CAK warns retailers over delayed payments and unfair supplier terms

Retailers that force suppliers to accept unfavourable payment arrangements, excessive discounts and other costly conditions could face hefty fines and prison sentences as the Competition Authority of Kenya (CAK) moves to curb the misuse of buyer power in the retail sector.

In a warning issued on Wednesday, the regulator raised alarm over commercial practices in which retailers use their stronger bargaining positions to push suppliers into accepting terms they have little opportunity to challenge.

CAK listed several practices that could amount to violations of the Competition Act, including withholding supplier payments, demanding excessive rebates and requiring suppliers to contribute towards promotional activities.

The Authority also identified the cancellation of supply agreements without proper consultation, rejection of goods without reasonable grounds and shifting business expenses and risks to suppliers as potential forms of abuse.

Other practices under scrutiny include retailers demanding preferential treatment, preventing suppliers from supplying competing businesses and placing excessive obligations on them through joint business plans.

According to the regulator, some buyers have been using their commercial advantage to impose conditions without allowing suppliers sufficient room to examine the proposals or negotiate better terms.

“Terms should not be dictated by a buyer merely because it enjoys buyer power. Suppliers must be presented with an opportunity to consider, discuss and negotiate terms,” the Authority said.

The regulator further dismissed any suggestion that suppliers are required to participate in joint business plans, clarifying that it had not issued instructions compelling businesses to adopt such arrangements.

It maintained that agreements between retailers and suppliers should be based on voluntary negotiations rather than conditions imposed by the stronger party.

CAK also warned that suppliers should not assume that a contract is automatically fair simply because they have signed it.

The Authority explained that a signed supply agreement does not necessarily prove that both parties negotiated freely or that the conditions meet the requirements of competition law.

It said it was closely tracking commercial dealings in the retail industry and would pursue investigations into specific businesses suspected of exploiting suppliers.

Retailers found to have breached the law could face criminal penalties, including fines of up to Sh10 million, imprisonment for a period not exceeding five years, or both.

In addition to the criminal sanctions, CAK has the power to impose an administrative financial penalty of up to 10 per cent of a business's gross annual turnover recorded in the preceding financial year.

The regulator called on suppliers who experience unfair treatment to maintain detailed records of their commercial dealings to help establish possible violations.

These include supply contracts, written communication between the parties, payment statements and documents showing how the terms of agreements were discussed and negotiated.

Suppliers who suspect that retailers have abused their bargaining positions can submit complaints to the Authority through complain@cak.go.ke or its online complaints portal.