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Bar owners unwittingly drive drinkers into illicit liquor through pricing

COMMENTARY
By Morris Aaron | December 25th 2018

It is that time of the year that we will be spending a substantial amount of time at the local tipple joint merrymaking. This is the season for marketers, entertainers and bar owners to make their money.

But as we have witnessed on previous occasions, bars and entertainment joints often miss cashing in on the festive season by pricing themselves out of customers.

The logic which most bars miss is that the cheaper their alcoholic products (combined with quality service and security), the higher the  product turnover and subsequently, the higher the profits.

Anyone who has been in beverages industry will tell you how Kenyan drinkers are price sensitive. Raise a beer price by even Sh10 and you will see customers vanish. So, how can a bar owner make more sales during this festive period?

The economy is hard and everyone is looking to make some savings, a great bargain is all it takes. The trick lies in the recommended retail price commonly known as RRP. Barowners who will this season position themselves as the best bargain joints for alcoholic drinks will most certainly gain more customers, make more sales and more profit.

Those who have not understood this concept often lose as they price themselves based on what their competition has put as their price tag for alcoholic drinks. There is mathematics in how one should price alcoholic beverages.

Experts advise that the best way to arrive at a fair pricing for alcoholic drinks lies  in who one's wholesaler is and at how much they are supplying their alcoholic beverages.  The more expensive the wholesaler, the higher the cost of alcoholic products and subsequently the higher the final price at the counter. 

The price

Bottom line is: In general, higher prices attract less customers and vice versa. Experts also say that it is important for a seller to know which of their alcoholic brands are selling faster than the others.

In short, experts will advise you to have low mark up (make less profits per product)  on fast moving products so that the price is cheaper to ensure that more of the products are sold and as a result, more turnover, more profits.

This is opposed to having a standard mark up on all alcoholic products at ones outlet. This is a common mistake with many restaurants and bar outlets. Nairobi is awash with outlets that started off well with great branding but failed on the pricing bit.

Outlets in Nairobi are charging as high as 300 percent over and above the recommended retail prices in a bid to cash in on the festivities and make a quick buck.

Generally, if the motive is to make profit in a price-sensitive economy, focus on the price-be the best bargain. The logic to the bar owners is simple-the higher the price of the drinks, the higher the returns but the lower the sales. In the real world, the higher the prices,  the less volumes.

Middle class

It does not make sense for example for a middle class bar to sell a beer at Sh300 when the recommended retail price is Sh150. The old argument of covering the cost of rent and labor does not wash because brewers have already factored in these projections when recommending the retail prices at which the beers and other drinks should be sold. 

Rents that the outlets pay in middle class malls and buildings are average. In fact, in most cases, the drinking joints are housed in semi permanent structures.

On the question of labor, talk with any waiter will reveal some of the harshest working conditions that include lack of benefits, summary dismissals and pay as low as Sh10,000 a month.

Only one explanation comes to mind: pure greed and gluttony. The consequences of this practice go beyond hurting the pockets. The decision by bars and other outlets to sell alcohol at prices way above the recommended retail prices is seeing many, especially in the lower middle class and below, practice unsafe drinking habits.

It involves drinking alcohol whose sources and/or quality is questionable. There has been a sudden rise in cheap hard drinks packaged well to pass like any other good drink. This makes them miss customers who they should have courted.

Then there is the issue of the rise of the liquor black market whose shortfalls go beyond denying government tax. A liqour black market is everything illegal and should be avoided at all costs.

This festive season, let us enjoy our tipple safely,fairly and at fair prices.

Aron is a researcher and a writer. He can be reached at [email protected]

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