Close [x]
By using the site you express your consent to the use of cookie files, some of which may be already saved in the browser folder.
For more information, please follow the Privacy and using cookie files policy for the service

Office of Competition and Consumer Protection

Increase font sizeDecrease font sizeHigh-contrast versionText versionText versionRSS ChannelGet QR codeWersja polska

You're here: Home > About us > About us > News

Discounts applied by retail chains - report of the Office of Competition and Consumer Protection

< previous | next > 21.04.2021

Discounts applied by retail chains - report of the Office of Competition and Consumer Protection
  • The Office of Competition and Consumer Protection examined the discounts which large retail chains obtain from suppliers of agricultural and food products.
  • The result is a comprehensive report containing data and tips related to discounts applied by retail chains.

The food and agricultural market is under constant surveillance conducted by the President of the Office of Competition and Consumer Protection. Actions in this area are taken primarily on the basis of the Act on Combating Unfair Use of Contractual Advantage.  Interventions of the President of the Office in this sector concerned, among others, the relationship between retail chains and their suppliers. One example is the decision and penalty ordered against Jeronimo Martins Polska – owner of the Biedronka chain. The company imposed unfair discounts on its contractors – it informed them about the need to grant these discounts only at the end of the settlement period, after deliveries were completed. 

The President of the Office of Competition and Consumer Protection also looked at discount policies of other large retail chains. In this respect, the Office conducted investigations to examine the situation on the entire market. One result of these efforts is the report (in Polish) which presents, among others, the number and types of applied discounts and a study of compliance with the Act on Combating Unfair Use of Contractual Advantage.

"We took an in-depth look at and analysed discount policies of large retail chains. We examined the activities of 19 largest retail chains. We also asked twenty suppliers of agricultural and food products about the details of their relationship with the chains. On this basis, we have prepared a report in which we present the most important findings concerning discount policies of retail chains, including in the scope of retrospective discounts. We show the scale of the phenomenon and specify which practices may be unlawful" says Tomasz Chróstny, President of the Office of Competition and Consumer Protection.

The selection of 20 suppliers reflects the overall value structure of food production and sales broken down by industry. Most examined entities operated in the meat processing sector. Two other important branches were also identified: fruit and vegetable processing companies and dairies. Other entities operated in different sectors, such as fish processing, spice production and grain milling. The examined suppliers were also a diverse group in terms of size as well as turnover dynamics and profitability.

Discounts in business relationships

Discounts are a mechanism that is commonly used in market economy; they are used in settlements between parties. They often appear in relationships between suppliers of agricultural and food products and retail chains. However, there are situations where retail chain contractors can suffer unwarranted losses on account of discounts. This is most likely to happen in case of retrospective discounts, i.e. discounts applied to already completed transactions.

When should discounts and changes to the rules for granting them be defined?

The report draws attention to the fact that although many suppliers have signed long-term contracts with retail chains, in practice terms of deliveries change very frequently, as new discounts or rules for granting them are introduced during the course of the business relationship. This means that these contracts are long-term only superficially, as suppliers cannot be certain if or when contractual arrangements will change.

That is why the moment when discounts are defined is so important to fairness of the business relationship. The main contractual arrangements, including discounts, should be defined at conclusion of the original contract or at its renewal for another period, and all other instances of changes in terms agreed upon between the parties should arise only from extraordinary and objective circumstances. If the parties cannot agree on a specific discount during negotiations, they can define only a specific mechanism for settling the discount, but they should still do so before starting the relationship for a given period.

Only three retail chains applied discounts with mechanisms defined at the stage of negotiation of original business terms exclusively. All other retail chains used various discount structures, including discounts defined during the relationship. And so, more than a half (57 percent) of discounts examined by the Office of Competition and Consumer Protection were defined prior to start of a relationship, 16 percent were defined during the term of the contract, and 27 percent were defined both before the conclusion of the contract and while the contract was in effect.

Other unfavourable practice involves changing the rules for granting already agreed upon discounts during the term of the contract. This happened for as many as 74 percent of the analysed discounts. Six companies modified the rules for every discount. Disturbingly, only one chain declared that during the course of its relationship with suppliers, the rules for granting did not change for any discount.

Examples of unfair practices

The analysis conducted by the Office identified several types of practices which can be considered a sign of unfair use of contractual advantage by retail chains.

One such practice is the introduction of new discounts after completion of transactions, which were neither included in the signed contract nor agreed upon at the start of the relationship. Reservations stem primarily from the unilaterality of the employed solutions.
Granting a discount means that the supplier does not receive the revenue expected under prior arrangements with the chain. The supplier's benefit, on the other hand, is unidentifiable.

