NAIROBI, Kenya, Dec 19 — The Competition Authority of Kenya (CAK) has fined Carrefour, a French retail chain with outlets in Nairobi and key towns, Sh1.1 billion for abuse of bargaining power.
CAK said in a statement Tuesday that the outlet abused its buyer power over two of its suppliers — Pwani Oil Products Limited and Woodlands Company Limited.
Woodlands presented a complaint to the Authority in December 2022 alleging that between 2021 and late 2022, the retailer contravened Section 24A(1) of the Competition Act.
The complainant argued that Carrefour’s conduct unfairly reduced its returns and profitability, thereby affecting its ability to remain competitive in the market.
“Woodlands processes and supplies retail stores across the country with refined natural bee honey from Kitui County,” the Authority explained.
Carrefour also faced a complaint over its handling of Pwani Oil’s products including edible oil and fats, skin-care products, and washing soap.
Buyer power refers to the ability of a powerful buyer to obtain terms of supply outside the scope unrelated to the objective of a supply contract.
Ordered refunds
Further to the Sh1.1 billion penalty imposed on the retailer, CAK also ordered Carrefour to refund the Woodlands and Pwani Oil a total of Sh16.76 million in rebates deducted from their invoices as well as Sh500,000 that was billed as marketing support.
Further, CAK directed the supermarket chain to amend all its supplier contracts and expunge clauses that facilitate abuse of buyer power, including but not limited to application of listing fees, collection of rebates, and unilateral delisting of suppliers.
Commenting on the move, the Authority’s Acting Director-General, Adano Wario, noted that abuse pf buyer power is typically meted out on Small and Medium-Sized Enterprises (SMEs).
SMEs are susceptible owing to their tendency to accept adverse conditions from powerful buyers who control critical infrastructure and access to consumers, such as a country-wide network of branches.
SMEs account for 98 per cent of all businesses in Kenya, contributing up to 40 per cent of GDP and are the source
Millions of Kenyans SMEs directly and indirectly.
“At the core of the Authority’s mandate execution is 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,” said Wario.
“While appearing to enable an offender to offer lower prices to consumers, this apparent benefits 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.”
Protecting SMEs
Whereas businesses have the freedom to enter into contracts with each other, Wario said these agreements should not unjustifiably disenfranchise the weaker party and must facilitate negotiations without reprisal.
The Authority’s Board Chairman, Shaka Kariuki, said the CAK aligns its interventions with the government’s agenda of promoting growth of SMEs and the manufacturing sector, while ensuring that its actions positively impact as many Kenyans as possible
“Our role as a regulator is to promote healthy competition in our markets with the overall objective of creating a conducive business environment competition for attracting investment into the national economy and to the benefit of consumers,” Kariuki said.
He added that the penalty the Authority has issued serves as a stern reminder and deterrent to businesses not to engage in any conduct that infringes the Competition Act.
CAK is established under Section 7 of the Competition Act. No.12 of 2010.
The Authority enforces the Competition Act with the objective of enhancing the welfare of Kenyans by, among other roles, sanctioning Abuse of Buyer Power (ABP).
