For the past four months, there have been rumblings across alcohol beverages companies about the non-renewal of a section of bar licences in Kerala. On Thursday, the rumblings turned to shock as Kerala Chief Minister Oommen Chandy announced the state would be made a "dry state" over a 10-year period.
"It is a move, which has not been thought through," said Shekhar Ramamurthy, joint president at United Breweries, which sells its range of Kingfisher beer in Kerala and which has a dominant 70 per cent of the beer market in the state. The company, which sells a total of 130 million cases a year, gets a little over five per cent from Kerala, and it has two breweries with a capacity of 6,50,000 cases a month. "There will no-doubt be contraction in the sales and it will have a compounding effect on the people we employ at the brewery, as well as in sales network," Ramamurthy said.
Chandy told the alcohol beverages industry, which brings in as much as Rs 8,000 crore as revenue to the Kerala government, that the government would close all the 312 bars that are in operation, from April 1, 2015. Licences for another 418 bars, which were closed in the past three months, would not be renewed. No star-category hotels, except five-star ones, will be allowed to serve Indian-made foreign liquor (IMFL). From April, only five-star hotels and resorts can serve liquor. The state has 36 hotels in the five-star category. However, 400-odd retail stores owned by the Kerala government can sell liquor, the presence of which will be whittled down to zero over 10 years. Kerala contributes a little over 7 per cent to the overall IMFL sales of 320 million cases in India, and it has the highest per capita consumption in the country. (SPIRIT OF PROHIBITION: STORY IN NUMBERS)
Reacting to the development, a liquor industry veteran and a board member of a pan-India spirits player said, "This is pure politics at play, and such knee-jerk reactions of trying to bring in prohibition over a 10-year period will not work."
Kerala is a strong brandy and rum market and it has almost all players jostling for space in the state. While volumes are there, many players are suffering on their profitability as the state government has declined to give nod for price hike for the five years. As a result, many national players are reducing their exposure to Kerala. United Spirits, which sells its McDowell's No 1 family of spirits, sells nine million cases in Kerala (out of its 130 million cases annual sales), and derives a per cent of its overall Rs 10,000-crore sales from the state. United Spirits has been moving away from the mass segment in Kerala given the fact it is not profitable and has been sharply re-aligning its strategy on how it sells in Kerala.
According to Edelweiss Securities analyst Abneesh Roy, the current regulations will impact all liquor players including United Spirits, Radico Khaitan and Tilaknagar Industries. "We believe the impact on Tilaknagar will be more profound as it has 53 per cent market share in the premium brandy segment in Kerala, which consumes around 30 per cent of brandy in India. Over the longer term, smuggling from adjoining states to Kerala could increase," said Roy.
Amrut Distillers, another Bangalore-based spirits player that sells as much as two million cases in Kerala, said they are closely examining the situation. V Ravindran, vice-president (sales), Amrut Distillers, told Business Standard the move to close bars would have an impact on the sales. "We have been discussing with the state government over procuring price hikes, but now we have to face this phased prohibition. As I anticipate, the impact on the sales would start from as early as October 2014 and over the period of this financial year, volumes may drop by 10 per cent," he said.
|IN LOW SPIRIT|
Kerala market - Alcohol & beverage companies' nightmare