Liquidity issues and high taxes amidst a general economic slowdown has hit liquor brands operating in the world’s third largest market for alcoholic beverages.
The overall liquor market in the country recorded 2-3% growth in the nine months to September, while sales volume of locally made foreign liquor increased 1.4% year on year in the September quarter.
Indian-made foreign liquor 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.
Whiskey and brandy showed poor growth, while vodka and gin segments declined according to excise department data. A year ago, the market had grown 12.9% in the same quarter.
Diageo-controlled United Spirits Limited (USL), which sells brands including Johnnie Walker and McDowell’s, reported volume growth of just 1% year on year in the quarter ended September. The company had posted 10.3% volume growth a year ago. Pernod Ricard, too, saw its Indian business growth slowing to 3% in the September quarter from 34% in the year-earlier period.
This comes as Indians are consuming less amid a liquidity shortage and slowing economy, dragging GDP growth to its lowest in six years.
USL told investors during an earnings call that in order to “minimise credit risk” in a liquor trade facing a “big time liquidity crunch”, it’s no longer doing aggressive sales.
“This time the reality is, there are real liquidity issues in the marketplace with the trading community. So, if you supply, they will take the stock, but it’s at your peril,” Anand Kripalu, managing director at USL
Companies have also attributed the drop to an increase in taxes and severe flooding, heavy rain and flooding in some key states in the eastern and western parts of India, especially Haryana and Maharashtra.
“The overall slowdown is consumption led and more severe in the rural markets,” said Ahmed Rahimtoola, marketing head at Allied Blenders. “The increase on duties and taxes in certain states has accentuated the problem.”
Analysts expect liquor sales to remain subdued for the rest of the fiscal year. “We expect demand to remain subdued Q2FY20 onwards,” Abneesh Roy, executive vice president of institutional equities at Edelweiss Research told The Economic Times.
“Spirits, being more discretionary in nature, are expected to face volume deceleration in ensuing quarters. While the volume decline may not be as severe as in the four-wheeler and two-wheeler segments, we nevertheless expect softness in demand for the liquor sector,” he added.
Sourced from The Economic Times, Bloomberg Quint, Live Mint.