Carrefour risks Sh300m loss in discounts tiff

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Carrefour risks Sh300m loss in discounts tiff


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Carrefour Supermarket in Mombasa. FILE PHOTO | NMG

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Summary

  • The Competition Tribunal on Tuesday ordered the retailer to amend all its contracts with suppliers within 30 days to remove several requirements including rebates.
  • Carrefour posted sales of Sh25 billion in the year ended December, indicating that it collected rebates of Sh313 million in the review period.

Carrefour, the Kenyan supermarket franchise owned by Majid Al Futtaim Hypermarkets Limited, risks losing more than Sh300 million worth of rebates from suppliers annually after it was ordered to stop charging the fees.

The Competition Tribunal on Tuesday ordered the retailer to amend all its contracts with suppliers within 30 days to remove several requirements including rebates that it has been charging at a rate of 1.25 per cent of annual sales.

Carrefour posted sales of Sh25 billion in the year ended December, indicating that it collected rebates of Sh313 million in the review period.

Besides the rebate of 1.25 per cent, the retailer also requires its suppliers to pay it other rebates whose computation was not disclosed in the ruling by the tribunal.

Carrefour said it intends to fight the tribunal’s orders through an appeal at the High Court. The company has some 700 suppliers.

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

A complaint filed with the regulator by Orchards Limited, a yoghurt processor, established that Carrefour charges its suppliers a series of fees to enjoy access to its shelves besides imposing other terms that transfers commercial risks to its partners.

“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.

Buyer power means the ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.

Carrefour becomes the second major retailer to be investigated for abuse of buyer power after Tuskys, which was found to be withholding supplier payments beyond their due date.

The tribunal has specifically ordered Carrefour to remove listing fees and rebates in the contracts besides unilateral delisting of suppliers.

Orchards’ complaint to CAK revealed that the supermarket operator requires its suppliers to pay a listing fee of Sh50,000 for each product sold in its stores.

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

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

The retailer imposes a further rebate of 1.25 per cent on all annual sales.

In 2018, Carrefour introduced yet another “progressive rebate” to be calculated from the annual sales/turnover of suppliers.

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