Another issue which raises concerns is the practice of defining terms of relationships with suppliers, including with respect to discounts, for a given period after it has already started, when the supplier has already committed its resources to making deliveries. This can lead to additional obligations towards the chain for the supplier, which constitute a considerable cost burden for the supplier and cause a significant reduction in the contract's profitability. This practice can be particularly burdensome for small entities, which are the most vulnerable to unforeseen and unfavourable changes in their relationships with retail chains – especially if they sell a significant portion of their products to a particular chain. This is because such situations can easily lead to the supplier's business becoming dependent on continued product deliveries to a given chain, which increases the risk that the chain will attempt to exploit the weaker position of its contractor.

Another practice unfavourable to suppliers is simultaneous application of multiple discounts (e.g. monthly, quarterly and annual), i.e. repeated reduction in the price of delivered goods. This practice may be deemed unfair especially if the cumulative value of the imposed discounts reduces the supplier's profits under the relationship with the chain to a minimum, or even makes the relationship outright unprofitable.

Further reservations stem from excessive contractual penalties related to
settlement of discounts granted by suppliers
. Examples include monetary penalties for non-fulfilment of obligations related to a granted discount, e.g. for failure to issue a correcting invoice. According to analyses conducted by the Office, the imposed penalties can be as high as the granted discount itself, while not releasing from the obligation to settle it.

It may also be unlawful for the chain to unilaterally lower the sales threshold which constitutes the basis for granting a particular discount. Such situations were observed when it transpired that the originally specified sales level was not reached, and thus there were no grounds for granting a discount.

"The analysis of collected information constituted grounds for initiating investigations against practices employed by Kaufland Polska Markety, Eurocash and SCA PR Polska. Our goal is to effectively counteract practices which involve abuse of contractual advantage by retail chains in relationships with suppliers. They should treat the presented report as encouragement to eliminate practices which can constitute grounds for initiation of investigations and imposition of financial sanctions provided for by the Act," says Tomasz Chróstny, President of the Office of Competition and Consumer Protection.

Proposed changes in legislation

Currently, work is underway to implement the EU directive on unfair trading practices on the agricultural and food market. Given the collected knowledge on discount policies of the largest retail chains in Poland, the draft Act, on the initiative of the President of the Office of Competition and Consumer Protection, strictly prohibits the practice of unjustified reduction in amounts due for deliveries of agricultural or food products after their acceptance by the purchaser (whether in whole or in an agreed part), especially in relation to demands for discounts. It is clear that we must combat unfair discounts more effectively and that such practices must be eliminated from the market.

The report on discounts in relationships between retail chains and suppliers of agricultural and food products can be found on the website of the Office of Competition and Consumer Protection.

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

 

Read also

President of UOKiK initiates proceedings against the owner of the Kaufland chain
President of UOKiK initiates proceedings against the owner of the Kaufland chain

The President of UOKiK Tomasz Chróstny initiated proceedings against Kaufland Polska Markety. The company may unfairly exploit its contractual advantage with respect to suppliers of agri-food products. ...>

Pyramid-type promotional schemes - further allegations set forth by the President of UOKIK
Pyramid-type promotional schemes - further allegations set forth by the President of UOKIK

Benefits for persuading friends to subscribe to an application motivating them to start a healthy lifestyle or purchase a training package on investing in the Forex market? These may be elements of the pyramid-type promotional scheme. ...>

Compensation for customers of Fortum Marketing and Sales - decision of the President of UOKiK
Compensation for customers of Fortum Marketing and Sales - decision of the President of UOKiK

Impersonation of other companies, misrepresentation of future electricity and gas bills, obstruction of contract termination – these are only some of the practices that Fortum Marketing and Sales Polska may have engaged in. ...>

Unauthorised banking transactions - investigation
Unauthorised banking transactions - investigation

UOKiK President Tomasz Chróstny has launched investigation to verify how banks handle consumer complaints related to the funds being stolen from accounts and what mechanisms they use to authenticate transactions. ...>

Collusion by Kia car dealers? Preliminary investigation and searches by UOKiK
Collusion by Kia car dealers? Preliminary investigation and searches by UOKiK

Are Kia cars sold in breach of competition law? President of the Office of Competition and Consumer Protection Tomasz Chróstny initiated a preliminary investigation into the matter, Office employees conducted searches at the locations of four companies, upon prior consent from the court. ...>

How do Polish people use financial apps?
How do Polish people use financial apps?

Nearly 70 percent of consumers already use apps to operate their bank account, according to research commissioned by the UOKiK.  ...>

Top