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Competition Authority of Kenya bars beer distributors from fixing prices

By Moses Michira | June 2nd 2016
Wang’ombe Kariuki (left) and Francis Wangusi of Communications Authority of Kenya. Beer distributors have been barred from setting the selling prices as the move is un-competitive and amounts to ‘price-fixing’. (PHOTO: COURTESY)

Beer distributors have been barred from setting the selling prices as the move is un-competitive and amounts to ‘price-fixing’.

Competition Authority of Kenya (CAK) Director General Mr Wang’ombe Kariuki said the distributors cannot sit to discuss the pricing of the beverages they handle. “We cannot allow the distributors to sit and agree on a price,” Mr Wang’ombe said at the close of a three-day training workshop for journalists.

Allowing businesses anywhere along the supply chain from manufacturers to retailers to determine the appropriate pricing is not allowed under competition laws as it tends to expose consumers through higher retail prices. It is specifically detrimental to consumers because any price increase along the distribution chain is reflected in the eventual pricing.

CAK also reckons that no rational businesses would sit to agree on price reductions that could benefit the consumers, as each of them are looking for bigger profits. The agency can, however, not determine the retail prices in the different outlets ranging from kiosks to high-end hotels, because the consumers have the freedom of choice to ‘vote with their wallets and feet’.

Wang’ombe statement offers a little reprieve to manufacturers, including the East African Breweries Limited whose distributors are demanding to set their profit margin and stock products from rival manufacturers. CAK, however, agrees with the distributors that they should be allowed to trade in rival manufacturers’ products citing that it was restrictive to limit how many products anyone could handle and stock.

“It is progressive to allow the distributors to stock products from any manufacturers,” said the CAK boss, whose agency already fined a soft drinks manufacturer Sh2.5 million for restricting its distributors.

Artificial inflation

Coca Cola-owned Crown Beverages, which bottles popular water brands including Keringet, was found to have abused its market share by entering exclusive distribution agreements – which meant that its distributors were not allowed to stock and sell beverages from other manufacturers.

Last week, EABL was locked in a battle with a some of its distributors who want to be allowed to increase their profit margin three-fold. Its distributors are currently earning about four per cent of the eventual retail price in a formula that is stipulated by the brewer.

But the members of a lobby group called Beverage Distributors of Kenya want margins of between eight and 12 per cent of the recommended retail price. EABL has expressed concerns over the higher profits as demanded, citing that the retail prices for its beverages could soar should the distributors have their way.

“Kenya Breweries Limited is concerned by the attempts of select distributors and retailers who seek to control and raise consumer prices beyond the recommended retail price. Artificial price inflation is not good for the Kenyan consumer and economy,” said Eric Kiniti, the corporate affairs director of the brewer.

Tens of distributors have been contracted to deliver beer and other alcoholic beverages in specified markets on behalf of the firm, majority owned by UK’s Diageo. In the distributorship agreements, the contracted companies are required to observe exclusivity, meaning they are barred from stocking products from rival firms.

However, EABL and the lobby have clashed over the demands to be allowed to set their own margin, with the brewer unwilling to meet the distributors request to be allowed to increase margins. The brewer is concerned about the likely price increments of alcoholic beverages that might be triggered by it caving in to the demands of the distributors.

“Distributors in a country like Uganda get a margin of up to eight per cent, but we only get four. We are also allowed to stock products from rival companies, but to do this we have to get a written consent from EABL, which we feel is unfair,” said Mary Wanjiku an official from the lobby told journalists after their meeting on Saturday.

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