You are here: Home » Companies » News
Business Standard

Prohibition in Kerala to hit liquor players hard

Raghuvir Badrinath  |  Bangalore 

For the past four months, there have been rumblings across about the non-renewal of a section of in On Thursday, the rumblings turned to shock as Chief Minister 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 beer in 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 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 (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 government can sell liquor, the presence of which will be whittled down to zero over 10 years. contributes a little over 7 per cent to the overall 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 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 over a 10-year period will not work."

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 United Spirits, which sells its McDowell's No 1 family of spirits, sells nine million cases in (out of its 130 million cases annual sales), and derives a per cent of its overall Rs 10,000-crore sales from the state. has been moving away from the mass segment in given the fact it is not profitable and has been sharply re-aligning its strategy on how it sells in

According to Edelweiss Securities analyst Abneesh Roy, the current regulations will impact all liquor players including United Spirits, and "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 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 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
market - Alcohol & beverage companies' nightmare
  • 24 mn cases of spirits sold during last financial year in Kerala; volumes have remained static now
     
  • Alcohol & beverage players not given a price hike for the past 5 years, the result of which many are bleeding heavily and low-end brands are being phased out
     
  • Taxes are high. If a bottle costs Rs 100, as much as 85% goes to the state exchequer. Also, there is a turnover tax of 10% on distillers
     
  • Rum & brandy account of 80% of the market, followed by whisky and vodka
     
  • United Spirits' McDowell's No.1 family leads the market with 35% share, followed by and Radico Khaitan
     
  • Spirits sold through 730 bars and 400 state-owned shops
     
  • Sales has been skewed towards shops in the 60:40 ratio and with 418 bars already closed, sales at shops is now at 75%
     
  • With putting the process in place to whittle down bars and shops, alcobev industry is estimating a 10% drop in volumes in the current fiscal

First Published: Sat, August 23 2014. 00:38 IST
RECOMMENDED FOR YOU