Banks DIH will continue to cut prices to facilitate weakened consumer demand - soft drinks, biscuits targeted as sales fall By Gitanjali Singh Stabroek News June 2, 1999 This is crisis time says Chairman Reis Brewery giant, Banks DIH Limited, is taking measures to cut the prices of some of its products because of weakened consumer demand, given the depressed state of the economy. The group has already cut the price of Golden Harvest bread from $140 to $130 and it has asked retailers to cut soft drink prices to $30 and $45 dollars (10 ounces and 1/2 litres) and will ensure these prices come down by targeting certain market retail leaders with incentives to do so. Additionally, the group is looking to repackage its biscuits and alcoholic beverages to cater for reduced disposable income now available to Guyanese and will cut the price for biscuits as well. "The question is whether you should show profit, pay income and corporation taxes and close the company in a year or cut prices and let the company run?" Clifford Reis, Banks DIH Executive Chairman, told Stabroek News in an interview on Monday. Reis noted the effects of the depreciated Guyana dollar on businesses whose balance sheets when reflected in US dollars show non-performance, coupled with the lowering of the purchasing power of Guyanese. Banks DIH is already reporting a 20% reduction in sales for the year and is averaging an 11% reduction in profits over the 1998 lowered profit levels. "This is crisis time. You have to reduce profits and do not try to be a hero. You have to keep your markets and don't let the man (consumers) move into other areas, because to bring him back will cost you 15 times more. So we are trying to get retailers to cut soft drink prices until the good times come again," Reis stated. Banks' efforts to lower the prices of its products come at a time when the company is seeing benefits from its total quality management systems which led to efficiency gains but also at a time when the Guyana dollar has suffered a substantial depreciation. The resulting weakened state of demand has led to the firm operating 10% below efficiency levels, or at 85% of its production capacity. The company's efforts at repackaging and reducing costs are also aimed at getting the better of its competitors with increased sales and improving on its bottom line in the long haul. "...We do realise it is not possible for us to raise prices" despite the increased cost of the US dollar Reis stated. Soft drink retailers were asked to settle for a 38% mark-up as against the 84% mark-up they were charging consumers for the Banks line and the company intends to target a few retailers to ensure this is done. Reis said that otherwise these retailers and Banks will lose market share as persons will opt for Busta which is $65 against the $60 Banks 1/2 litre soft drink. He also noted the convenience in such a situation of opting for Busta which is in a plastic bottle. Reis argues that with reduced prices, sales will go up and will in time compensate for the loss in mark-up. As to the price of bread, Reis noted that it is not only competitors who have to be considered by the housewife who can switch back to bakes, rotis and biscuits in these times. "The profit margin for Banks is not there (in bread) really, but we have to try to sell more in volume and allow the public to afford the product," said Reis. Currently, Banks bakery has a capacity to produce 20,000 loaves of bread but is only operating at 55% capacity and Reis said the company is hoping to take this up to the 75% level. A tennis roll line has been added and a new Moline pastry line has been introduced as well as Danish pastry. "The businessman is the creator of wealth and there is nothing you can do about that. The businessman creates wealth for the government to spend. Without us creating money, they have nothing to spend. They have to understand that once and for all" On the biscuit front, a year ago the company provided the Minister of Trade with documentation arguing that Bermudez was dumping biscuits in Guyana and pointed out that under article 29 of the CARICOM treaty, the government can put in place regulations to counter this. Banks was asking for 18 months grace to be able to compete. To date, no action has been taken, Reis said. What Banks now plans to do is to compete directly with Bermudez packaging and argues that its quality is as good and even better than that operation. Reis indicated that the firm has discerned that Guyanese are again going for bulk purchases to avoid the cost of small packaging because of the weak state of incomes. "We are going to move back into that area (bulk) of packaging and distribution of biscuits and really challenge Bermudez and see if we can capture that market," said Reis. The biscuit production capacity of Banks is 440, 000 pounds a month but the company only produces 235, 000 pounds, 52% of its capacity. In the case of its alcoholic beverages, Reis said these will be repackaged in brown bottles with paper labels to meet the market conditions. He said at the end of the 1999 fiscal year, the company will assess the impact of this change and then decide on the next course of action. The company is also looking at a new model of distribution to allow for savings in the future as now only two loads per day are facilitated. As to the soft drink line, Reis said the company will move into disposable containers in the near future but this is not high priority as few can afford it, given the disposable income of US$63 for public servants. Banks has just modernised its soft drink plant which has a capacity of 14, 000 cases per day but only 9, 000 cases are being produced because of the prices. However, Reis said that what really worries the company is what is taking place in the economy and he found the recent comments made by the US Ambassador to Guyana, James Mack, laudable. "The Ambassador made some very good comments which I think somewhere along the line we would have to sit at a round table and discuss," Reis said. He does not see revenue increasing for the government without the introduction of value added taxes which will put a crimp on smuggling, tax evasion and corruption. He also sees the need for new bank instruments to facilitate private business, contending that transferring money to buy goods is not a good way. As to the strike action, he sees no way out if the government and the unions cannot sit down and come to an agreement. Reis said that $1000 a day should be the minimum wage as civil servants cannot be expected to live on anything less than that. He says the strike should not have been allowed to be prolonged as it gives the strikers time to think and it will be difficult to settle the issue now. But a continuing strike will run counter to the economy as prices are already beginning to rise because of a blockade on imports. Banks has about 60 containers on the wharves for clearance, Reis said. "We need a round table and if there is no strategy we are going nowhere," said Reis, pointing to the government's suspicion of businessmen as enemies. "The businessman is the creator of wealth and there is nothing you can do about that. The businessman creates wealth for the government to spend. Without us creating money, they have nothing to spend. They have to understand that once and for all," said Reis. He opined that there is going to be no future for Guyana if the private sector is uncomfortable and the government does not begin facilitating investment. He urged the removal of discretionary powers and for the creation of a corporate court to deal with corporate issues, such as smuggling. Government's efforts to combat smuggling of beer, he said, has been window dressing, noting that 419 cases of beer were seized against the 15,000 imported. The Finance Minister, Reis said, wants to discuss anti-smuggling laws. Reis argues that such laws should be similar to narcotics laws and said that the laws should stipulate that all items imported should bear the name of the manufacturer and importer, to combat smuggling. Reis does not see the economy registering positive growth this year. A © page from: Guyana: Land of Six Peoples