EABL, suppliers row could push beer prices up

Alcohol firm under pressure from group seeking an increase in cut.

From left, EABL Group Managing Director and CEO Charles Ireland, EABL Chairman Charles Muchene, and EABL Group Finance Director Gyorgy Geiszl during the release of the company’s half-year financial results at Serena Hotel on January 29, 2016. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

In Summary

• Some suppliers are pushing the EABL to increase their commissions from the current four per cent to between eight and 12 per cent of the recommended retail price.
• This sets the stage for another rise in beer prices following an average increase of Sh20 in December with the introduction of new taxes.
• Distributors currently earn a commission of Sh5.60 to supply a bottle of Tusker and Sh6.40 on Guinness.
• The distributors hinge their push for higher commissions on what their counterparts in Uganda earn.

By KIARIE NJOROGE
More by this Author

East African Breweries Ltd (EABL) is locked in a row with some of its distributors over commissions, in a dispute that could see beer prices rise by nearly Sh20 a bottle.

The suppliers, under the Beverage Distributors of Kenya (BDK), are pushing the beer maker to increase their commissions from the current four per cent to between eight and 12 per cent of the recommended retail price.

This sets the stage for another rise in beer prices following an average increase of Sh20 in December with the introduction of new taxes on a number of goods including water, cigarettes and cars.

The distributors currently earn a commission of Sh5.60 to supply a bottle of Tusker and Sh6.40 on Guinness.

This will increase to between Sh11.2 and Sh16.8 on Tusker and Sh12.80 and Sh19.20 on Guinness should EABL agree to the distributors’ demands.

“KBL (Kenya Breweries Ltd) is concerned by the attempts of select distributors and retailers who seek to control and raise consumer prices beyond the recommended retail price,” said EABL in a statement Sunday following a meeting held by BDK on Saturday.

“Artificial price inflation is not good for the Kenyan consumer and economy.’’

BDK says it draws membership from the central, mountain, western, Rift Valley and coast regions.

UGANDA RATES

The distributors hinge their push for higher commissions on what their counterparts in Uganda earn.

“Distributors in a country like Uganda get a margin of up to eight per cent, but we only get four,” says Mary Wanjiku, a BDK official.

EABL, which has a 98.2 per cent stake in Uganda Breweries Ltd, reckons that distributors in Uganda meet the bulk of the transport costs.

In Kenya, the beer maker, one of the largest manufacturers of fast-moving consumer goods in the region, outsources its distribution function mainly to big logistics firms such as DHL that move products from the EABL plant to distributors’ outlets. 

EABL spent Sh5.2 billion on supply and warehousing in the year ending June 2014.

The Nairobi bourse-listed brewer said in January while releasing its half-year results that it expected the December jump in excise duty to hit demand.

The Treasury raised the excise tax by 43 per cent to Sh100 per litre of beer, driving up retail prices by at least Sh20 per bottle.

The rise in excise duty, designed to shore up government revenues, was the first in four years.

“Kenyan consumers are incredibly price-sensitive, so moving up by 20 shillings is a big deal,” Charles Ireland, EABL group CEO, said in an earlier interview.

This explains the brewer’s opposition to the distributors’ push, given its implications on the firm’s profits and sales.