Competition Authority warns retailers against imposing unfair terms on suppliers

Audio By Vocalize

The Competition Authority of Kenya (CAK) has warned retailers against imposing unfair commercial terms on suppliers, saying such practices could violate the Competition Act.

In a statement, CAK Director General David Kemei said negotiations and transactions between retailers and suppliers must be genuine, voluntary and conducted in good faith to avoid abuse of buyer power.

Abuse of buyer power occurs when purchasers, acting individually or collectively, use their stronger bargaining position to secure more favourable terms or impose disproportionate costs, risks or losses on suppliers.

Kemei said some retailers exploit this imbalance by imposing supply agreement terms that disadvantage weaker suppliers.

“Terms should not be dictated by a buyer merely because it enjoys buyer power,” he said.

Among the practices flagged by the authority are transferring operational costs and risks to suppliers, demanding rebates and promotional contributions, extending payment periods and imposing unfavourable terms through joint business plans.

Other concerns include delayed payments, unilateral termination or threats to terminate contracts, and refusing to receive goods without valid reasons or in breach of contractual agreements.

Kemei said suppliers must be given adequate opportunity to review, discuss and negotiate commercial terms before entering into agreements.

 “Whereas the Authority encourages the use of written supply agreements, it has never issued a directive requiring suppliers in the retail sector to enter into joint business plans with buyers,” he said.

The Authority boss added that agreements between retailers and suppliers must be voluntary and that the authority was taking steps to address concerns in the sector through market surveillance and monitoring of commercial practices.

“The existence of a signed agreement does not, on its own, establish that the terms were fairly negotiated or that the conduct is lawful,” said Kemei.

The authority will investigate suspected violations of the Competition Act and take enforcement action where breaches are established.

Retailers found to have abused their buyer power could face administrative sanctions and criminal charges, he warned.

Kemei further urged suppliers to keep records that could support complaints or investigations, including draft and signed agreements, joint business plans, correspondence, payment records and other evidence of negotiations.

The authority is mandated to promote and safeguard competition in the national economy and protect consumers from unfair and misleading market practices.