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President of UOKiK investigates retrospective discounts

< previous | next > 09.09.2020

President of UOKiK investigates retrospective discounts
  • President of UOKiK Tomasz Chróstny has initiated explanatory proceedings to check whether the retail chains are not leveraging their contractual advantage over small and medium-sized enterprises supplying products to their stores through retrospective discounts.

Retrospective discounts (retros) are granted after paying for the goods. They are used, inter alia, in relations between retail chains and product suppliers. There are different systems of granting retro discounts. In some situations, a supplier entering into a contract is not able to determine the value of the discount they have to grant to the retail chain and on the basis of which criteria. The President of UOKiK may recognize such activities as prohibited action of the dominant party to the agreement, constituting an unfair laveraging of contractual advantage. Last year, the President of the Office raised the first charges against the company Jeronimo Martins Polska.

“When signing the contract, the suppliers of products to the Biedronka retail chain did not know whether they would have to grant an additional discount or how big it would be. I decided to investigate how the discount policy is applied also by other retail chains. Therefore, in early July this year, I initiated an investigation in which we will examine the practices of 19 other entities of this type. We want to take a very close look at whether they are leveraging their contractual advantage by applying retrospective discount mechanisms to small and medium-sized enterprises,” says President of UOKiK Tomasz Chróstny.

In order to assess the market situation precisely, UOKiK also sent questions to selected suppliers with a request for information on the types of discounts applied by retail chains. These include, inter alia, meat, dairy and vegetable producers.

The retrospective discounts mechanism is used in relations between retail chains and their suppliers also when contracts are concluded for short periods, e.g. six months or a year. When concluding new contracts, the retail chains engage in tough negotiations with suppliers, aimed not only at ensuring the required quantity and quality, but also at the lowest possible price to provide the retail chain with a high margin. In such situations, the retrospective discounts mechanism may lead to a situation where the retail chain suppliers, as their sales increase, gain increasingly smaller financial benefits - in extreme cases, leading to a situation where cooperation becomes unprofitable and withdrawal from a contract entails significant financial penalties.

At the same time, along with the increase in sales of a given product category, retail chains profit not only from the retailer's margin, but also by generating growing benefits resulting due to retrospective discounts applied - since these, as a rule, increase as more products of a given supplier are sold in stores. Furthermore, there are situations where chains demand additional retrospective discounts at a fixed percentage during the contract period, reducing the profitability of cooperation for the supplier even more. The risk of cooperation between the parties in this type of cases is thus borne by the entrepreneur supplying products to the retail chain. 

“Retail chains, in particular discount stores, are the largest beneficiary of the absence of market restrictions on the operation of large-format retail outlets in Poland. They should be distinguished by their exemplary responsibility for the entrepreneurs who provide them with products that make up their sales offer. These relations should be beneficial for both parties and there must be no place for cases where a stronger market participant unfairly leverages its contractual advantage over a supplier, in particular a small or medium sized entrepreneur,” adds Tomasz Chróstny. 

The explanatory proceedings is conducted in the case, not against any entity. However, if, based on the gathered information, it is found that the retail chains are infringing the law, then they will be charged with the unfair laveraging of the contractual advantage. They may be punished with a fine of up to 3% of their annual turnover.

Additional information for the media:

UOKiK Press Office
Pl. Powstańców Warszawy 1, 00-950 Warszawa, Poland
Phone +48 695 902 088, +48 22 55 60 246
E-mail: [SCODE]Yml1cm9wcmFzb3dlQHVva2lrLmdvdi5wbA==[ECODE]
Twitter: @UOKiKgovPL

Attached files

 

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