Carrefour Fined For Abuse Of Buyer Power: Legal Alert

Majid Al Futtaim Hypermarkets Limited which owns and operates  the retail Chain  supermarket  branded as Carrefour has yet again  been fined Kshs. 1.1 Billion by the Competition Authority of Kenya, after the investigations by the authority   revealed that the   supermarket had abused its buyer power and specifically in the manner with which it dealt with its Suppliers. 

Actions Complained of: 

Among some of the actions of the supermarket that the Competition Authority found to amount to abuse of buyer power included the: 

1. Charging of suppliers non-negotiable rebates, with some charged at an interest rate of as high as 12% 
2. The requirement by the supermarket to be provided with free products by its suppliers. 
3. The requirement by the supermarket for suppliers to pay listing fees to every branch of the supermarket that was opened. 
4. The requirement by the Supermarket to have the Suppliers employees at their supermarket branches. 
5. Unilateral delisting of suppliers 

The Competition Authority’s position was that some of these practices by the supermarket, which were enforced through the various supplier agreements, resulted to transfer of the retailer’s costs to the suppliers, contrary to the provisions of the Competition Act. 

Along with the imposed fine, the supermarket was also ordered to refund two of its suppliers a total of Kshs. 16,757,899 in rebates deducted and Kshs. 500,000 charged as marketing support fees. 

What is Buyer Power and what amounts to Abuse of Buyer Power? 

Buyer power, in the context of competition law, refers to the influence and leverage that buyers (typically consumers or other businesses purchasing goods or services) have in a market. It is one of the factors considered when assessing the competitive dynamics within a particular industry or market. 

When buyers have significant power, they may be able to demand lower prices, better quality, or more favorable terms from sellers. Buyer power is a key element in the broader analysis of market power and competitive behavior. 

 In many competition law frameworks, the level of buyer power is evaluated along with factors such as the number of competitors, barriers to entry, and the existence of substitutes.  

The abuse of buyer power occurs when powerful buyers, such as large companies or dominant players in a market, exploit their position to engage in practices that harm competition, suppliers, or other market participants. This can lead to anticompetitive outcomes and distort the normal functioning of a market.  

In evaluation of buyer power, the Competition Authority will among others review; a terms of supply contract between suppliers which include listing fees, discounts, slotting allowances, volume rebates, contribution to promotional expenses, most favored customer clauses, and exclusivity requirements. The investigation   into Carrefour terms and conduct with its suppliers, most likely proved the existence of this buyer power, which the supermarket wielded to the detriment of its suppliers. 

How Should Business Mitigate on the Risk of Abuse of Buyer Power? 

The stiff penalties for contravening  competition laws and regulations as well as the business reputational damage, should caution business  into adopting strategies that  minimize the risk of accusation  of abuse of buyer power: Mitigating on the risk   of abuse of buyer power requires businesses to adopt transparent and fair practices in their interactions with suppliers and competitors. Some of these strategies may include;  

Compliance with Laws and Regulations: 

Businesses should ensure strict compliance with antitrust laws, competition regulations, and any relevant industry-specific regulations. Compliance will include the ability to stay informed about changes in legislation and adapt business practices accordingly. 

Adopting Ethical Procurement Policies: 

Ethical procurement policies that emphasize fair treatment of suppliers, is an equally important strategy in mitigating against the risk of abuse of buyer power. More importantly is to also clearly communicate and disseminate these policies throughout the organization. 

Emphasizing on competitive bidding processes to ensure that suppliers are selected based on merit and value is also a winning strategy that helps clearly define an  evaluation criteria for supplier selection. 

Transparent and Fair Contracting: 

Using standardized contracts with clear terms and conditions that consider the provisions of the Competition Act and its enabling regulations, should help businesses avoid imposing unfair or one-sided contractual terms on suppliers.  

Review of supplier contracts by Competition Law legal experts to guarantee compliance also highly recommended. By adopting these measures, businesses can build a reputation for fair and ethical conduct, reducing the likelihood of accusations of abuse of buyer power and promoting a healthier business environment.  

For more on Buyer Power and  Abuse of Buyer Power Read https://cmadvocates.com/en/blog/abuse-of-buyer-power