Greetings to all. A story in the Arab News caught our eye at IMES Research this morning and I did some digging – here’s my take.
The story was on the issue of compulsory price labelling. In a nutshell, the Ministry of Commerce & Industry (MCI) has gone on the offensive from 11 April 2013 onwards to enforce the Commercial Data Law, which apparently stipulates that all trading facilities, of whatever type or level, must display the purchase price on every product, in clear and readable Arabic. There is a news item on the MCI’s website in this regard, in which it has already advertised that contraventions are punishable by a fine of SR 100,000 – but of course this is Saudi Arabia we are talking about, with variations to that theme.
The Arab News has the fines at SR 1,000 for each item not marked, for example. What does puzzle me most, however, is if you check the MCI’s website for The Law of Commercial Data, in its own Article 1, the one thing that is not mentioned as a component of Commercial Data is actually price. Quantity, size, volume, producer, ingredients etc. are all identified, but not price. So, I’m really not sure at the moment whether the law has, indeed, been amended to include retail pricing as a Commercial Data component – in other words, might the announced enforcement of the law something that will die down, once it is found that the law itself has not actually been amended, or amended yet?
The story is not so much about the new law (or is it a new law?) but about the fact that shops largely appear to defy this directive (or is it a directive?) – either because they have not been informed, or because there hasn’t been an enforcement example yet in their vicinity so it might be a waiting game until the fines are starting to rain down on the Saudi grocery trade. But let us assume that this is the way the Saudi government is in fact going, and that everything will be formalised duly.
“The sentiment of the MCI is clear – the drive is part of its ‘Know Your Right’ campaign, i.e squarely there for the Saudi consumer’s protection from sharp trader practices.”
There is even an MCI consumer phone hotline now, with people encouraged to report shops who do not comply. Valiant, to some degree – just compare the daily struggle of haggling in a Saudi taxi compared to the serenity of a metered fare in Dubai for example. If prices are advertised clearly, there won’t be any surprises at checkout. But what is controversial to me here is that the onus is on the shops. In other countries in our region where there is compulsory price labeling legislation (I can think of Iran and Jordan here for example) the onus is on the producer.
Retail price on packaging of Dubai Cola, filled by UAE based Union Beverages
The price is either advertised very openly by the supplier – for example, imagine a Pepsi or Coca-Cola can with the price tag included in the packaging design – or it is stamped in more rudimentary quality typically in black ink, at the same time as the production and expiry dates on a production line are applied onto the product. The regulations for imported products are a little more fluid of course – it is hard for the authorities to force foreign suppliers to adhere to those sort of rules, and importing agents (if product is not smuggled of course) are being forced to only varying degrees to add pricing information at warehouse level. But, by and large, the system seems to work in those countries, up to a point. And that point is very clear in the case of Iran – what on earth is a producer to do if there is hyper-inflation, especially for ambient products? Does he really want to have products in the market whose retail price is inching up on a daily basis? Does a bagala owner really want to have a daily fight with consumers because the 1 litre UHT milk pack produced a week ago is stamped cheaper than the one from this morning? Not such a huge issue of course in the case of Saudi Arabia, with its tight consumer price controls and price points in place, but you do get my point.
The whole issue raises a lot of questions of course. Is the MCI serious, and will inspectors indeed come down hard on retailers? Is the law actually in place or, as so often, will we find out that there will be some back-tracking soon? Is price labelling at shelf level sufficient or does it really need to be done on individual pack level? How to deal with products in chiller cabinets with moisture being adhesive labels’ enemy? I could go on and on.
Retail price displayed on packaging of Jordanian flavored milk brand, Baladna
And to us as a market research provider, a further question is – will the effort and cost of doing so in Saudi Arabia eventually shift from the shop owner to the supplier? In other words, which industry will be boosted by this – companies supplying sticky labels and pens to shop owners? The packaging industry who now needs to integrate consumer pricing on designs? Or the people supplying expiry date stamping equipment? Are retailers in the Kingdom strong enough to force both domestic producers and importing agents to supply products to them fully labelled? I doubt it. With small groceries and mini-markets still accounting for the vast majority of grocery retailing in the Kingdom, and no collectivisation possible, it will be tough for them to convince suppliers to take on the cost of price labelling themselves. Will legislation shift from shop owners to the manufacturers and importing agents? That’s a distinct possibility – certainly, the enforceability would increase, and the effectiveness of enforceability with it. It would be a whole lot cheaper for the MCI to force an Almarai or a Sadafco or an Al Jomaih or an Abudawood to cough up a fine if their products are not price-labelled properly, than to try and squeeze money out of a man running a bagallah whose sponsor might be the most elusive person on earth. On this one I would advise everybody to watch this space – it really could go either way. I’m painfully aware I’m supplying you with more questions than answers here – but it’s sort of my job! Market analysis at IMES Research is geared to track pricing changes of key dairy and beverage SKUs, an especially sensitive subject in the regional dairy sector at present.
As always, with my best wishes,
Thorsten