Carrefour Kenya ordered to revise supplier contracts by Competition Tribunal following allegations of abuse

KENYA – Carrefour Kenya, operated by Dubai-based conglomerate Majid Al Futtaim is the second major retailer to be in hot soup for the abuse of Competition Authority of Kenya’s (CAK) Buyer Power.

The retailer has been ordered to revise all its agreements with some 700 suppliers within a month after the Competition Tribunal found it has been exploiting traders.

This follows the supermarket chain owner losing an appeal at the Competition Tribunal, where the CAK and yoghurt supplier, Orchards Limited were respondents.

Orchards filed a complaint against the retailer on April 26, 2019, sparking a legal fight between the CAK and Carrefour that ended up at the tribunal.

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The company who had been supplying Carrefour with probiotic yogurt between 2015 and 2018, accused Al Futtaim of abusing its buyer power by unilaterally terminating a commercial contract, refusal to receive goods without reason, returning near-expiry goods and application of rebates and listing fees.

According to the complaint that was filled, the supermarket operator requires its suppliers to pay a listing fee of Ksh50,000 for each product sold in its stores.

Failure to pay the listing fee attracts a penalty of seven percent to eight percent of the outstanding amount.

According to Orchards, Carrefour required suppliers to pay a further rebate of 10 percent on the second delivery of supplies to new branches.

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.

Carrefour was also accused of breaching the law for forcing suppliers to post their own staff at its outlets at the expense of the traders. It was also accused of rejecting goods already delivered.

“The appellant shall amend all current supply agreements relating to its Carrefour Hypermarkets in Kenya within the next 30 days hereof with a view to expunging all offending provisions, specifically clauses that provide for, lead to or otherwise facilitate abuse of buyer power.”

Competition Tribunal

Carrefour Kenya penalized

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The Competition Tribunal has in turn ordered Majid Al Futtaim Hypermarkets Limited, to pay Kshs. 414,250 withing 30 days for wrongfully terminating a commercial contract with Orchards Limited.

Of the total sum, the retailer has been ordered to refund Orchards Limited Kshs. 289,482 (US$2,600) for deduction made in 2017, 2018 and 2019 invoices in form of rebates and another Kshs. 124,768 (US$1,150) to CAK, as penalty for the violations.

The Tribunal however spared Al Futtaim a Kshs. 130,856 (US$1,200) fine imposed on it by CAK as losses incurred by Orchards Limited for abrupt termination of contract, on account that there were not talks of contract renewal for 2019.

Carrefour Kenya set as an example

The tribunal has also ordered the retailer to amend all current supply agreements in order to expunge all offending provisions, specifically clauses that provide for, lead to or otherwise facilitate abuse of buyer power, including application of listings, application of rebates, transfer of commercial risks to suppliers and unilateral delisting of suppliers.

“The appellant shall amend all current supply agreements relating to its Carrefour Hypermarkets in Kenya within the next 30 days hereof with a view to expunging all offending provisions, specifically clauses that provide for, lead to or otherwise facilitate abuse of buyer power,” the tribunal said in the orders issued on April 20.

The order by the Competition Tribunal, which largely affirmed earlier decisions taken by the Competition Authority of Kenya (CAK), sets a major precedent in the retail sector and could be relied on to remove similar trade practices among other players.

It also risks upending some longstanding norms in the retail business, with consequences that will also be felt by consumers.

Rebates, for instance, are widespread in the global retail industry and represent income from suppliers that can be used to offer discounts to shoppers.

Carrefour has been the most aggressive in offering discounts on a wide range of goods, suggesting that it could be tapping its rebates reserves to grow sales.

Elimination of the rebates could therefore see the retailer scale down its price cuts and bring its pricing closer to most of its competitors.

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

After the ruling, the retail chain came out fighting, promising to take the battle against the competition watchdog and the tribunal to the High Court.

“Carrefour has only received the decision of the tribunal this afternoon and intends to appeal it to the High Court,” the retailer said in a statement.

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