The Competition Authority of Kenya (‘the Authority’) is established under section 7 of the Competition Act No.12 of 2010 (‘the Competition Act’). The Authority enfo Srces the Competition Act with the objective of enhancing the welfare of Kenyans by, among other roles, sanctioning A buse of B uyer P ower (ABP) .

Buyer power refers to the ability of a powerful buyer to obtain terms of sup ply outside the scope of normal business practices or that are disproportionate, unfair and detrimental to a supplier , or unrelated to the objective of a supply contract. Buyer p ower is the ability of a buyer to reduce profitability below a supplier’s nor mal selling price, or more generally, obtain terms of supply more favourable than a supplier’s ordinary contractual terms.

The Act provides a non – exhaustive list of the manner through which ABP manifests in the marketplace including reducing supply prices by significant amounts or below competitive levels, threats of termination or unilateral termination of contract without a reasonable justification, delay ing payment s , refusal to receive or return goods without justifiable reasons , and transfer of costs or risks to suppliers .

In executing this mandate, the Authority has pursuant to investigations penalized Majid Al Futtaim Hypermarkets Limited, which trades in Kenya under the brand name Carrefour, a total of Ksh. 1,108,327,873.60 for separately abusing its superior bargaining position over two of its suppliers – Pwani Oil Products Limited and Woodlands Company Limited .

Woodlands processes and supplies retail stores across the country with refined natural bee honey from Kitui County . Pwani Oil processes and supplies Fast – Moving Consumer Goods , specifically edible oil/fats, skin – care products and washing soap products.

Further, the supermarket chain is r equired 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 Authority has also ordered Carrefour to refund the Woodlands and P w ani Oil a total of K sh. 16,757,899 in rebates deducted from their invoi ces as well as Ksh.500,000 that was billed as marketing support (store opening /listing fees).

Rebates are a refund of a percentage of sale offered by a supplier to its customer , for example a retail er , in exchange for a benefit such as early payment by the retailer, or a s reward for surpassing designated purchasing targets , or an incentive for increase of volumes ordered by the retailer .

Carrefour charges its suppliers at least three types of non – negotiable rebates that are as high as 12% . The rebates are d eductible annually and monthly and have been increasing on an annual basis , thereby significantly redu c ing the final pay – out to suppliers .

Investigations also determined that Carrefour’s suppliers are required to pro vide 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 cost s to suppliers, which is prohibited by the Competition Act.

Specifically, Woodlands was required to provide one carton per stock – keeping unit (SKU) and pay K sh. 50,000 as a condition to commence supplies at new branches . Pwani Oil was required to provide two free cartons per SKU and pay K sh. 200,000 for similar purposes . Given that one product has several SKUs based on variants produced , th is requirement has significant financial implications on the profitability and competitiveness of suppliers.

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The Authority’s Acting Director – General, Dr. Adano Wario, noted that ABP is typically meted out on Small and Medium – Sized Enterpri ses (SMEs) who accept adverse conditions from their powerful buyer s who control critical infrastructure and access to consumers , such as a country – wide network of branches.

SMEs account for 98% of all businesses in Kenya, contribute up to 40% of GDP and are the source of livelihood for millions of Kenyans , directly and indirectly . However, despite their centrality to economic progress, SMEs in the country contend with various challenges leading to the closure of many busine sses in infancy .

“ A t the core of the Authority ’s mandate execution is promoti on of inclusive economic development. Abuse of buyer power defeats this aspiration by crippling suppliers, who are mostly SMEs, and whose contribution to ou r economy cannot be overstated,”

said Dr. Wario.

“While appearing to enable an offender to offer lower prices to consumers, this apparent benefit is short –

term and unjustifiable when placed against the long – term damage caused to the upstream supplier marke t , including forced exits , especially by SMEs in the manufacturing sector. ”

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 , he added.

Mr. Shaka Kariuki, the Authority’s Board Chairman, said the CAK aligns its interventions with the Government ’s agenda of promoting growth of SMEs and the manufacturing sector , while ensuring that its actions positively impact as many Kenyans as possible.

“Our role as a regulator is to promote healthy competition in our markets with the overall objective of creating a conducive business environment for attracting investment into the national economy and to the benefit of consumers, ”

Mr. Kariuki said.

“ T he penalty the Authority has issued serv es as a stern reminder and deterrent to businesses not to engage in any conduct that infringes the Competition Act . Effective competition benefits us all.”