Why beer prices could soon rise by Sh20 per bottle
East African Breweries Ltd (EABL) is locked in a row with a section 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.
CURRENT COMMISSIONS
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 on 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 Central, Mountain, Western, Rift Valley and Coast regions.
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 an official of BDK.
TRANSPORT COSTS
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, which is one of the largest fast-moving consumer goods manufacturers in the region, outsources its distribution function mainly to big logistics firms such as DHL — which moves products from the EABL plant to distributors’ outlets.
EABL spent Sh5.2 billion on supply and warehousing in the year ended June 2014.
The Nairobi bourse-listed brewer said in January while releasing its half year results, that it expects the December jump in excise duty to hit demand.
Treasury lifted 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,” Mr Charles Ireland, group CEO of EABL, 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.