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You shouldn't pay more for your choice tipple

By Saru Nkutha | Published Mon, September 10th 2018 at 00:00, Updated September 9th 2018 at 23:10 GMT +3

Savvy, price-sensitive shoppers often scour different retail outlets to get the best-price deal before deciding where to do their shopping. To keep up with the trend, some manufacturers have employed sophisticated channel-pricing policies to control downstream prices.

Manufacturers of maize flour, soft drinks and alcoholic beverages often set Recommended Retail Price (RRP) policies for retailers to follow.

These guidelines help manufacturers coordinate prices across emerging online and brick-and-mortar retailers, as well as to protect their brands from being perceived as too expensive.

Generally, RRPs are designed to grant manufacturers greater control of the margins available to their downstream retail channel partners, so that retailers can also make reasonable margins from their sales.

The rule is designed to prosper businesses, but in Kenya, greed and the rush to skim consumers and get-rich quick mentality amongst retailers is killing the initiative.

Price increases

In Kenya, retailers often need very flimsy excuses to breach the RRPs. A good example is the recent implementation of 16 per cent Value Added Tax (VAT) on petroleum products, which has set off the madness of unregulated price increases that has left Kenyans helpless.The helplessness is spread across every sector, but nowhere is the breach of RRP more discernible than alcoholic beverage sector.

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Despite well-spelt out prices, that are often published in the media for all to see and adhere to, it is not uncommon to buy a bottle of beer say, at Sh160 in Kayole and find the same retailing at Sh800 at a bar in town or Hurligham, Nairobi.

The exaggerated pricing does not only make it difficult for revelers to enjoy their favourite tipple, some find it difficult to visit outlets in their own neighbourhoods and have had to commute to look for fairer prices elsewhere.

That is why in Nairobi, it is normal to find adult residents of Nairobi West whiling away their time in Eastlands, where alcohol is perceived to be cheaper.

Profit margins

That pubs and restaurants procure the beverages from local manufacturers who have set RRPs, allowing decent profit margins is what makes the act of overpricing alcoholic beverages so callous and insensitive.

Besides, the drinks are delivered to the doorstep of the retailers by distributors that show there is little or no justification for the big profit margins. It is shocking that Kenyans are paying as much as 1,200 per cent more for some spirits.

Perhaps the question one would ask is; what would happen in the absence of RRPs in a sector?

We don’t need to look further than Kenya’s healthcare system for answers. There have been reports of highly exaggerated cost of healthcare by the providers when they bill patients using insurance cards, which is unfortunate.

This not only pushes up the cost of insurance premiums, but ends up artificially increasing healthcare costs to the detriment of Kenyans.

Instructively, a lot must be done to cure the mess, including changing the environment that has allowed some hospitals to charge exorbitant rates.

That is why a while back, a move by the Ministry of Health to standardise the price of medicine in all hospitals was celebrated. In a way, it set a RRP for medicine, thereby stifling unfair billing of patients covered by insurers.

It is an unfair comparison, but the violation of RRP is most rampant in the alcoholic beverage sector, thus making it a good reference point when discussing fair prices.

The fact that pubs operate their businesses in a price-sensitive segment in the society means that any slight alteration of the tax-regime by just a few shillings is enough to send away or bring new customers.

What we stand to gain

If retailers adhere to the set RRP for alcoholic beverages, there will be very little need for ‘don’t drink and drive’ campaigns because most people will stick to their locals, and enjoy their tipple there; just like they shop in supermarkets around where they stay.

In Europe, retailers who stick to RRPs are already seeing the benefits, especially with the proliferation of price-comparison apps that give mobile device users the ability to scour different retail outlets in search of price-deals.

Many of the apps enable bar code scanning to compare the best deals, plus price-drop alerts on everything from technology and travel to groceries and beer.

As mobile app technology evolves, others are rolling out price predictions based on retail trends, offering gift-giving insight and delivering a definitive answer for which store offers the better bargain after rebates and coupons (equivalent of bonga points) are factored in.

Ms Nkutha is a certified accountant, has also worked as marketer of alcoholic beverages. [email protected]

 


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