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
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”
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