as marketing support (store opening/listing fees).
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. Carrefour charges its suppliers at least three types of non-negotiable rebates that are as high as 12%. The rebates are deductible annually and monthly and have been increasing on an annual basis, thereby significantly reducing the final pay-out to suppliers.
Whereas businesses have the freedom to enter into contracts with each other, these agreements should not unjustifiably disenfranchise the weaker party and must facilitate negotiations without reprisal, he added.
Shaka Kariuki, the Authority’s Board Chairman, said the CAK aligns its interventions with the Government’s agenda of promoting growth of SMEs and the manufacturing sector, while ensuring that its actions positively impact as many Kenyans as possible.
“Our role as a regulator is to promote healthy competition in our markets with the overall objective of creating a conducive business environment for attracting investment into the national economy and to the benefit of consumers,” Kariuki said.
“The penalty the Authority has issued serves as a stern reminder and deterrent to businesses not to engage in any conduct that infringes the Competition Act. Effective competition benefits us all.”
Carrefour was penalized Sh. 554,163,936.80 and further directed to refund rebates deducted from Pwani Oil’s invoices in 2022 and 2023 amounting to Sh. 15,923,719.
Further the retailer has been ordered to refund Pwani Oil Sh. 400,000 being monies paid as marketing support for store opening during the same period.
When calculating the penalty, the Authority considers, among others, the nature of the contravention, duration and scale of the violation, as well as cooperation by the parties.