Why does a cup of coffee cost you more at the airport?

Meenakshi Verma Ambwani New Delhi | Updated on September 12, 2018 Published on September 12, 2018

Rules forbid identical items from being priced differently, but there are other factors at play

Ever wondered why bottled water costs much more at the airport or in-flight than what you normally pay at the local store? Can companies charge differently for products sold through different trade and retail channels? How is it that the maximum retail price (MRP) varies?

Amendments introduced to the Legal Metrology (Packaged Commodities) Rules 2011, and effective from January 1, 2018, mandates that dual MRPs cannot apply to identical pre-packaged commodities.

In reality, companies price these commodities at different MRPs. This is because, as a strategy, processed food companies sell different packs across different retail and trade channels, bringing in cost variations.

According to Dhanraj Bhagat, Partner, Grant Thornton India LLP, “MRP on the product can vary depending on quantity, quality, packaging and other product differentiation [features] that may be there. However, for identical pre-packaged products, dual MRP is not permitted. The channel of sale — the shop or the mall — is not the basis [for the price]...it is to ensure that consumer is not disadvantaged that the amendment has been made.”

Debashish Mukherjee, Partner (Head-Consumer and Retail industries), AT Kearney, said, “Packaged food companies may have different stock-keeping units (SKUs) for different channels. While they are not allowed to charge different MRPs for the same SKU, they can charge different MRPs for different sizes or SKUs.”

Recently, the Airports Authority of India (AAI) asked concessionaires at the airports it manages to ensure that products are sold at MRP, and that provisions were also being made to offer affordable snacks and beverages.

“We have asked concessionaires at AAI-run airports to not sell products higher than MRP,” AAI Chairman Guruprasad Mohapatra told BusinessLine.

Sources said the AAI has also had informal meetings in the past with airport concessionaires, asking them to price food and beverages suitably, especially in smaller cities.

What the apex court said

Earlier this year, the Supreme Court said hotels and restaurants could sell bottled water and other packaged products above the MRP as they also render a service and cannot be governed by the Legal Metrology Act.

Besides, MRPs at locations including airports can vary because of the real estate costs. Riyaaz Amlani, CEO & MD, Impressario Entertainment & Hospitality, says airports are one of the most expensive retail locations. “At airports, concessionaires have to pay 5-6 times higher rentals compared to any other retail location, making it capital-intensive.”

Experts also point out that multiple changes to the GST structure in the last year-and-a-half have made MRP and labelling a tricky issue for packaged food companies.

Anil Talreja, Partner, Deloitte India said: “In recent times, FMCG and retail companies have been finding issues such as MRP and labelling extremely challenging as they need to comply with various changes made in the GST law.”

Published on September 12, 2018
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