The Competition Authority of Kenya (CAK) has wielded its regulatory might, imposing a record-setting fine of Sh1.1 billion on Majid Al Futtaim Hypermarkets Limited, better known as Carrefour. The penalty stems from a lengthy investigation prompted by grievances lodged by two manufacturers, Woodlands Company Limited and Pwani Oil Products Limited, both raising concerns about supplier abuse.
The CAK’s findings expose a range of exploitative practices employed by Carrefour, including the discounting of suppliers’ invoices and the imposition of rebates that are subsequently translated into consumer discount offers. Such maneuvers, deemed abusive under the Competition Act, contribute to a distortion in market dynamics, affecting both suppliers and consumers.
The abuse of buyer power, as outlined by the CAK, encompasses various tactics such as significant reductions in supplier prices, unjustifiable contract terminations, delayed payments, unwarranted refusal to receive or return goods, and the shifting of costs and risks onto suppliers. Carrefour’s transgressions have compelled the regulatory body to demand a comprehensive overhaul of its supplier contracts, expunging clauses that facilitate such abuse.
Beyond the financial penalty, Carrefour is mandated to reimburse the aggrieved suppliers a total of Sh16.7 million in rebates and Sh500,000 in marketing support, which includes free products to bolster new stores and fees related to listing products on Carrefour shelves.
Carrefour’s supplier contracts stipulate a requirement for suppliers to adhere to three non-negotiable rebates, reaching as high as 12 percent and deductible annually and monthly based on the turnover of each product supply. These contractual obligations have been central to the retail giant’s strategy to expand its market share since entering the Kenyan market in 2016, albeit at the expense of its suppliers.
The magnitude of the sanctions imposed by the CAK marks a historic milestone, eclipsing the Sh338.8 million fines levied against steel manufacturers accused of price fixing in July. Dr. Adano Wario, the Acting Director General of the CAK, highlighted the adverse impact of Carrefour’s practices on the upstream supplier market, particularly affecting small and medium-sized enterprises (SMEs) in the manufacturing sector.
Despite Carrefour’s standing as the fourth-largest retailer by branch network, trailing behind Naivas, Quickmart, and Chandarana, the repercussions of the CAK’s enforcement action underscore the imperative for ethical and equitable business practices in Kenya’s retail landscape. As the dust settles on this landmark decision, industry stakeholders are left pondering the broader implications for buyer-supplier dynamics and the pursuit of a fair and sustainable marketplace.
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