Premiumisation trend to continue despite growth bumps: USL's Anand Kripalu

Be it the US or the UK, alcohol is regulated and taxed heavily in many parts of the world, but not as minutely regulated as it is in India, says Kripalu

Indian consumers are increasingly opting for premium brands in alcoholic beverages space. According to market leader United Spirits (USL), this premiumisation trend is likely to continue despite temporary growth bumps. USL’s Managing Director and Chief Executive Officer Anand Kripalu tells Debasis Mohapatra that long-term growth opportunity for the industry remains intact despite a slowdown. Edited excerpts:

Alcohol business is one of the most regulated industries in India and is also a state subject. As the market leader, how is USL negotiating the regulatory landscape? 

The beverage alcohol industry is one of the most regulated and complex sectors in India. Since Diageo took a controlling stake in USL, we have been leading the way in improving transparency and compliance for the industry. Our job as an industry leader is to transform industry perception to one that is a responsible industry that believes in doing business the right way. 

Will you give specifics of how you are trying to change the ways the industry operates apart from changing perception?

Be it the US or the UK, alcohol is regulated and taxed heavily in many parts of the world, but not as minutely regulated as it is in India. Each state has an independent overview for our industry, so it is like managing 30 countries for us in India. Each state has its individual tax rates, its own licensing regulations, and rules are different for different approvals.  To shape pro-industry policies, there is a need for the right kind of engagement with the state governments and regulators, one that uses business evidence and data-based dialogue, as is common in other industries. Regulators are more open to discussing process changes, licence, registration, and other matters, especially, given how beverage alcohol impacts other industries such as hospitality and tourism. Some states are taking a leadership stance in simplifying rules and, if ease of doing business happens, ways of doing business will improve. Now, in some states, we have made more progress and in others there is progress to be made.

What kind of easing measures do you expect from states? 

I don’t complain about the tax, and the state will take what tax it wants to take. But, once tax is paid, can the rigidity around regulations be eased, so that people can do business- honestly and in the right way. I am not lobbying for reducing the tax rates, though India has among the highest tariff barriers for this sector. There are some cases like import duty on spirits into India which is 150 per cent as compared to 5 per cent in China. Our hope is for a balanced and proportionate regulation that seeks to understand the needs of all stakeholders. 

How do you see prohibition imposed by certain states? Also, what's the impact of new Motor Vehicles Act on the overall consumption? 

I want to believe that as an industry, some of the negative perceptions are changing and the noise around prohibition is becoming less. Consumers are more responsible and want to drink better not more. Enforcement plays a critical role in curbing alcohol misuse and illegal alcohol – and fines and penalties can be an effective deterrent. As far as the Motor Vehicles Act is concerned, the stiff penalty on drinking and driving is a good thing. Even at our own company, we have a very strict a no-drinking policy while driving.
 

So, you don't see any consumption slowdown due to these regulations. 

These are not the things that are affecting consumption. In fact, the trend today is people who choose to drink, want to drink less but better. India continues to be one of the most attractive opportunities and the fastest growing economies in the world. The beverage alcohol industry in India is witnessing significant changes influenced by a global culture leading to a trend towards premiumisation. The largest segment, whisky is worth around Rs 75,000 crore and is projected to grow at 8-10 per cent CAGR in value over the next five years. 

Do you see lesser discretionary spend owing to current economic slowdown affecting the sales of USL’s premium brands?

There has been a shift in the beverage alcohol industry in the past five years. Increase in disposable incomes and transformation in lifestyles is juxtaposed with greater consumer openness around social drinking. But, recognise one thing that what you drink and what you serve, is who you are. So, there is a huge amount of image associated with it. For the cheapest brand of whisky and the most expensive one, the amount of spirit is the same, but the price difference could be substantial. Why do people pay those premiums? Because it is  an image-driven, experience-driven category. Therefore, the premiumisation trend will continue. 

As an industry, we have faced growth bumps due to highway ban, GST implementation, and more, but the real question is the long-term consumer opportunity intact? I think it is not only intact but also exciting. In the journey towards that pot of gold at the end of rainbow, there may be bends and speed breakers, but the destination is clear.