Companies found guilty of criminal offences under Section 24A(9) of the Competition Act risk fines of up to Sh10 million, imprisonment Competition Authority of Kenya Director-General David Kemei/ FILE RETAILERS could face fines of up to 10 per cent of their annual turnover for imposing unfair commercial terms on suppliers.
This, as the Competition Authority of Kenya moves to investigate growing concerns over the use of buyer power in the retail sector. The regulator has warned retailers against forcing suppliers to absorb business costs, demanding excessive rebates and promotional contributions, extending payment periods or imposing unfavourable conditions through joint business plans.
The warning signals increased regulatory scrutiny of commercial relationships between large retailers and their suppliers, particularly smaller manufacturers and distributors who often have limited bargaining power and depend on major supermarket chains for access to consumers.
In a cautionary notice issued on Wednesday, CAK Director-General David Kemei said the authority had observed continued instances of commercial terms being imposed on suppliers under circumstances that could violate the Competition Act. The practices include the transfer of costs and risks to suppliers, rebate demands, promotional contributions, extended payment periods and unfavourable terms contained in joint business plans between retailers and suppliers.
“The authority cautions entities entering into commercial agreements with their suppliers that these contracts must be the outcome of genuine, good-faith negotiations and meaningful engagement,” CAK said. “Terms should not be dictated by a buyer merely because it enjoys buyer power.” The intervention comes amid concerns about the imbalance in bargaining power between large retail chains and suppliers, particularly small and medium-sized enterprises that rely on established retail outlets to distribute their products.
For suppliers, delayed payments can constrain working capital, disrupt production schedules and increase borrowing requirements, while demands for rebates and promotional contributions can eat into already thin profit margins.