Carrefour to pay Sh1 billion fine for ‘crippling’ SMEs
Carrefour’s decision to impose listing fees, collect rebates, and possess the authority to unilaterally delist non-compliant suppliers, primarily small and medium-sized enterprises (SMEs), has resulted in fines exceeding Kes1.1 billion for the supermarket chain.
In two separate cases filed by honey supplier Woodland Company Limited and edible oil maker Pwani Oil at the Competition Authority of Kenya (CAK), Carrefour has been found guilty of abusing its buyer power. Buyer power refers to the ability of a powerful buyer to secure supply terms beyond normal business practices, which are disproportionate, unfair, and harmful to a supplier or unrelated to the objective of a supply contract.
According to CAK disclosures, Woodland, was compelled to furnish one carton per stock-keeping unit (SKU) and pay Kes50,000 as a condition to commence supplying Carrefour’s new branches. Currently, Carrefour operates 21 stores across Kenya, with 17 concentrated in Nairobi.
Similarly, Pwani Oil, the cooking oil supplier, was mandated to provide two free cartons per SKU and pay Kes200,000 for similar purposes. CAK remarked, “Given that one product has several SKUs based on variants produced, this requirement has significant financial implications on the profitability and competitiveness of suppliers.”
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Carrefour delisting suppliers
In March of this year, CAK barred Carrefour from continuing to charge and collect rebates from Pwani Oil. However, the supermarket chain responded by unilaterally terminating the supplier’s contract. Following its investigations, CAK has ordered Carrefour to “amend all its supplier contracts and remove clauses that facilitate the abuse of buyer power,” including, but not limited to, the application of listing fees, collection of rebates, and unilateral delisting of suppliers.
Furthermore, the retailer has been instructed to refund Kes16.7 million, which was realized in irregular rebates and deducted from the invoices of Woodland and Pwani Oil, as well as Kes500,000 that was billed as “marketing support (store opening/listing fees).”
According to CAK, Carrefour’s suppliers are required to provide “free products and pay listing fees” for every new branch opened and post employees to the supermarket’s branches, a practice that amounts to the “transfer of the retailer’s costs to suppliers” and breaches the Competition Act. Considering that a significant number of Carrefour suppliers are SMEs, the segment that provides jobs to 80 percent of workers in Kenya, CAK Director-General Dr Adan Wario noted that Carrefour’s abuse of buyer power was “crippling suppliers, who are mostly SMEs.”
“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.”
Although Carrefour maintained that the rebates imposed on the suppliers were agreed upon and were a global practice, the watchdog countered by terming this position incorrect, stating, “The retailer (Carrefour) has been penalized in other markets for similar conduct,” explained CAK.
In 1995, Carrefour made its debut in the region through Majid Al Futtaim, a UAE-based company exclusively authorized to franchise Carrefour in over 30 countries spanning the Middle East, Africa, and Asia. Majid Al Futtaim fully owns and manages operations in the region. Presently, Majid Al Futtaim oversees a network of over 320 Carrefour stores in 17 countries, catering to a daily customer base of more than 750,000.
