EABL in standoff with distributors over beer supply contracts
East African Breweries Limited outgoing managing director Charles Ireland. PHOTO | FILE
What you need to know:
Under the lobby group Beverage Distributors of Kenya (BDK), the distributors accused EABL of engaging in “monopolistic practices” which “frustrated market penetration by new and upcoming beverage manufactures”.
EABL distributors currently earn a commission of Sh5.60 to supply a bottle of Tusker and Sh6.40 for Guinness but they wanted this adjusted upwards to as much as Sh16.8 for EABL’s flagship brand and Sh19.20 for the latter.
East African Breweries Limited’s month-long standoff with its distributors intensifies this week with the demand that the beer maker removes a clause in their contracts that prevent the merchants from dealing with rival firms.
The standoff came to a head last month after some of the beer distributors declined to sign agreements requiring them to notify EABL of any plans to deal in competitor products.
EABL, which controls around 90 per cent of Kenya’s beer market, issued its distributors with three-year contracts that effectively bar them from selling products from rival firms.
The three-year contracts, which run from June 1, also require oral or written notification when any of EABL’s distributors wants to operate outside designated territories.
EABL’s more than 80 distributors deemed these clauses uncompetitive, and about five of them declined to sign the new contracts issued on May 31.
The five distributors collectively control about 30 per cent of EABL’s distributor network and their “rebellion” has been a big headache for the brewer, which is majority-owned by UK’s Diageo. The standoff persisted despite EABL’s lawyers having written to the distributors, seeking to assure them that the clauses did not bar them from dealing with competitors.
Intense deliberations that lasted more than a week saw most of the distributors eventually sign the contracts, averting what would have been a major supply nightmare for the brewer. Kenya Breweries communication manager David Kimondo said there is no issue with the distributors as all have a valid contract with the company.
“We have over 80 distributors across Kenya, over 10 of them based in Nairobi and its environs and they are working normally. All of them have contracts with us,” he said.
“We continuously engage our partners and review our way of working with them, agreeing on what is best for them, customers (including distributors) as well as consumers of our products.”
EABL maintains that its contracts are non-exclusive and that the requirement that distributors notify the company prior to entering into working relationships with other firms (or selling outside their assigned zones) is not uncompetitive.
The merchants, however, reckon that this rule, while not explicitly restrictive, is an attempt at self-censorship where, out of fear of losing their contracts, stick to sole distributorship of EABL brands.
“The letter from EABL lawyers offers little comfort. The contracts we signed still require us to notify the brewer in the event that we want to stock non-EABL brands,” said one distributor who spoke to the Business Daily on condition of anonymity.
“The fear is that if you inform them that you intend to work with the competition, they could drop you and work with those who are okay with exclusive contracts.”
By getting the majority of its distributors to agree to the new deals, EABL hopes it has brought to an end what has been a long month for them in the face of unprecedented rebellion from its supply partners.
Monopolistic practices
Under the lobby group Beverage Distributors of Kenya (BDK), the distributors accused EABL of engaging in “monopolistic practices” which “frustrated market penetration by new and upcoming beverage manufactures”.
“The opening of the beverage trade will greatly enhance the profitability of beverage distributors and bring in efficiency through sheer economies of scale under this statutory framework,” BDK said in a statement.
Aside from their top demand that EABL open up its distribution channels, BDK also wanted the brewer to increase its commissions from four per cent to between eight and 12 per cent of the recommended retail price.
This proposal, which EABL has opposed, would have seen the retail prices of beer rise by Sh20 per bottle, piling more pressure on consumers who have seen tax on the product increase with regularity.
EABL distributors currently earn a commission of Sh5.60 to supply a bottle of Tusker and Sh6.40 for Guinness but they wanted this adjusted upwards to as much as Sh16.8 for EABL’s flagship brand and Sh19.20 for the latter.
Keroche Breweries, the country’s second-largest brewer with a market share of less than five per cent, pays its distributors Sh8 for every bottle sold or Sh200 per case of beer.
The new contracts signed by the distributors has not amended their commissions, dealing them a heavy blow at the end of a contract negotiation process that has soured ties between both parties.
While EABL was renegotiating the supply contracts with its distributors, it set up a hotline through which it invited any customers who were having stock issues to contact them.
“Stock is just a call away. Are you having trouble getting supply of your favourite beer or spirit, kindly call us or send us an SMS to (mobile phone numbers provided),” the brewer said in a series of adverts that started running last week.
EABL said it was not aware of any beer shortages in and outside Nairobi and that the adverts have “no relationship to shortage of beer but are a continuous effort to ensure our products are distributed optimally”.
The Business Daily has learned that the hotline was set up as part of a stop-gap measure intended to ensure that customers do not experience any supply issues in the event that some distributors did not agree to EABL’s terms.
