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Carrefour Discounts in Kenya: Unethical as the French Supermarket forces its suppliers to accept low prices

Source: BBC

From detergent to sausages, tissue paper and even sanitary pads, almost everything seems to be on a discount across Carrefour supermarkets in Kenya.

In-store, every so often an announcer will come on the address system to entice shoppers with the various deals of the day, ranging from foodstuff to electronics.

It is a strategy that has helped the giant French retailer make headway in Kenya’s tough retail sector, which is littered with the carcasses of other supermarket chains from far and wide.

Since setting up shop in East Africa’s biggest economy in 2016, Carrefour has expanded quickly and now runs 13 outlets in the major cities of Nairobi and Mombasa, making it one of the country’s biggest foreign supermarket chains.

But as a recent ruling by Kenya’s Competition Tribunal (CT) showed, Carrefour’s success is coming at a steep price and not to the chain itself.

Carrefour ‘abused its power’

While most shoppers may not be interested in how Carrefour arrives at the lower prices, it would appear that the supermarket chain has been deriving some of its discounting power from compelling its suppliers to shoulder the burden of the apparent bargains.

The CT ruled in April that the French retailer had forced suppliers to accept lower prices through a system of discounts known as rebates.

While rebates are common in the retail sector, the CT found that Carrefour had abused its power as a major buyer.

For two years now, Carrefour has been locked in a tussle with Orchards Limited, a Kenyan yogurt-maker – the case which led to the tribunal’s ruling.

Papers filed with the Competition Authority of Kenya (CAK) – which dealt with the dispute before it was referred to the CT – showed Carrefour required Orchards to give a 10% rebate on all supplies to Carrefour, and a further 1.25% discount on annual sales.

So over a year, Carrefour would pay 11.25% less for goods than other outlets.

In a ruling that had repercussions beyond the dispute between Carrefour and Orchards, the French retailer was ordered to revise more than 700 supplier agreements within 30 days.

‘I’ll stop shopping at Carrefour’

The retailer has lodged an appeal with the High Court following the rulings against it by both the CAK and the CT, which is headed by an advocate to deal with often complex commercial disputes.

For frequent shoppers at Carrefour, the discounts are a major attraction.

“You really get pushed towards shopping there [more] than any other locally available supermarket – their discounts on sugar and chocolate are a boost to my business,” said Pollyne Khasandi, a baker in Nairobi.

“We’ve always wondered how Carrefour gives [bigger] discounts than other supermarkets yet the suppliers are the same. It’s unfair but the supplier has an option to supply elsewhere,” she said.

he ruling has made some shoppers, like Abigael Arunga, think about the consequences of the discounts.

Ms Arunga told the BBC that she would “probably stop shopping at Carrefour because as a business owner myself, I wouldn’t want to be squeezed in a way that is untenable”.

Some Kenyan businesses have already come to the conclusion that it doesn’t make sense to work with the French chain.

“Carrefour was going to be too expensive for us,” said the manager of one foodstuff manufacturer who requested anonymity.

The manager added that their products were available in 10 other supermarkets which didn’t insist on such steep discounts.

Carrefour has declined to comment on the CT’s ruling until the case is resolved, but maintained that it “remains committed to working with its suppliers through mutually beneficial relationships”.

Perhaps surprisingly, its rivals do not seem too bothered by Carrefour’s business practices.

“Every company negotiates differently,” said Willy Kimani, chief commercial officer at Naivas, the supermarket chain with the most branches in Kenya.

“Contracts are signed by a willing buyer and a willing seller,” added Wambui Mbarire, head of the Retail Trade Association of Kenya, Retrak, a lobby that represents major retailers, including Carrefour.

‘A bad precedent’

The retailers’ association defends the use of rebates by supermarkets, saying they help retailers foot the cost of running their businesses while ensuring lower prices for the consumer.

According to Ms Mbarire, the CT’s ruling against Carrefour “sets a bad precedent”.

Though the ruling is a first in Kenya, the seemingly meagre penalty of $5,000 (£3,500) for a company with a turnover last year of $230m has been criticised by the suppliers’ association.

“I am not certain that the penalty can deter abuse of buyer power,” said Ishmael Bett, head of the Nairobi-based Association of Suppliers Kenya, while welcoming the verdict itself.

In disputes involving abuse of power, the CAK can fine a guilty party up to 10% of the preceding year’s turnover of the disputed transaction.

sOUCE bbc


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