Hit by input costs, alcohol beverage industry thirst for better sales

The domestic alcohol beverage (alcobev) industry is among the hardest hit as

outdoor sales have been impacted due to restricted movement and lockdowns driven by the pandemic.

The ready-to-drink market has taken the second worst hit, followed by beer, which saw a 39 per cent decline in consumption in 2020, compared to 2019, according to the latest available data. Cider consumption halved in 2020 compared to 2019.

Although there was some improvement seen in 2021, sales are still lower than 2019 levels, say industry players.

While the industry is plagued with lower sales due to reduced consumption, it also faces the issue of surge in input costs, which includes glass and polyethylene terephthalate bottles, extra neutral alcohol, caps, cartons, and labels. Due to state governments controlling the pricing of alcohol, the industry has not been able to increase prices to mitigate the rise in input costs.

In 2020, the total consumption of alcoholic beverages was down 29 per cent, compared to the previous year, according to the data by the International Wine & Spirit Research.

While the contribution of the ready-to-drink segment is minuscule, the consumption of beer accounts for 40 per cent of the alcobev industry.

Beer, too, has faced a sobering impact — not only is outdoor consumption limited, it is also impacted due to consumers opting to consume spirits at home over beer during the pandemic. One reason being the shelf life of beer is much shorter, compared to that of whiskey, rum or vodka. Beer, unlike other spirits, needs to be stored at a lower temperature.

The International Spirits and Wines Association of India (ISWAI), meanwhile, has appealed to state governments to allow the industry to increase prices and also allow home delivery/e-commerce sales of alcohol to cushion the blow of dwindling sales.

“With most states holding on to historical lowest ex-distillery prices, no price increase leeway has been provided to the industry over the years, resulting in the Indian alcobev sector facing a crisis of sustainability,” said Nita Kapoor, chief executive officer, ISWAI, adding, “The need of the hour, however, is a price increase, recognising supply-chain and inflationary pressures. The states have been urged to allow alcobev makers to raise prices to offset such pressures. The excise policies of states need to adjust for inflation.”

AB InBev India, which sells beer brands such as Budweiser and Corona, is also impacted by higher raw material prices. The company has seen the cost of two of its most important raw materials for beer, which include barley and glass, move up by an average 25 per cent and 13 per cent per year, respectively, over calendar years 2019-2021. The company also said the cost of diesel has grown at an average of 11 per cent during this period, with steep increase in 2021.

“The multiple lockdowns and restrictions implemented to curb Covid cases over the last few years have caused ramifications to the alcobev industry, with a reduction in sales affecting state excise revenues,” said Anasuya Ray, vice-president, corporate affairs, AB InBev India.

She said the company urges states to regularise and implement a standardised policy for alcohol's e-com­merce/home delivery model as it will negate disruptions to the industry, help fortify the state exchequer, protect the livelihood of workers by the industry, and counter the negative effects of liquor scarcity, while also helping prevent overcrowding at stores. The industry was able to increase prices last in 2018, it said.

In Maharashtra, among the few states to have permitted home delivery of alcoholic beverages, AB InBev India said it saw a dramatic surge in home delivery during lockdown and expects the trend to continue this year as well.