Carrefour hit with Sh1.1b for abuse of buyer power

Competition Authority of Kenya (CAK) has imposed a penalty of Sh1.1 billion on Carrefour Kenya for abusing its buyer power to the detriment of suppliers.

Additionally, the retailer has been instructed to refund Sh16.7 million in irregular rebates and eliminate all contractual clauses facilitating the abuse of buyer power.

Rebates are a refund of the percentage of sales offered by a supplier to its customers or retailer in exchange for a benefit such as early payment by the retailer or a reward for surpassing sales targets.

“Carrefour charges its suppliers at least three types of non-negotiable rebates that are as high as 12 per cent. The rebates are deductible monthly and annually and have been increasing every year,” said CAK in a press statement.

The CAK, in its pursuit of inclusive economic development, takes strong stance against the abuse of buyer power, particularly when it leads to the detriment of suppliers, most of whom are small and medium-sized enterprises (SMEs).

Adano Wario, the acting Director-General of CAK, emphasised the significance of this action in maintaining a fair business environment and supporting the crucial role played by SMEs in the economy.
“At the core of the Authority’s mandate execution is the 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,” he stated.

Carrefour Kenya, a subsidiary of Majid Al Futtaim based in the UAE and a major player in the retail sector, has faced allegations of leveraging its significant market influence to exploit suppliers, thereby undermining fair competition and consumer welfare. It reported robust financial figures for the full year 2022.

The company’s revenue stood at a formidable Sh46.2 billion, reflecting its substantial presence and impact on the Kenyan retail landscape. With total assets amounting to Sh16.8 billion, Carrefour Kenya’s position as a major market player is further underscored.

The penalty relates to the abuse of power by the chain store against Pwani Oil and Woodlands Company Limited, a cooking oil producer and a honey packaging company respectively. Abuse of buyer power, a persistent issue in the business world, occurs when a company with significant market influence exploits its position to the detriment of its suppliers.

This exploitation often results in unfair competition practices, hindering the growth of smaller businesses and adversely affecting consumer welfare.

The decision by CAK to penalise Carrefour Kenya is aligned with its commitment to creating a business environment that fosters healthy competition and supports the growth of all players in the market. In addition to the financial penalty, Carrefour Kenya has been directed to refund Sh16.7 million in irregular rebates, addressing the specific instances of unfair practices.

Furthermore, the order to expunge all clauses in its contracts that facilitate the abuse of buyer power reflects the CAK’s dedication to eradicating such practices from the roots. The repercussions of this landmark decision by the CAK is likely to extend beyond the financial penalty, serving as a warning to other market players.

The regulator’s commitment to upholding fair business practices and protecting the interests of SMEs is crucial for sustaining a thriving and inclusive economic landscape in Kenya.

The sanctions handed down by the competition watchdog as the largest by value in its enforcement history and trounce Sh338.8 million fines handed down to steel manufacturers over alleged price fixing in July.