Carrefour dealings with suppliers set for big change after Sh1.1b fine

Carrefour Mega store along Uhuru Highway. [Wilberforce Okwiri, Standard]

Foreign-owned retail giant Carrefour has come under scrutiny following the discovery by the competition watchdog that it has been taking advantage of two local companies that provide it with consumer goods.

The Competition Authority of Kenya (CAK) yesterday imposed a fine of Sh1.1 billion on the fast-growing supermarket chain, whose turnover hit Sh40 billion last year, for engaging in unfair competition practices against Pwani Oil Products Ltd and Woodlands Company Ltd.

The authority also ordered Carrefour to refund Sh16.7 million to Woodlands and Pwani Oil in rebates deducted from their invoices as well as Sh500,000 that was billed as marketing support.

A supplier rebate is money given back to customers to incentivise qualifying types of purchases. Suppliers offer them to win business or secure further sales.

"In executing this mandate, the Authority has pursuant to investigations penalised Majid Al Futtaim Hypermarkets Limited, which trades in Kenya under the brand name Carrefour, a total of Sh1,108,327,873.60 for separately abusing its superior bargaining position over two of its suppliers - Pwani Oil Products Limited and Woodlands Company Limited," said CAK in a statement.

Reduced profitability

Woodlands processes and supplies retail stores across the country with refined natural bee honey from Kitui County, while Pwani Oil processes and supplies edible oils, skin-care products and soap products.

Woodlands and Pwani Oil filed separate complaints alleging that between 2021 and late 2022, the retailer engaged in abuse of buyer power contrary to Section 24A(1) of the Competition Act, and that the conduct unfairly reduced its returns and profitability.

Pwani Oil alleged that Carrefour deducted various rebates and other fees from its invoices, charged listing and marketing fees, declined to negotiate the supply contract, and threatened to delist the processor if it did not accept the presented terms.

CAK consequently ordered the supermarket chain to amend all its supplier contracts and expunge clauses that facilitate abuse of buyer power, including but not limited to application of listing fees, collection of rebates, and unilateral delisting of suppliers.

The watchdog said its investigations had determined that Carrefour's suppliers are required to provide free products and pay listing fees for every new branch opened as well as post employees to the supermarket's branches.

These practices amount to transfer of the retailer's costs to suppliers, which is prohibited by the law.

"Whereas businesses have the freedom to enter into contracts with each other, these agreements should not unjustifiably disenfranchise the weaker party and must facilitate negotiations without reprisal," said CAK Acting Director General Adan Wario.

Carrefour was penalised Sh554,163,936.80 for each of the two complaints, and further directed to refund rebates deducted from Woodland's invoices in 2021 and 2022 amounting to Sh834,180.

Further, the retailer has been ordered to refund the company Sh100,000 being monies paid as marketing support for store opening during the same period.

The chain also directed to refund Sh15,923,719 in rebates deducted from Pwani Oil's invoices in 2022 and 2023, and another Sh400,000 being monies paid as marketing support for store opening during the same period.

This is not the first time Carrefour has faced the wrath of the competition watchdog over allegations of abuse of buyer power. Local suppliers have in the past lodged complaints alleging that the giant retailer had used the supplier contract to depress their earnings and gain market advantage through competitive pricing.

But the chain has often denied the abuse of buyer power accusations, saying its supplier contracts were normal practices in the retail sector.

Carrefour management could not be reached yesterday for comment on the ruling, which is bound to affect its dealings with suppliers and probably its commodity pricing.

In an earlier response to The Standard queries, the supermarket chain said: "Ever since opening its doors in Kenya in 2016, Carrefour, operated by exclusive franchisee Majid Al Futtaim, has adopted global best practices that ensure that its customers always pay fair and low prices for a wide assortment of superior quality products, while at the same time applying standardized commercial terms with all its partner local suppliers, enabling mutual success."

Increased sales

It added that "the practices are recognised and adopted by leading retailers across the world and have proven to be effective in Kenya as Carrefour is now synonymous with affordable and quality services, enabling almost 700 of the local suppliers and producers we partner with to grow their business with us over the years."

Since launching its Kenya operations in 2016, the franchise has grown fast, attracting a strong client base among the country's expanding middle class even as locally-grown competitors such as Nakumatt and Uchumi faced strong headwinds, leading to their collapse.

Carrefour Kenya shrugged off the effects of inflation and tough economic conditions in the country to post growth in sales last year by nearly Sh3 billion to Sh40 billion.