Unilever found guilty of buyer power abuse

Unilever makes popular household products Omo, Lifebuoy, and Vaseline. [iStockphoto]

The competition watchdog has ordered consumer goods giant Unilever to review all its supply agreements and shorten the payment periods after the giant producer was found to be exploiting traders who supply it with goods.

Unilever - the maker of popular household products Omo, Lifebuoy, and Vaseline - was found by the Competition Authority of Kenya (CAK) to have abused its buyer power which is the ability of a buyer to obtain terms of supply more favourable than a supplier's ordinary contractual terms.

This is, however, a slap on the wrist for Unilever considering anyone or any firm found culpable for buyer abuse is liable on conviction to imprisonment for a term not exceeding five years or to a fine not exceeding Sh10 million or to both.

Under the terms of the settlement agreement, CAK acting Director General Adano Wario said on Friday Unilever must reduce payment terms for all existing small and medium enterprises (SMEs) from 90 to 60 days effective immediately and further to 45 days effective January 1, 2025.

Upstream suppliers

For all new SMEs on-boarded after January 1, Unilever must pay within 30 days. Any conduct that amounts to an abuse of buyer power in a market in Kenya is outlawed.

Buyer power occurs within a vertical relationship between a supplier and a powerful buyer or a group of buyers in a position to dictate or influence the terms of purchase from upstream suppliers. In some circumstances, a powerful supplier may have the incentive and ability to defeat the exercise of market power by a buyer.

Unilever will also be expected to increase its procurement from SMEs by incrementally increasing localisation of procurement spend by Sh400 million between January 1, 2023 and December 31, 2025.

Inviting at least two local SME suppliers to all tenders and other procurement procedures will also be required.

It is equally expected to dedicate an annual budget of Sh75 million to undertake supplier development training for its SME suppliers for a period of three years from January 1, 2023, to December 31, 2025.