Carrefour hit with 'record' Sh1.1bn fine over abuse of buyer power
A Carrefour outlet branding at Two Rivers Mall as seen on April 29, 2019.
The Competition Authority of Kenya (CAK) has sanctioned French retail chain Carrefour for abuse of buyer power.
Following an investigation, the Authority fined Carrefour Sh1,108,327,873.60 for separately abusing its superior bargaining power over two of its suppliers - Pwani Oil Products Limited and Woodlands Company Limited.
Woodlands processes and supplies refined natural bee honey from Kitui County to retail outlets across the country, while Pwani Oil processes and supplies consumer goods including edible oils and fats, skin care products and laundry soap products.
The supermarket chain is also required to amend all its supplier contracts to remove clauses that facilitate the abuse of buyer power, including but not limited to the imposition of listing fees, the collection of rebates and the unilateral delisting of suppliers.
The Authority has also ordered Carrefour to reimburse the two suppliers a total of Sh16,757,899 in rebates deducted from their invoices and Sh500,000 charged as marketing support (store opening/listing fees).
Buyer Power
Buyer power refers to the ability of a powerful buyer to obtain supply conditions that are 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.
Buyer power is the ability of a buyer to reduce profitability below a supplier's normal selling price or, more generally, to obtain more favourable supply terms than the supplier's normal contractual terms.
Relationship with suppliers
This is not the first time Carrefour is finding itself in hot water over its relations with suppliers. In April 2021, the Competition Tribunal reinforced CAK’s order for the retailer to revise all its agreements with some 700 suppliers within a month after a tribunal found it has been exploiting traders.
While rebates are common in the retail sector, the Tribunal found that Carrefour had abused its power as a major buyer of goods.
CAK had in 2020 ordered Carrefour to remove up to six items from its supplier contracts that were said to give the store power to offer ultra-competitive pricing to boost sales and increase market share. The clauses included forcing suppliers to pay a non-refundable fee to do business with it and compelling merchants offering the retail chain goods to provide extra rebates or discounts.
Carrefour in 2018 introduced a 'progressive rebate', which was to be calculated from the annual sales or turnover of the supplier. The retail giant would unilaterally make the deductions of the various rebates from the invoices of the suppliers.
Breach of law
Carrefour was also found to be in breach of the law for forcing suppliers to post their own staff at its outlets at the expense of the traders. It was also accused of rejecting goods already delivered.
That order came at a time the retail giant had already been fined Sh124,767 for exploiting yoghurt supplier Orchards Limited. Orchards filed the complaint on April 26, 2019 thus sparking a legal fight between the CAK and Carrefour that ended up at the Competition Tribunal.
The retail giant was also barred from delisting suppliers unilaterally without notice for failure to meet its stringent supply contract.
The contractual discounts given to Carrefour by suppliers has enabled the retailer to offer steeper discounts to its customers compared to its competitors, which has partly contributed to the firm's fast growth since its launch in Kenya in 2016.
