Supermarket owners now face jail for failure to pay suppliers

Owners of supermarkets and other retail outlets that do not pay suppliers on time will face punitive sanctions, including serving time in jail, following the formation of a special unit to oversee the industry.

The competition regulator, CAK, said it had established a Buyer Power Department to address mounting concerns over the negative influence that businesses have had over suppliers.

“Following amendment of the Competition Act No.12 of 2010 to accommodate emerging concerns in the economy, the government has created a Buyer Power Department within the Competition Authority of Kenya (CAK),” the regulator said in statement.

The CAK said the unit’s key mandate will be to prevent a repeat of events that led to last year’s collapse of Nakumatt and Uchumi supermarkets with billions of shillings in supplier and creditor funds.

Multiple industry reports have indicated that the troubled retail chains used the huge market power they had over suppliers to withhold payments and charge fees for goods stocked in their premises, among other controversial practices.

In determining buyer power, the regulator will take into account the nature of contract terms, the payment requested for access to infrastructure and price paid to suppliers.

Abuse of buyer power

The CAK said the unit will initially focus on the retail sector where there have been allegations and indications pointing towards abuse of buyer power.

“This prioritisation has been informed by the fact that the retail sector value chain has recently come under strain,” CAK said.

The authority has always had the legal mandate to check abuse of buyer power in the marketplace – with maximum punishment ranging from a five-year jail term and fines of Sh10 million or 10 percent of annual sales — but the regulator only recently created a department to police the industry.

Buyer power means ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.

Farmers and manufacturers of various goods have found themselves in a catch-22 situation where they have to tolerate onerous terms set by retailers or walk away and lose access to the key distribution networks.

Supermarkets, for instance, have become the favourite shopping destination for the middle class and have nearly wiped out corner shops in the major towns.

Most suppliers stuck with Nakumatt and Uchumi even as they accumulated supplier debt of nearly Sh20 billion by the time of collapse.

List of companies

The list of companies owed millions of shillings by Nakumatt, for instance, includes Brookside Dairy, New KCC, Kevian, Githunguri Dairy and Tropikal Brands Africa.

The CAK said abuse of buyer power manifests itself in delayed payment without justifiable reasons in breach of contractual terms and unilateral termination (or threat of termination) of a commercial agreement without notice.

Refusal to receive or return goods without justifiable reasons, asking suppliers to fund the cost of a promotion and demanding that they limit products sold to competitors also constitute abuse.