Companies

Carrefour sparks supplier unease with Sh1.4m fee

carrefour

From left: Kenneth Oigo of Betts Townsend project team, Phillipe Cauviere, the Hub client representative, Carrefour’s Emmanuel Naud and Franck Moreau (Carrefour) and Jonathan Yach (Broll Mall Management) during the key presentation for tenants at Hub Karen. PHOTO | FILE

Summary

  • French retailer Carrefour enters Kenya with conditions they say will keep small traders out of lucrative sector.
  • The retailer wants suppliers to pay a non-refundable fee of Sh1.4 million to do business with it.
  • Other stiff rules touch on merchandising, partial deliveries and the use of refrigerators in the retail chain’s stores – requirements that even the country’s leading retailer Nakumatt describes as restrictive.
  • These guidelines now threaten to derail Carrefour’s smooth entry into the East African market as several potential suppliers have so far refused to sign on the dotted line.

French retail giant Carrefour’s entry into the Kenyan market has stirred into action the usually calm suppliers who are opposed to the monetary and operational conditions the firm has set.

The retailer, which is the anchor tenant at Centum’s Two Rivers Mall in Nairobi’s Runda and the Hub Shopping Mall in Karen, wants suppliers to pay a non-refundable fee of Sh1.4 million to do business with it.

Carrefour is also demanding that traders commit to paying monthly rebates (over and above supply profits), an extra discount on the second month of operation as well as a fee when they stock new products.

Other stiff rules touch on merchandising, partial deliveries and the use of refrigerators in the retail chain’s stores – requirements that even the country’s leading retailer Nakumatt describes as restrictive.

These guidelines, outlined in contracts issued to suppliers, now threaten to derail Carrefour’s smooth entry into the East African market as several potential suppliers have so far refused to sign on the dotted line.

“We will not allow this to happen because it will mark the end of home-grown manufacturing. This is blatant exploitation,” said Kimani Rugendo, the chairman of Kenya Association of Suppliers.

The two retail stores in Kenya are set to open later this year and will be operated by Dubai-based Majid Al Futtaim Retail (MAF), the exclusive franchise holders for Carrefour in the Middle East and Africa.

READ: Two Rivers mall set for October first phase opening

The suppliers’ main complaint is about the requirement to pay Sh1.4 million at Two Rivers and Sh1.1 million at The Hub, which the French firm describes in the contracts as “opening fees”.

This amount is deductible the day the store opens for business, either as a lump sum or in two instalments of Sh900,000 and Sh500,000 listed as a credit note and charged on a supplier’s first invoices.

“The fee is to be paid…on the signing of this agreement or in instalments as permitted…and shall not be refundable under any conditions whatsoever,” says one of the contracts signed by Frank Moreau, the retail chain’s country manager.

“The First Party (Carrefour) neither guarantees any minimum purchase quantities nor commits any specific placement location or particular shelf space for the products.”

The retailer’s response to Business Daily queries on the matter did not directly touch on the specifics of suppliers’ complaints.

“Carrefour has already started the process of setting up shop in Nairobi and over 1,700 suppliers have submitted their interest to partner with the global firm,” the retailer said.

READ: Kenya ranked Africa’s second biggest market for retail investors

“The submissions follow briefing sessions the retailer and suppliers have had in recent months. We are impressed by the professionalism of suppliers and are firmly focused on long-term win-win partnerships with local partners.”

Supermarket chains in the West normally ask suppliers to make this payment commonly referred to as the pay-to-stay or listing fees.

The money is charged up front to, apparently, gauge a supplier’s seriousness and confidence in their product and also as a form of security in case their product fails to sell.

Restrictive

Nakumatt Supermarkets managing director Atul Shah said the move by the incoming competitor is potentially detrimental to the retail industry as it could lock out new and small firms who cannot raise the required fee.

“They (Carrefour) have been using this concept in the Middle East but it cannot work in Kenya,” Mr Shah told Business Daily, adding that this idea would set a bad precedent for the retail industry if allowed to pass.

“Normally retailers earn their profits from sales made and prices agreed upon with suppliers. We do not charge opening fees.”

The suppliers are also unhappy about Carrefour’s imposition of extra rebates on sales made and which begin at 12 per cent for whatever amount of sales with a maximum of 13 per cent for turnovers of Sh26 million.

Locally, suppliers set a recommended retail price for their products and approach retailers. Retailers then calculate how much profit they would want per item and in the end come up with a shelf price which meets the needs of both parties. 

Carrefour’s proposal is that over and above such gains, suppliers will be paid their dues less this incremental extra rebate with negotiations happening only if sales targets are not met.

“Progressive rebates are linked to the service level of the supplier. If the service level is below 80 per cent, the rebate will be recalculated accordingly,” the contract states.

The Paris-based retailer is also demanding that suppliers pay Sh10,000 for every new item they launch in the market.

This amount is payable for every store where the goods will be stocked, a rule which is a potential cash cow for the firm given the number of new products being produced regularly.

Carrefour has also asked suppliers to commit to employing one merchandising attendant for each of their stores to man particular goods for two hours every day for six days.

Suppliers currently employ a number of attendants to visit normal-sized outlets at least once per week while the bigger outlets get attended to about three times a week.

Besides, Carrefour is demanding that suppliers exchange any item that has remained unsold for 45 days with another item of the same value which the retailer will choose.

Suppliers of water, juices and carbonated soft drinks will be required to part with Sh50,000 every month to have their products refrigerated in each of the upcoming stores.

Presently, soft drinks manufacturers install their own refrigerators in supermarkets at no extra cost.

New rules

“Some of these rules and charges are practised abroad but they are new to Kenya,” Willy Kimani, a director at Retail Trade Association of Kenya, said.

“Customers and suppliers are key to any retail business and I think the rules being introduced by Carrefour are a bit too punitive to the latter.”

Carrefour had over 10,800 stores in 34 countries as at December last year and is present in Europe, Middle East, Asia, Russia, Latin America and Africa.

The retailer’s profits for the full year jumped 6.7 per cent to €2.39 billion (Sh270 billion) on the back of a turnaround plan which the firm instituted in 2012 and which included selling some of its overseas stores.

Kenya’s low retail penetration rate — estimated at about 30 per cent — has whetted the appetite of multinational stores seeking to open shop in Nairobi, attracted by a growing middle class.