Majid Al Futtaim-backed retailer Carrefour has been putting a squeeze on suppliers through multi-layered rebates with the fees now the subject of a fresh probe by the Competition Authority of Kenya (CAK).
On Friday, the watchdog, for instance, blocked the retailer from charging rebates on Pwani Oil products pending an ongoing probe.
Rebates refer to fees collected by retailers in exchange for having products on shelves.
But while rebates are standard practice across the globe and among retailers including local players, the multilayered approach to rebates by Carrefour, which has operated in Kenya over the past seven years has caught suppliers flat-footed as they squeeze margins.
“It’s like a noose on suppliers and each year, they tighten the noose further. We struggle to pass the same cost to consumers as customers are very price-sensitive and we have to be considerate of that,” Ishmael Bett, the CEO of the Association of Kenya Suppliers (AKS), told Business Daily.
“The rebates are eating away supplier margins and this in a way is margin erosion. Our worry is that one day the margins could come down to zero.”
In response to queries on last week’s orders by the CAK, Carrefour maintained its rebates system aligns with global standards and that it has supported fair and low prices for shoppers.
“The practices are recognised and adopted by leading retailers across the world and have proven to be effective in Kenya as Carrefour is now synonymous with affordable and quality services, enabling almost 700 of the local suppliers and producers we partner with to grow their business with us over the years,” the retailer said in a statement on Monday.
“We have noted the temporary order in the Kenya Gazette regarding Pwani Oil Products, who like 50 percent of our supplier base, have been working with us for the last seven years, and we are currently addressing the matter with the CAK.”
According to AKS, Carrefour employs two types of rebates –fixed and royalty rebates and progressive rebates. Fixed and royalty rebates which are irrespective of sales are charged monthly at a rate set by Carrefour.
Progressive ones are chargeable annually, with the rate of application rising year after year.
Among them are listing fees which represent charges levied on suppliers for placing their goods on shelves.
Suppliers nevertheless have the latitude to choose or dismiss promotional discounts but are compulsorily required to offer thematic discounts which cover key shopping seasons such as Christmas and Easter.