Alcohol Industry Says Inflation, High Taxation Pushing It To Brink Of Crisis
Industry bodies continue to be in talks with the government to raise price and lower tax burden.
The apex body for premium liquor is seeking a price hike and a lower tax to help the alcoholic beverage industry, plagued by high taxation and persistent inflation.
"The Indian alcobev industry is in deep crisis," said Nita Kapoor, chief executive officer of the International Spirits and Wines Association of India. The industry is losing money due to shrinking margins.
"Unless swift action is taken to reverse the situation by decreasing taxes or increasing product prices, India could soon be facing a situation that will be akin to killing the proverbial golden goose," she said.
Industries ranging from automobiles to pharmaceuticals have raised prices to counter inflation, but the liquor industry has been "crippled" on account of a lack of pricing freedom, she said. "While India has a comparative advantage in production because of the ready availability of raw materials like molasses and grains, the country needs to overhaul its policies to encourage greater production of volumes for exports," said Kapoor.
The Indian alcobev industry employs 1.5 million people with an estimated market size of $52.5 billion in 2020, making it the ninth largest market in the world, according to ISWAI. According to Crisil, the five southern states of Andhra Pradesh, Tamil Nadu, Telangana, Karnataka, and Kerala generate more than 10% of their tax revenue from liquor sales. Rajasthan, Punjab, Uttar Pradesh, West Bengal, and Maharashtra get 5-10% of their revenue from liquor.
Historically, too, the sector has contributed around 25–40% of revenues for state governments, according to the association, whose members include Beam Suntory, Diageo-United Spirits, Bacardi, Brown-Forman, Campari Group, Moet Hennessy, Pernod Ricard, and William Grant & Sons, among others.
But due to the high cost of ingredients, the gross margins for makers of Indian-made foreign liquor during the quarter ended September were down 10% compared to the same period a year ago, according to Suresh Menon, secretary general at ISWAI. In 2018, their margins stood at around 25%.
ISWAI estimates that ingredients such as extra neutral alcohol and barley are 12% and 46.2% more expensive than last year, respectively, while the cost of packaging materials such as glass and mono cartons rose by 24.9% and 19%, respectively. "The paring of taxes at both the central government and state governments would also go a long way in helping the beleaguered alcobev manufacturers in India," Menon said.
Shekhar Ramamurthy, executive deputy chairman of Allied Blenders and Distillers, told BQ Prime that it would need at least a 10% price hike as it faces "unprecedented" cost pressures in everything from ingredients to energy and transport. The largest homegrown spirits maker said that the industry bodies continue to be in dialogue with state governments on this matter.
Beer companies, meanwhile, are introducing a lot of premium variants to mitigate cost inflation. The current operating environment is "extremely tough" as costs have risen 30–70%, forcing the company to sell more of its premium portfolio compared to mass-market products, Chief Executive Officer Ankur Jain of B9 Beverages Pvt.—the owner of Indian craft beer Bira 91—told BQ Prime.