Carrefour Supermarket fined Sh1.1bn for unfair treatment of suppliers

Entrance of one of Carrefour Supermarkets in Kenya.

Carrefour Supermarket has been slapped with a fine of Sh1.1 billion by the Competition Authority of Kenya (CAK) for unfair treatment of its suppliers.

Carrefour's parent company, Majid Al Futtaim Hypermarkets Limited, has been accused of separately abusing two of its suppliers; Pwani Oil Products Limited and Woodlands Company Limited.

Pwani Oil is popular for processing and supplying edible oils, skin-care products and washing soap products while Woodlands supplies refined natural bee honey from Kitui County.

In a statement on Tuesday, December 19, CAK acting Director General Dr Adano Wario says Carrefour Supermarket has been transferring retailer’s costs to suppliers, contrary to the Competition Act.

“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,” Dr Wario’s statement reads in part.

Therefore, the supermarket chain has been ordered to amend all its supplier contracts including application of listing fees, collection of rebates, and unilateral delisting of suppliers.

The Authority has also ordered Carrefour to refund the Woodlands and Pwani Oil a total of Sh16.8 million in rebates deducted from their invoices as well as Sh.500,000 that was billed as marketing support (store opening/listing fees).

Rebates are a refund of a percentage of sales 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 a reward for surpassing designated purchasing targets or an incentive for an increase of volumes ordered by the retailer.

CAK says that Carrefour charges its suppliers at least three types of non-negotiable rebates that are as high as 12 per cent.

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

Specifically, Woodlands was required to provide one carton per stock-keeping unit (SKU) and pay Sh50,000 as a condition to commence supplies at new branches.

Pwani Oil was required to provide two free cartons per SKU and pay Sh200,000 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.

The Authority's Acting Director-General noted that ABP is typically meted out to 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.

"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."