High taxes, economic slump cause 2019 liquor sales to fall
A host of factors have taken a toll on liquor sales recorded till September. Last year's high base along with floods and an economic slump has seen consumption taking a hit. General elections also impacted the sales in April & June.
The sales volume of locally-made versions of foreign liquor expanded 1.4% in the September quarter with the growth rate tapering off for whiskey and brandy while the vodka and gin segment declined, industry executives said, citing excise department data (see graphic). A year ago, the market had grown 12.9% in the same quarter.
Indian-made foreign liquor (IMFL), with brands such as Royal Stag, McDowell’s, Blenders Pride and Officer’s Choice, are locally-produced, adapted versions of European spirits and account for more than 70% of the market.
“The overall slowdown is consumption led and more severe in the rural markets,” said Ahmed Rahimtoola, marketing head at Allied Blenders, which sells Officers Choice, the world’s top-selling whiskey brand. “The increase on duties and taxes in certain states has accentuated the problem.”
Between April and June, the segment grew 2% owing to restrictions because of general elections that disrupted demand for liquor, slower than March quarter expansion of 2.8%. The quarter ended September saw channel disruptions after the Andhra Pradesh government took control of liquor outlets in the state as well as liquidity issues in north India, companies said.
Pernod Ricard, the world’s secondbiggest spirits group, said its India business grew 3% in the September quarter compared to a high base of 34% in the year-earlier period.
Business had surged last year as the market bounced back after the highway ban and implementation of the GST in 2017. The maker of Absolut vodka and Chivas Regal scotch has seen net sales expanding in double digits in the past few quarters.
“The softening of the environment for the first quarter has probably led to some, let’s say, softer demand and some trading down,” Pernod Ricard finance head Helene de Tissot said in an investor call last week. “In Q1, we had severe flooding, heavy rain and flooding in some key states in the eastern and western parts of India, especially Haryana and Maharashtra, which impacted our performance in this first quarter.”
Between 2012 and 2017, the volume growth of the industry was modest at 4% due to a shift away from lower-end consumption to the prestige and above segment. The last calendar year, however, saw fewer disruptions to the market such as tax hikes, which led to high growth, helped by Uttar Pradesh where volumes soared following the introduction of a new alcohol regime.
Analysts said the headroom for an earnings upgrade at Diageo-controlled United Spirits is limited against the backdrop of a broader consumption slowdown and continued raw material inflation.
“We expect United Spirits to also report a muted performance in Q2 FY20, given currently soft demand, increasing competition from Pernod Ricard and continued stress on state finances,” said Abneesh Roy, executive vice president of institutional equities at Edelweiss Research.