In a groundbreaking move, the Competition Authority of Kenya (CAK) has today imposed significant sanctions on Majid Al Futtaim Hypermarkets Limited, operating as Carrefour in Kenya, for abuse of buyer power (ABP). The Authority, established under section 7 of the Competition Act, aims to enhance the welfare of Kenyans by enforcing fair competition practices, and its recent actions signal a firm commitment to this objective.
Understanding Buyer Power
Buyer power, as defined by the Competition Act, refers to a powerful buyer’s ability to obtain supply terms outside normal business practices, disproportionately favoring the buyer and detrimentally affecting the supplier. The Act outlines various manifestations of abuse of buyer power, including reducing supply prices significantly, unilateral contract terminations, delayed payments, and transfer of costs to suppliers.
Penalties and Orders
Following thorough investigations, the CAK has penalized Carrefour with a substantial fine of Kes. 1,108,327,873.60/- for abusing its superior bargaining position over two key suppliers—Pwani Oil Products Limited and Woodlands Company Limited. In addition to the financial penalty, Carrefour is mandated to revise all its supplier contracts, eliminating clauses that facilitate abuse of buyer power, such as listing fees, rebates, and unilateral delisting.
The Authority has also ordered Carrefour to refund a total of Kes. 16,757,899/- to Woodlands and Pwani Oil, covering rebates deducted from their invoices and purported marketing support fees. Rebates, which are a percentage of sales refunded to the buyer, were charged at non-negotiable rates of up to 12%, significantly impacting the final payout to suppliers.
Unveiling Unfair Practices
Investigations have revealed that Carrefour’s suppliers were burdened with onerous demands, including providing free products and paying listing fees for every new branch opened. Woodlands, a supplier of refined natural bee honey, and Pwani Oil, known for Fast-Moving Consumer Goods, faced unjustifiable conditions that strained their profitability and competitiveness.
In Carrefour’s defense, the retailer argued that the rebates were globally accepted industry practices and had been agreed upon by both parties. The Authority’s investigations, however, contradicted this claim, highlighting instances where Carrefour had faced penalties in other markets for similar conduct. The retailer also disputed allegations of demanding suppliers attach merchandisers at its outlets and delisting threats.
Challenges Faced by SMEs
The CAK emphasizes that such abusive practices are often directed at Small and Medium-Sized Enterprises (SMEs), which constitute a substantial portion of businesses in Kenya. Dr. Adano Warip, the Authority’s Acting Director-General, notes that ABP jeopardizes SMEs, hindering their contribution to the economy.
Commitment to Economic Development
The Authority’s stance aligns with the government’s agenda of promoting SME growth and fostering a healthy business environment. Mr. Shaka Kariuki, the Authority’s Board Chairman, underscores the importance of promoting healthy competition for the benefit of consumers and the national economy.
While businesses are entitled to enter into contracts, the CAK emphasizes that these agreements must not unfairly disadvantage the weaker party. The penalties issued serve as a stern reminder to businesses about the repercussions of engaging in conduct that infringes on the Competition Act.
Conclusion
The Competition Authority of Kenya’s decisive action against Carrefour not only upholds fair competition practices but also sends a clear message to the business community. By protecting the interests of suppliers, especially SMEs, the CAK contributes to fostering an inclusive and thriving economic landscape in Kenya. As the regulatory body continues to champion healthy competition, its actions serve the greater goal of creating a conducive business environment and promoting economic growth.
Authors:
Zahra Nechesa – Partner
Nderitu Wang’ombe
