Carrefour to pay local supplier in exploitation case

Orchards Limited had complained to the competition watchdog

In Summary

•This is barely a month after being fined Sh222.5 million by the Paris Commerce Court over almost a similar incidence in France.

•The retaier is on the spot on among others, rejecting and returning that had already been delivered.

Carrefour store
Carrefour store

French based retail giant Carrefour has been ordered to refund a local supplier discounts forced on its products in an 'abuse of buyer power' case.

The retailer has lost an appeal  at the Competition Tribunal, where the Competition Authority of Kenya(CAK) and yoghurt supplier, Orchards Limited were respondents.

This comes barely a month after the retailer was fined 1.75 million euros (Sh222.5 million) by the Paris Commerce Court over unfair practices, a trend that is now reported in Kenya.

Orchards Limited  moved to the competition watchdog over exploitation by Majid Al Futtaim Hypermarkets Limited (which trades in Kenya as Carrefour),  accused of pushing anti-competitive pricing to boost sales and increase its market share.

This includes forcing huge discounts on products which it ends cashing in on.

The retailer is accused of pressing suppliers for discounts during annual contract negotiations, payment of Sh50,000 as a listing fee for every product supplied and forcing suppliers to post their own staff at its outlets at their expense.

It is also on the spot for rejecting goods already delivered.

Orchards Limited has been supplying the retailer its yoghurt products.

At the end of January 2019, whilst they were negotiating the terms of a prospective contract, Carrefour is reported to have unilaterally delisted the supplier without notice.

It had earlier on returned merchandise to the supplier on account of being near expiry date, which according to CAK, was a transfer of commercial risk it should have borne.

“There was no provision in the contract allowing for this kind of returns and neither had the supplier been pre-warned about such action,” the Tribunal notes in its ruling.

It has upheld an earlier order that the retailer refunds rebates deducted from invoices of the supplier for the year 2017, 2018 and 2019 amounting to Sh289,482, to be paid within the next 30 days.

Carrefour has also been asked to pay a financial penalty of 10 per cent of the supplier's gross annual turnover in Kenya from its its franchise from the sale of Cool Fresh yoghurts for the year 2018, in the sum of Sh124,768, within 30 days.

The retailer had moved to the Tribunal saying it had not been accorded a fair hearing by the competition watchdog.

During its initial directive, CAK had also ordered the retail giant to review all its supply agreements within 60 days after it found the supermarket chain was exploiting local traders who supply it with goods.

The authority had asked Carrefour, through its franchise holder Majid al Futtaim’s (MAF), to expunge six items from its supplier contracts.

These includes the non-refundable fee paid by suppliers to secure business with the retailer and the forced discounts.

While the retailer has been pushing for discounts for its customers, it is said to keep up to 40 per cent of the deal, passing a bare 10 per cent as discount to buyers.

Yesterday, CAK welcomed the tribunal's decision noting that it goes further to attend to the persistent problem of abuse of buyer power in the retail sector, which Parliament identified following the collapse of some major players in the sector with suppliers’ unresolved payments.

The authority is of the opinion that this ruling will go further to provide suppliers in this sector with a credible position to negotiate for better terms with buyers, thereby ensuring continued supply of goods and services to the ultimate benefit of consumers,” said Priscilla Njako, manager, buyer power department.

Buyer power refers to the influence exerted by a business over a weaker trading partner in the upstream market with the intention of securing more favourable terms at the other party’s expense, and which would not be possible in a competitive market.

The Competition Act does not make it a contravention to possess buyer power, but it is illegal to abuse that position where it exists.