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Competition Authority fines Carrefour supermarket Sh1.1 billion, here's why

The Competition Authority of Kenya (CAK) has imposed a substantial penalty on Majid Al Futtaim Hypermarkets Limited, which trades as Carrefour in Kenya.

Carrefour

The supermarket chain has been fined a total of Ksh. 1,108,327,873.60 for separately abusing its bargaining position with Pwani Oil Products Limited and Woodlands Company Limited.

The CAK, established under the Competition Act No.12 of 2010, enforces competition regulations with the objective of enhancing the welfare of Kenyans.

In this instance, the authority targeted the sanctioning of Abuse of Buyer Power (ABP), referring to the ability of a powerful buyer to obtain terms of supply outside the scope of normal business practices, often detrimental to suppliers.

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"In executing this mandate, the authority has pursuant to investigations penalized Majid Al Futtaim Hypermarkets Limited, which trades in Kenya under the brand name Carrefour, a total of Sh 1,108,327,873.60," CAK said in a statement on December 19.

Buyer power, as defined by the Act, includes the ability of a buyer to reduce profitability below a supplier's normal selling price or obtain terms more favorable than ordinary contractual terms.

The authority has identified various manifestations of ABP, including reducing supply prices significantly, threats of unilateral contract termination, delayed payments, unjustifiable refusal to receive or return goods, and the transfer of costs or risks to suppliers.

In the case of Carrefour, investigations revealed that the supermarket giant had abused its bargaining position with Woodlands, a supplier of refined natural bee honey, and Pwani Oil, a supplier of Fast-Moving Consumer Goods (FMCG), including edible oil/fats, skincare, and washing soap products.

The penalties include a requirement for Carrefour to amend all its supplier contracts, expunging clauses that facilitate ABP, such as listing fees, collection of rebates, and unilateral delisting of suppliers.

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Additionally, the supermarket chain has been directed to refund Woodlands and Pwani Oil a total of Sh16,757,899 in rebates deducted from their invoices, along with Sh500,000 billed as marketing support (store opening/listing fees).

Rebates, a refund of a percentage of sale offered by a supplier to its customer, were a key element in the investigation.

Carrefour was found to charge suppliers non-negotiable rebates, as high as 12%, deducting them annually and monthly, significantly reducing the final payouts to suppliers.

The investigation also exposed practices where suppliers were required to provide free products and pay listing fees for every new branch opened by Carrefour.

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This, according to the CAK, amounts to the transfer of the retailer's costs to suppliers, a practice prohibited by the Competition Act.

The Acting Director-General of CAK, Dr. Adano Wario, highlighted that ABP often targets Small and Medium-Sized Enterprises (SMEs), impacting their ability to negotiate favorable terms.

SMEs, constituting 98% of all businesses in Kenya, contribute significantly to the economy. Dr. Wario emphasized the importance of inclusive economic development and condemned practices that cripple SMEs.

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"At the core of the authority's mandate execution is the 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 Dr. Wario.

Mr. Shaka Kariuki, the CAK s Board Chairman, affirmed the CAK's commitment to promoting healthy competition and supporting the government's agenda of fostering SME growth and the manufacturing sector.

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