How consumers are swindled by dealers despite pricing guides

Money Markets

The EABL Ruaraka factory. Pubs could be making ten times their recommended profit margins on certain beer brands, according to data from the brewer. PHOTO | FILE 

By EDWIN OKOTH, edokoth@ke.nationmedia.com

In Summary

• Recommended retail prices set by manufacturers are ignored by many retailers, who go ahead to charge triple the recommended amount under the pretext of value addition, ambience and free market economy.
• Drinks and foodstuff are the most affected consumer goods. They are priced differently at diverse areas, perplexing consumers on the real costs.
• Inflating the cost of consumer products has led to lower sales, rise of counterfeits, and reduced taxes to the government.

Open disregard of recommended retail prices has left consumers at the mercy of dealers.

The pricing concept applied by many manufacturers is meant to guide customers on the recommended prices for various products. But this is largely ignored, leaving retailers to set their own prices. These prices are sometimes more than triple the recommended ones.

Emboldening the dealers is lack of provisions for enforcement of recommended retail prices (RRPs), given the free market concept determined by supply and demand.

Inadvertently, the government is also losing millions of shillings in tax revenue as the move to raise prices reduces sales volumes, giving a lifeline to counterfeit goods which are not taxed. 

Drinks and foodstuff are the most affected consumer goods. They are priced differently at diverse areas, perplexing consumers on the real costs.

For instance, it is hard to tell the price of a 300ml bottle of soda as it is sold at between Sh30 and Sh200, depending on where you buy it.  The same applies to the overall food basket, with consumers bearing the burden of greedy retailers.

Opinion is divided on retail pricing in a free market economy, and on who should implement it.

Consumer Federation of Kenya secretary general Stephen Mutoro blames the lengthy supply chain controlled by cartels for the disregard of the concept meant to guard against exploitative prices.

“By the time a RRP is given by a manufacturer, the margins and possible costs have been factored in. But the long supply chain complicates the concept, with some cartels creating artificial shortages to charge above the RRP. The concept loses meaning. It is neither applied nor followed up by manufacturers. It is time we compelled manufacturers and retailers to ensure that RRPs are adhered to,” Mr Mutoro told the Sunday Nation.

Manufacturers paint a picture of being helpless at the mercy of retailers who buy from them.

Kenya Association of Manufacturers chief executive Phyllis Wakiaga said cannot do more than insist that RRP is respected.

“You have seen that some have even gone as far as to display the RRP on their products but still even that doesn’t solve the issue of pricing at retail outlets. Competition authority is currently carrying out a market survey on these issues affecting the market including prices and KAM will definitely reach out to our members for their input. We do encourage wide public participation on this so that we equip the CA with the information it needs to execute action on pricing fairly,” Ms Wakiaga said.

Retailers who sometimes price goods way above the RRPs say additional services such as comfort and entertainment are loaded onto the prices, resulting in extra earnings above the margins recommended by the manufacturer.

Pubs could be making tenfold their recommended profit margins on certain beer brands, according to data from the East African Breweries Limited. Tusker beer, for example, is released from the Thika Road-based brewer at Sh121 per bottle, transported to various distributor outlets (by the manufacturer) and sold to retailers at Sh127, so as to reach consumers at the recommended price of Sh140.

But some retailers sell the beer at between Sh250 and Sh350 a bottle, making them the biggest beneficiaries of the value chain. Last year, the regional brewer admitted that its sales volumes were affected by “poor retail discipline”. 

“It is not fair of retailers to add extraordinary margins; it is not good even to retailers themselves, since they also lose business. Reduced volumes mean less revenues for the government in taxes and lesser addition of benefits to the value chains. Additional infrastructure with more sophistications might add to their running costs but making our products unaffordable to consumers is not the way to solve the problem. You end up in a vicious cycle of bad effects when volumes drop due to high prices,” Mr Charles Ireland, former managing director of East African Breweries (EABL, which owns KBL), told the Sunday Nation in an earlier interview.

Lower sales volumes have a ripple effect on manufacturers’ profits and on tax to the government, leading to poor services to the public.

The Competition Authority of Kenya director general Francis Wangombe told the Sunday Nation that as long as retailers were not dominant in the market and consumers had no difficulty finding alternative places to purchase goods, then the retailers were not violating the law.

“Our problem is when they set a minimum price but, in the market reality, the maximum price differs substantially due to locality and additional aesthetics. Price is not the only determinant in the market. A market should be guided by the forces of demand and supply, and not by other externalities. But consumers have a right to be told why a certain product is being sold at a price way above the RRP. Also, consumers can opt to buy the goods elsewhere,” Mr Wang’ombe said.

Nonetheless, very few retailers can latch onto aesthetics and additional services to justify their higher prices. At Uhuru Park, Nairobi, where customers sometimes sit on dirty benches or under trees, most of the items on sale, such as drinks and confectioneries, are still way above the RRP.

Bar owners, in particular, are said to have formed regional associations where they set their own retail prices. This explains the synchronistic retail prices in various towns and cities.

Many retailers frustrate manufactures’ efforts of posting retail charts at their outlets. Such banners are usually vandalised and distorted to ward off consumer queries. Some shops display the recommended retail prices but still add their own profit margins.

The Trade Descriptions Act prohibits “misleading indications on the price of goods”, terming them collectively as “illegal trade practices”.