Opinion

Even with excise tax, fair price is possible

Even with excise tax, fair price is possible
  • Before alcohol hits a patron’s table, it passes through the manufacturer, wholesaler, distributor and finally the bar outlet, or retailer.

  • As long as an establishment is well marketed and is known for quality, the closer they sell at the RRP, the higher the volumes they push.

Despite the interest rate cap dispute that delayed the Finance Act 2019 till November 7, the increased excise duty on alcohol by 21 per cent was not in contention. And, as usual, bar owners immediately passed the extra cost on to the end consumer by increasing alcohol prices — even on old stock. But that need not be the case this time around.

EFFICIENT

Before alcohol hits a patron’s table, it passes through the manufacturer, wholesaler, distributor and finally the bar outlet, or retailer. Any bar owner would like to reduce the supply chain costs. This might mean shopping for cheaper supplies or changing tactics to pick products directly from source.

It might also mean reducing rental and labour costs by renegotiating the agreements especially or even relocating. Since loyal patrons go after the service, a bar owner may hire less but more efficient workers.

Technology is now a key driver on how marketing of products and services is driven. Instead of full-blown promotions, why not use mobile apps to communicate to your clients the latest offers? It is cheaper and more convenient than having a number of ladies lined up at the entrance.

Suppliers may want to influence the distributors to move more of their products as opposed to those of the competition. One can put on incentive contests, do promotions with them or go on store visits with sales reps.

FAIRLY PRICED

As an alcohol distributor, one definitely wants to focus extra energy on big, volume-driving retail accounts.

The end consumer’s drive to buy is only determined by the quality of the product — which has been vigorously marketed by the manufacturer — and how fairly priced it is, which is again hinted at by the manufacturer through a recommended retail price (RRP) tag.

Unfair pricing does the whole chain an injustice and can only be addressed by pricing closest to the RRP. In the end, it often sees the bar owners and the well-meaning manufacturers out of business, denying the eager customer their favourite drink.

A retailer needs to know some basic mathematics to survive.

MARK UP

Restaurants sell alcohol by the bottle for consumption on the premises. Liquor stores sell unopened bottles for consumption off-premises. The economic environments in which the two operate are different, as is the pricing policy.

Bars typically mark up their drinks much more than liquor stores — the margin by which is free in Kenya. Restaurants also have a ‘pour cost’ room — which includes free drink promotions to ensure higher sales of the anchor brand — compared to stores. Other factors affecting a drink mark-up in bars include free drinks and theft.

While bars do not often get much volume discount bars have one advantage — those that sell bottled beer have almost zero costs save for serving (especially of the beer is not for reuse). Establishments selling canned beer at RRP have the highest advantage.

QUALITY

This is followed by draft beer, fancy beer, wine and finally hard liquor. The last has thin margins because the consumers tend to get drunk on a lower volume and wine, draft and fancy beer has the additional cost of fancy glasses. In fact, hard liquor are mostly the highest priced.

It is, therefore, important that a bar owner knows which class they want to be.

The rule is: As long as an establishment is well marketed and is known for quality, the closer they sell at the RRP, the higher the volumes they push.

Ms Nyaboke is a researcher and a writer. She can be reached at