The competition watchdog has launched investigations into top supermarkets for abusing their ability to set terms for suppliers, exposing the retailers to multimillion-shilling fines.
The Competition Authority of Kenya (CAK) says that preliminary findings revealed that a number of top retailers are forcing suppliers to incur additional costs unfairly and endure extended payment periods, besides demanding rebates in the race for profits.
The watchdog did not name the retailers, but said the investigations are wide-ranging and target top players for buyer power abuses—the ability to demand lower prices, better quality, or more favorable terms from suppliers.
CAK in December 2023 hit Carrefour with a record Sh1.1 billion fine for abusing its superior bargaining power over an edible oils supplier and a honey manufacturing business. Carrefour appealed against the penalty.
Purchasers caught in breach of the buyer power risk fines not exceeding Sh10 million, a jail term of not more than five years or both.
“As part of its continued surveillance of the market, the Authority has noted continued instances of commercial terms being imposed on suppliers in the retail sector, in circumstances that may contravene the Competition Act,” CAK Director-General David Kemei, said yesterday.
“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.”
Abuse of buyer power entails significant cuts in supply prices, threats of termination or unilateral termination of contracts without justification, delayed payments, refusal to receive or return goods without justifiable reasons and transfer of costs or risks to suppliers.
Most local suppliers sign the skewed contracts mainly due to a lack of bargaining power and the quest to make sales, especially farmers.
Breaches of payment periods expose suppliers to cash-flow problems, while rebate demands erode their profits, underscoring why abuse of buyer power chokes suppliers.
Abuse of buyer power came into sharp focus in early 2018 following complaints by supermarket suppliers that retailers were using their dominance to delay payments, triggering the collapse and auction of firms feeding the stores with goods.
This triggered the buyer power law in 2018 to protect smaller firms with weaker bargaining power from dominant companies.
CAK recently fined Majjid Al Futtaim Hypermarkets Limited, the operator of Carrefour, for abuse of power in its contracts with Pwani Oil Products and Woodlands Company Limited.
Carrefour was also ordered to refund the two suppliers a combined Sh16.7 million in rebates and Sh500,000 billed as marketing support in the fines imposed in 2023.
CAK investigations found Carrefour guilty of discounting invoices of the two suppliers and the requirement for rebates that are passed on to consumers as discount offers.
In 2020, CAK investigations revealed that four supermarkets, including the collapsed Tuskys, had delayed payments to their local suppliers for a period exceeding 90 days.
The watchdog’s documents show that Tuskys then paid Sh2.77 billion in June 2020 as per CAK’s order to settle the overstayed debt to its suppliers.
Buyer power also captures the ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.
In the latest probe into abuse of buyer power, CAK called on suppliers to lodge complaints via its online portal and retain payment records, draft and signed agreements, and any other evidence of the negotiation process.
