Wine, spirits importers urge states for inflation-linked pricing policy as margins shrink

PTI, Mar 10, 2024, 5:12 PM IST

Representative image (source: Pexels)

Premium spirits and wine importers’ body ISWAI has urged state governments to implement an inflation-based pricing model, highlighting that industry margins have shrunk due to a rise in raw material costs.

As the cost of raw materials used to produce alcohol has gone up substantially and the MRP of liquor has not been revised in recent years, very little is left for the trade and manufacturers while state governments are taking away as high as 60-80 per cent of the share, according to International Spirits & Wines Association of India (ISWAI) CEO Nita Kapoor.

ISWAI is also pressing for rationalisation of excise duty imposed by some state governments, as they try to maximise the revenue collections, and said it will not help in growing volumes.

”The industry and manufacturers are now facing a lot of pressure. It’s like their back against the wall because if in the MRP, states share is roughly about 60 to 80 per cent, then what is being left on the trail and the sub-manufacturer is to share 20 per cent. The gross margins are diminishing,” Kapoor told PTI.

The liquor industry is the largest income source for state governments after state taxes on petrol and diesel. The state governments are not increasing the MRP due to the fear of volume loss after a price increase.

”The states are saying that if we maximise our collections and do not want the volumes to drop, we will hold the MRP. So when they would hold the MRP, how will I give the sub-manufacturers a price increase,” she said.

According to the association, prices of raw materials such as ENA (extra neutral alcohol) have gone up by 53 per cent between 2018 and 2024. Similarly, prices of other materials such as glass, labels and paper packaging have gone up by 79 per cent, 29 per cent and 31 per cent respectively.

”The inflation is going up y-o-y. If the manufacturers do not get the price increase, if the manufacturers do not ask if the industry does not have an inflation-based pricing model, where will this industry go,” said Kapoor adding ”Let us not kill the golden goose..

ISWAI is asking for an inflation-based pricing model which is transparent, and based on data that the industry can submit.

”The industry has reached the bottom of the margins. you can not kill it. It contributes 2 per cent of the GDP. So you (state governments) need to balance ambitions,” she added.

Over the growth of the alchobev segment, Kapoor said it is witnessing a faster pace of premium products, which is above Rs 900 to Rs 1,000 for a bottle of 750 ml, where ISWAI members lead with domestic brands and finished products (imported/bottled at origin). Besides, low-value liquor is also selling well.

”As per my estimates by the end of the year, the industry will grow roughly about 2 to 3 per cent… The growth will be primarily polarising- Rs 900 and above and the other will be cheap liquor, which will be roughly about Rs 500 or Rs 600 and below,” she said adding ”so we are going to see a polarized growth, a trend that started after COVID and is just picking up.

”This industry is expected to touch about USD 63 billion in the next 3 to 4 years. Currently, it is somewhere between USD 53 billion and USD 55 billion. So it is going to be a pretty good growth from a value perspective,” Kapoor added.

When asked about the competition faced by global brands from Indian manufacturers, which are launching their single malts, she said ”the more the merrier” as the segment is very minuscule.

”If I was to include all the brands all imported brands including bottled in India, you need many more brands to come in to be able to grow the top end… There is room for everybody. I would welcome as many domestic brands being developed. Our members are also doing,” she said.

ISWAI members include Bacardi, Beam Suntory, Brown Forman, Campari Group, Diageo-United Spirits, Moët Hennessy, Pernod Ricard, and William Grant & Sons, which are global leaders in the spirits and wine industries.

Several ISWAI members such as Diageo India, Pernod Ricard etc have also launched Indian single malts.

”It’s good for consumers and industry… It is also good for the government’s exchequer as the taxes on premium products are far higher. So if that grows, the states will be able to have a different strategy for revenue collections,” she said.

Over the ongoing negotiations with India and the UK over the signing of a Free Trade Agreement (FTA), Kapoor said, the industry has given its representation and it is now between the two governments to decide.