A popular supermarket in Kenya has been ordered by the Competition Authority of Kenya (CAK) to amend its supplier contracts and expunge all clauses that facilitate abuse of buyer power.
The retailer was further slapped with a Ksh1.1 billion fine for the said abuse of its bargaining position over two of its suppliers, namely Pwani Oil Products Limited and Woodlands Company Limited.
According to the authority, the supermarket used its ability as a powerful buyer to obtain terms that were unfair and detrimental to the suppliers.
In a statement released on Tuesday, CAK, in exercising its mandate, ordered the supermarket to further refund Ksh16.7 million in irregular rebates. Rebates are a percentage of sales the suppliers offer to the retailer so that they can either get paid early or an incentive for increased volumes that the retailer orders.
A photo of a Kenyan shopping at a local supermarket in Nairobi on March 27, 2019.
The said supermarket charges its suppliers at least three types of non-negotiable rebates that are as high as 12 per cent.
From investigations by the Communication authority, the suppliers of the said retailer provide free and pay listing fees for every new branch opened as well as post employees to the supermarket branches.
According to CAK, Woodlands, for instance, was asked by the retailer to provide one carton per stock-keeping unit and pay Ksh50,000 as a condition to commence supplies at new branches.
Pwani Oil, on the other hand, was required to give two free cartons per stock-keeping unit and pay Ksh200,000 for similar purposes.
Further, the said rebates, which are deductible annually and monthly, have been increasing annually, leading to a reduction in the final payout to the suppliers.
These actions, as from the statement, make the suppliers pay for the costs of the retailer breaching the Laws of the Competition Act.
“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 Dr Adano Wario, CAK acting director general.
“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,” he added.
On March 10th, the Competition Authority of Kenya (CAK) slapped the said retailer with a cease and desist order regarding charging rebates on Pwani Oil Products Ltd invoices.
Customers queueing at a supermarket in Kenya