EABL doubles keg beer prices as tax comes into effect

East African Breweries Limited (EABL) on Tuesday doubled keg beer prices after a new tax regulation slapping excise duty on the product took effect.

A barrel of Senator beer is now refilled at Sh6,544 up from Sh3,146, which translates to a 108 per cent increase at the wholesale level. The price rise will be passed on to consumers who are largely low-income earners.

Retailers who spoke to the Business Daily said they have increased prices with a 300-millilitre tumbler selling at Sh50 and the half-litre mug going for Sh80, compared to earlier prices of Sh30 and Sh50 respectively.

They said retail price increases beyond that would hardly be absorbed by the market. EABL, which did not respond to our questions, is for now paying half the excise duty but is expected to pay the full amount in three years.

This is the third time EABL is increasing beer prices this year, having twice hiked that of its conventional beers in March and July, citing increased raw material costs.

The price increase comes at a time when EABL is also racing to reverse a 38 per cent drop in net profit for the year ended June 2013 that stood at Sh6.9 billion, weighed down by a surge in financing costs.

The low-end beer was previously exempt from excise duty but now attracts tax at the rate of 50 per cent — translating to Sh35 per litre —given that Kenya Revenue Authority charges excise tax on all beers at the rate of Sh70 per litre.

Treasury secretary Henry Rotich has said the government plans to raise Sh6.2 billion annually from the 50 per cent excise tax remission—or concession, earlier at 100 per cent meaning the drink was literally exempted—on Senator keg.

(READ: EABL sees sales drop after new tax measure on Senator Keg)

EABL says the new tax is likely to slow down sales for the Senator keg, billed as the firm’s biggest beer brand in terms of volumes, and hurt its earnings.

“Volumes are expected to slow significantly for Senator keg, which targets consumers transiting from the informal market (which accounts for close to half of Kenya’s beer market),” said a research note by the Standard Investment Bank (SIB) after a briefing with EABL management.

The brewer said volumes for emerging beer products which include Senator, Balozi and Allsopps grew 12 per cent in the year to June, which was faster than mainstream beers (Tusker) which was up three per cent.

There are fears that a price increase of the beer targeted at the low-end market will lead to higher consumption of illicit, home-made brews and derail efforts to migrate low-income earners to the formal alcohol market.

EABL introduced Senator keg in 2004 with an eye on low-income drinkers especially in informal settlements and rural areas who could not afford ordinary beer.

But other hard up Kenyans have tended to down-trade, meaning the market could see some movement to low-standard spirits.

The pain of excise duty on beer served from barrels will be borne by consumers who are already saddled with value added tax (VAT) on essential goods such as cooking gas, electricity, exercise and text books and mobile phones.