Beer makers ask bars to use recommended prices in sales drive

What you need to know:

Locally brewed beer prices were this month adjusted upward by Sh10 due to tax increases with the recommended retail price of Tusker Lager set at Sh160.
But some bars raise prices above the recommended rates, raising fears the higher prices could dim sales.

Beer and spirits manufacturers have opened talks with bar owners to stick to recommended prices to lift sales and cushion the businesses from effects of higher taxes.

The manufacturers through their lobby — Alcohol Beverages Association of Kenya (Abak) — say higher alcohol prices could hurt sales.

Locally brewed beer prices were this month adjusted upward by Sh10 due to tax increases with the recommended retail price of Tusker Lager set at Sh160.

But some bars raise prices above the recommended rates, raising fears the higher prices could dim sales. “If retailers really want to grow their business they have to offer value to consumers, otherwise buyers will take their money elsewhere, meaning that in addition to lost sales, goodwill across other categories will also be lost,” said Abak chairman Gordon Mutugi.

“Despite well-spelt out prices, it is not uncommon to buy a bottle of beer say at Sh140 in one part of town and find the same retailing at Sh500 in another location.” Abak says a study it commissioned last year showed that increasing the price of legitimate alcohol pushed drinkers to illicit brews.

“Consumers respond to the changes in prices by changing the taste of the commodity. This leaves a large population in the lower end of earners to resort to illicit, banned alcoholic beverages.”

The government raised excise duty on alcohol by 5.17 percent from July 1 even as wines and whisky consumers await a 15 percent rise in excise tax when Finance Bill becomes law.

Last year the excise duty was raised by 5.2 percent, underlining Kenya’s position of having one of the highest rates of tax on beer on the continent.

Close to half of Tusker’s recommended retail price goes to the taxman. But Abak says there is a flaw in the formula the Treasury applies.

“Because the adjustment is informed by the Consumer Price Index, the current inflation adjustment formula in the Excise Duty Act overstates the inflation adjustment factor for excise taxes on excisable goods,” says Mr Mutugi.