EABL warns Sh20-a-bottle row with distributors signals higher beer prices

East African Breweries Limited (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 distributors, under the Beverage Distributors of Kenya (BDK), are pushing EABL 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.

The distributors currently earn a commission of Sh5.60 to supply a bottle of Tusker and Sh6.40 for 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 Limited) 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 its membership from Central, Mountain, Western, Rift Valley and Coast regions.

The distributors are hinging 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.

READ: READ: Water, beer, car prices up as new taxes take effect

But EABL, which has a 98.2 per cent stake in Uganda Breweries Limited (UBL), reckons that the bulk of the transport costs are distributors’ costs in Uganda.

In Kenya, the beer maker, one of the largest fast-moving consumer goods manufacturers in the region, outsources its distribution function mainly to big logistics firms like DHL—which moves products from EABL’s plant to distributors’ outlets. 

EABL spent Sh5.2 billion on distribution 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 hike in excise duty to hit demand.

The Treasury raised the excise tax by 43 per cent to Sh100 per litre of beer, driving up retail prices by at least Sh20 per bottle.

The hike in excise duty, designed to shore up government revenues, was the first one in four years.

“Kenyan consumers are incredibly price sensitive so moving up by Sh20 is a big deal,” Charles Ireland, group CEO of EABL, said in an earlier interview.

This explains EABL’s opposition to the distributors push for the higher commissions given its implications on the brewer’s profits and sales.