Ensure fair trade playing ground for retailers, suppliers

The following announcement came over the supermarket’s Public Address system: “If someone here has a convertible car with the top down, it just started raining. Towels are however located in aisle number five.”

In July 2017, the State Department for Trade in the Ministry of Industry, Trade and Cooperatives issued a document titled “Study on Kenya Retail Sector Prompt Payment” in response to challenges faced by agricultural and manufacturing producers that had and have continued to face various problems with late payment from retailers.

The aim of the paper is to create a base for the creation of a legal and regulatory framework for the retail sector. In simple terms: tame rogue supermarkets that have siphoned off cash meant to pay suppliers and placed it in dodgy side hustles.

Working in close collaboration with the Ministry were the Retail Trade Association of Kenya (RETRAK), Association of Kenya Suppliers (AKS) and the Kenya Association of Manufacturers (KAM).

The report makes for very interesting reading if you’re seated in the confounding Uhuru Highway gridlock with nothing else to do other than twiddle your thumbs.

The upshot is that there are various reasons for the delayed payment of suppliers by supermarkets (Nakumatt and Uchumi are obviously top of the heap in the culprit pile) some of which reasons are demonstrative of a predatory culture of bullying that some of the supermarkets have inculcated.

The suppliers list 12 reasons of which I will repeat a few here: a) Lack of written agreements due to retailer refusal to collapse contractual terms into writing; b) Refusal to receive specifically ordered goods; c) Transferring commercial risks that are supposed to be borne by the retailer to the supplier; d) Unjust return of unsold goods at the supplier’s expense, including fresh produce that cannot be resold. The fifth reason is perhaps the most revealing, which is e) Use of delisting threats to obtain undue advantage and suppress suppliers from raising genuine complaints against retailers.

Look, just like any marriage there are two sides to every story and I am sure the retailers have their own sorry tales to narrate but were fairly unwilling to participate in the questionnaire issued by the report’s writers.

It is however fairly revealing that, similarly, very few of the AKS and KAM members chose to volunteer the information for fear of backlash through delisting. Only 22 out of 1,000 members of AKS chose to provide information while only 37 out of 650 companies that are KAM members chose to participate in the survey.

The report estimates that the total outstanding debt to all the suppliers is in the range of Sh40 billion at the time of publishing. What’s more, five supermarkets accounted for 92 per cent of the debt owed above 60 days with Nakumatt and Uchumi taking up the lion’s share at 73 per cent of the total debt.

Of course the million dollar question is: who are the other three supermarkets? Well you would have to get the report to find out, but I would be very worried if I was their banker as a stretched creditor status is always a sign of distressed cash flows and an underlying management problem specifically when over 90per cent of cashier till payments are made in cash or cash equivalents like M-Pesa.

And with the carcasses of Nakumatt and Uchumi currently floating in the river of ignominy, the banks are certainly breathing hard over the shoulder of these supermarkets.

The supermarkets, in their defence, can argue that delayed creditor payments is their way of financing their own working capital and has, quite spuriously, become an industry norm. But one should not have to suck the blood of a weaker party to grow one’s wealth unless one is a mosquito.

The report concludes by proposing a Supplier and Retailer Code of Practice that draws from practice in other international jurisdictions as well as local experience to ensure a fair trade playing ground that enables prompt payment and respect for contractual terms whether written or otherwise.

The plan is to have the State Department on Trade embed the same in regulations for prompt payment in the retail sector once alignment is found between all the stakeholders.

If there ever was a time needed for a regulatory towel to absorb the mess created in a declining retail sector, it is now. We leave it to the Ministry of Industry, Trade and Cooperatives to restore much needed sanity on a critical part of Kenya’s economy.