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Bottled water companies rake huge profits despite small cost increase

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Bottled water companies rake huge profits despite small cost increase


Case filed against seven companies for setting ‘unreasonably high price’ for water bottles

15 September, 2024, 07:05 am

Last modified: 15 September, 2024, 10:23 am

Inforgraph: TBS

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Inforgraph: TBS

Despite a minimal increase in production costs, some of the country’s leading bottled water manufacturers inflated their profits by up to 420% by raising the price of half-litre bottles, according to the Bangladesh Competition Commission (BCC).

An investigation by the Commission revealed that these companies colluded to set “unreasonably high prices”. Besides, they dominated the market by increasing profit margins for distributors and retailers.

As a result, a lawsuit has been filed against seven companies, confirmed Hafizur Rahman, member of the Commission. They are Coca-Cola Bangladesh Beverage, Transcom Beverage, Meghna Beverage, Partex Beverage, Rupshi Foods (City Group), Akij Food & Beverage, and Pran Beverage Limited, said Hafizur. 

The Commission’s investigation report on “Abnormal Price Increases in Bottled Water” reveals that these companies abruptly raised the price of 500ml bottles from Tk15 to Tk20 between January and September 2023, citing increased import costs due to higher dollar and raw material prices.

However, the reports said that while production costs only slightly increased, the price hikes have led to profit margins rising by 71.23% to 420%. The increased profit margins also extended to distributors and retailers.

The Commission also found that these companies tried to control the market by ensuring excessive profits at every level of distribution, including distributors, wholesalers, and retailers.

The investigation covered eight companies, including Dhaka WASA, which was not included in the lawsuit.

TBS reached out to all seven companies implicated in the case. Representatives from Transcom and City Group did not respond to calls. 

The remaining companies confirmed that a case was filed against them and said a hearing is scheduled for the 18th of this month. 

Md Nahid Yusuf, assistant general manager of Partex Group, mentioned that they will present their arguments at the hearing.

Akij Food & Beverage made 420% profit 

The BCC investigation found that Akij Food & Beverage saw the largest profit increase by raising the price of its Spa branded 500ml bottled water by Tk5. 

Despite an 18.33% rise in production costs and a 31.78% increase in VAT and taxes, the company’s profit surged by 420%. Retailer earnings per bottle rose from Tk5.62 to Tk9.

Similarly, Coca-Cola’s Kinley brand saw production costs for a 500 ml bottle increase by Tk1.624, or 27.67%, with VAT, taxes, and supplementary duties rising by 34%. 

The Tk5 price increase resulted in a 212% boost in company profits, a 30% increase in distributor profits, and a 26.98% rise in retail profits. Retailer profit per bottle increased from Tk6.67 to Tk8.47.

The investigation also revealed that Transcom’s Aquafina saw a 71.23% profit increase, while Meghna’s Fresh bottles experienced a 177.78% rise in profits.

The Commission’s report said City Group’s profits could not be analysed due to insufficient information, and Pran provided no information at all. 

Only one company, Partex Beverage, increased prices and raised distributor and retailer commissions without boosting its own profits, it said.

Besides, Dhaka WASA’s production costs for its Shanti brand remained unchanged, and they did not increase commissions for distributors and retailers. 

As a result, the company is struggling, with retailers reportedly reluctant to stock their water due to low profits from selling it at Tk15 per bottle, said the report.

The companies violated the Competition Act, 2012, specifically sections 15(1), 15(2)(a), and 15(2)(b), by engaging in collusion to set prices unreasonably high rather than competing on price, added the Commission.

 

How the investigation began

In mid-last year, criticism of bottled water price hikes emerged in the media, highlighting that retailers were making Tk8-Tk9 profit per 500ml bottle. 

Humayun Kabir Bhuiyan, general secretary of the Consumer Association of Bangladesh (CAB), petitioned the Commission to take action against collusion among companies in the water market.

In response, the Commission held consultations with the involved companies, analysed their cost sheets, and recommended further review by the Bangladesh Tariff Commission. 

The Commission also initiated its own investigation. During this time, companies increased prices for bottled water of various sizes.

Bottled water market 

According to the Commission, bottled water sales in FY22 exceeded 552.45 million litres. For the 2022-23 fiscal year (up to 31 January), approximately 400 million litres were sold.

The Fresh brand had the largest market share at 24.17%, followed by Pran with a 17.76% share, and Aquafina with 16.88%. 

Mum held the fourth position with a 16.44% market share, while Spa ranked fifth with 13.81%. Kinley had a 4.16% share, Jibon 4%, and Mukta, Sena, Muskan, and Shanti brands each had less than 1% market share.

According to Bangladesh Standards and Testing Institution (BSTI), there are 232 registered companies producing and marketing bottled drinking water till FY23. The market is predominantly controlled by 11 brands.





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