The Competition Authority of Kenya (CAK) has raised the red flag on major retailers for persistent practice of imposing unfair terms of trade on suppliers, warning that it will rollout investigation and enforcement action where breaches have occurred.

In a market communique on Wednesday, CAK cited "continued instances of commercial terms being imposed on suppliers in the retail sector, in circumstances that may contravene the Competition Act."

The antitrust body fingered practices where retailers have been caught transferring substantial costs and risks to their suppliers, demanding rebates, contributions to promotions among key areas of breach of best practices.

Also, the CAK is in possession of reports of extended delay in settlement period for supplies as well as unfair terms of trade being imposed on business plans entered between retailers and suppliers.

CAK's cautionary note signals the increasing level of scrutiny on the relationship between retailers and suppliers in East Africa's largest economy, where global retail chains often exercise leverage over fragmented supplier bases.

According to the watchdog, abuse of buyer power is the ability of a purchaser, individually or collectively, to obtain more favourable terms from a supplier or impose a disproportionate long-term cost, harm or withheld benefit.

Termination of contract

Kenya's Competition Act sets out a non-exhaustive list of conduct that may constitute the offence, including delayed payments, unilateral termination or threat of termination of a contract and refusal to receive goods without justifiable reasons.

CAK warned that commercial agreements must be the product of genuine negotiation. “The Authority cautions entities entering into commercial agreements with their suppliers that these contracts must be the outcome of genuine, good-faith negotiations and meaningful engagement,” it said. “Terms should not be dictated by a buyer merely because it enjoys buyer power.”

More specifically, the authority cited the increasing use of joint business plans, a common feature of retailer-supplier relationships in the country. 

While the CAK said while this approach encourages the use of written supply agreements, it stressed that it “has never issued a directive requiring suppliers in the retail sector to enter into joint business plans with buyers.”

“Such arrangements must be voluntary. The existence of a signed agreement does not, on its own, establish that the terms were fairly negotiated or that the conduct is lawful.” Suppliers, the authority insisted, “must be presented with an opportunity to consider, discuss and negotiate terms.”

The regulator said it was taking “appropriate steps to address the concerns in the retail sector, including continued market surveillance and monitoring of commercial practices.” It added: “Our interrogation of the sector will establish whether the conduct contravenes the Competition Act. Full investigations and enforcement action against specific retailers will follow where breach is established.”

Severe penalties

The CAK outlined the severe penalties available to it. Some of the sanctions include a fine not exceeding KES 10 million, imprisonment for a term not exceeding five years, or both.

Separately, administrative remedies include a financial penalty of up to 10 per cent of the immediately preceding year’s gross annual turnover of the undertaking in question.

The authority urged suppliers to retain relevant records, including draft and signed agreements, joint business plans, correspondence, payment records and other evidence of the negotiation process, and encouraged those who believe they are being subjected to unfair terms to lodge complaints through its email address or online e-filing portal.

“Retailers and other buyers are urged to review their commercial practices and ensure that commercial supply agreements are based on negotiation, mutual engagement and compliance with the law,” CAK explained.

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