During my travels this year I visited Nepal, a country with a population of around 27 million located between China and India. Whilst there I made a discovery:
KitKat chunkys are cheaper in Nepal then in the UK.
Price of KitKat chunky, UK = £0.59 (mysupermarket.com)
Price of KitKat chunky, Nepal = 65rs = £0.46 (xe.com)
Normally you wouldn’t bat an eyelid at this, Nepal is a developing country and therefore it might be presumed that some of its products will be cheaper; but the interesting factor here is that the KitKat was made and packaged in the United Kingdom. Therefore the costs of transport should be enough to make the chunky more expensive in Nepal alone, right?
What has caused the price difference?
Nepal : 13% + 1.5% freight
From the VAT differences it can be deduced that KitKats should cost 7% more in the UK then in Nepal, based on VAT alone.
The difference between 59p and 46p however is 28.2%, leaving 21% of the price difference to remain mysterious.
One theory could be the wage gap, the difference in labour costs between the UK and Nepal in the supermarkets selling the chocolate.
UK minimum wage (over 21) (source: gov.uk): £6.19, 48 hours a week, 5 days a week = £15,450 per annum.
Nepalese minimum wage (source: wiki): 4,600Rs for unskilled labour a month = 55,200Rs a year = £395 per annum.
The lower labour costs in Nepal mean that the businesses can afford to price the chocolate at lower prices then at (for example) Tesco, where there will be a need to make higher margins on their products in order to pay the much higher wages of it’s employees.
One aspect at play could be the selling tactics. Nestle might be trying to make an entrance into the Nepalese markets and therefore have priced their chocolate at low margins in order to gain market share.
The relative price of other chocolate also needs to be taken into account. In the UK most chocolate bars cost around 50-60p, therefore the price of a chunky at 59p makes sense. However, and unfortunately I did not investigate this further, the price of relative chocolate bars in Nepal might be cheaper.
Income in Nepal and UK:
UK GDP per capita, purchasing parity: 2011 = $36,000
Nepalese GDP per capita (per person) purchasing parity: 2011 = $1,300
The KitKat chunky is a ‘normal product’, one which grows in demand as income rises, as a result the current supply of chocolate to Nepal might be a lot higher then current demand as income is relatively low in Nepal compared to the UK.
Looking at the inflation figures shows even more how this phenomenon is difficult to explain. The figures seem to lean more to the opposite – that KitKat chunkys should be more expensive in Nepal as their price rises are much higher then the UK.
This topic can be debated and quantitatively analysed until you have a book on KitKat chunky prices, but fundamentally the argument suggests that the main issue at play here is income.
With higher wages to pay in the UK it makes sense that the UK supermarkets charge more for their KitKat chunkys and their other goods. Furthermore with GDP per capita in Nepal at $1,300 and GDP per capita in the UK at $36,000, KitKat has had to adopt a more predatory (selling, sometimes, at below cost) approach on pricing it’s ‘normal’ product in Nepal.
If you have any thoughts about the price difference feel free to comment below, or tweet me at @BreadEconomics.