By Calvin Otieno
Kenya: Supermarkets are under a barrage of criticism from the Kenya Association of Manufacturers (KAM) for allegedly importing and packaging consumer goods under their brand names.
Promoting unfair competition and giving little thought to local manufacturers and suppliers are some of the claims levelled against them.
But for supermarkets, it is a business strategy at play — they are merely pursuing diversification away from being retailers, which is a move indicative of the shifting dynamics in the retail business.
First, it is noteworthy that the goods packaged and distributed by the supermarkets retail at a relatively lower price than mainstream products.
Second, they are packaged such that they permit easy price-to-quantity comparisons
KAM attributes this to cheap imports, a charge that supermarkets vehemently deny.
For instance, Nakumatt Holdings packages its own milk, bottled water, honey, ice cream, spices, detergents, cereals, sugar and a host of other products under the Blue Label brand.
Mr Atul Shah, Nakumatt’s managing director, says that all these products are from local suppliers
With a network across the country, distribution for supermarkets is not difficult — all they need to do is prominently display their products on the shelves.
As such, one may argue that by seeking to exploit the traditional chain of distribution, supermarkets are displaying a form of raw capitalism, where the manufacturer distributor and retailer are one and the same.
But isn’t that what capitalism is all about?
Free market economists, who are anchored on the philosophy of “willing buyer willing seller”, would have no problem with this.
But is it morally right for supermarkets to exploit the brand loyalty they enjoy to psychologically obfuscate the consumer with brands of their own? This is where I differ with the proponents of a free market.
You see, supermarkets’ entry will force well-known brands to work harder to protect their market share. As behavioural economists would confirm, consumers become restive with existing brands and are willing to try new varieties.
To counter this, these manufactures will embark on intensified advertising campaigns to avoid a possible loss of market position. This, of course, drives up total costs, resulting in higher prices.
Meanwhile, new entrants into the consumer goods scene may find the market “flooded” with supermarket brands.
As such, can one argue that it is a strategy to restrict entry? And if so, at what point should the Government intervene?
The East African Chartered institute of Marketers (CIM), through Chairman James Ngomeli, has argued that this is a deliberate attempt to “suppress market opportunities” for small entrepreneurs.
But what does the consumer say about this?
Ordinarily, a typical consumer will rejoice in the fact that there exists a wide variety of goods to choose from, particularly when this results in their saving an extra coin.
Manufactures and suppliers may be itching for a fight, but it is the consumer who will determine the ultimate winner.
The writer is a socio-economist who writes on consumer issues.
bizbeat@standardmedia.co.ke
