Retail giant Carrefour risks Sh4b penalty over abuse of buyer power

Kenya's competition watchdog has warned retailer Carrefour against exploiting a local firm that supplies it with goods, with the supermarket chain risking up to Sh4 billion in fines.

The Competition Authority of Kenya (CAK) on Friday cited a case in which Carrefour is accused of allegedly charging rebates in a buyer abuse case filed by edible oils producer Pwani Oil.

A supplier rebate is money given back to customers to incentivise qualifying types of purchases. Suppliers offer them to win business or secure further sales.

The regulator asked the chain to stop the practice until the case is concluded.

"The Competition Authority issues a cease and desist order against Majid Al Futtaim Hypermarkets Ltd (owners of Carrefour franchise in Kenya) directing it to, with immediate effect, cease and desist from charging rebates on Pwani Oil Products Ltd invoices until the ongoing investigations on alleged abuse of buyer power by Majid Al Futtaim Hypermarkets Ltd are completed," said CAK acting Director General Adano Wario.

The regulator issued the notice through the Kenya Gazzette.

Carrefour risks penalties of as much as 10 per cent of its gross sales - which stood at Sh40 billion in 2022 - if it is found to have flouted the law.

Buyer power is the ability of a buyer to obtain terms of supply more favourable than a supplier's ordinary contractual terms. Its abuse attracts heft fines from the regulator.

Favourable terms

The Competition Act defines buyer power as "the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favourable terms, or to impose a long-term opportunity cost including harm or withheld benefit which, if carried out, would be significantly disproportionate to any resulting long term cost to the undertaking or group of undertakings."

CAK may, on its own initiative or upon receipt of information or complaint from any person or government agency, carry out an investigation into any conduct or proposed conduct which is alleged to constituteor may constitute an infringement of the law.

"The Authority (may) impose a financial penalty of up to ten per cent of the immediately preceding year's gross annual turnover in Kenya of the undertaking or undertakings in question," says the Act.

Reached for comment, Majid Al Futtaim Communications Manager Carolyne Nyarang'o told the Saturday Standard they were working on a statement and "will share as soon as possible".

CAK declined to provide further details on the case.

"This matter is still under investigation and, therefore, the Authority cannot make further comments or discuss the specifics of the case," said CAK in response to our query.

This is not the first time Carrefour has faced the wrath of the competition watchdog over allegations of abuse of buyer power.

Local suppliers have in the past lodged complaints with CAK alleging that Carrefour had used the supplier contract to depress their earnings and gain market advantage through competitive pricing.

But the chain has often denied the abuse of buyer power accusations, saying its supplier contracts were normal practices in the retail sector.

Since launching its Kenya operations in 2016, the franchise has grown faster than expected, attracting a strong client base among the country's expanding middle class even as locally-grown competitors such as Nakumatt and Uchumi faced strong headwinds, leading to their collapse.

Carrefour said in response to Standard queries:

"Ever since opening its doors in Kenya in 2016, Carrefour, operated by exclusive franchisee Majid Al Futtaim, has adopted global best practices that ensure that its customers always pay fair and low prices for a wide assortment of superior quality products, while at the same time applying standardized commercial terms with all its partner local suppliers, enabling mutual success."

It added that "the practices are recognized and adopted by leading retailers across the world and have proven to be effective in Kenya as Carrefour is now synonymous with affordable and quality services, enabling almost 700 of the local suppliers and producers we partner with to grow their business with us over the years."

"We have noted the temporary order in the Kenya Gazette regarding Pwani Oil Products, who like 50 per cent of our supplier base, have been working with us for the last 7 years, and we are currently addressing the matter with the Competition Authority of Kenya."