Liquor companies struggle as inflation, war, taxes take a toll. Unlike other manufacturers—from automobiles to pharmaceuticals—who have raised prices in the last two years, the alco-bev industry has been hamstrung because of a lack of pricing freedom says Nita Kapoor, CEO, ISWAI.
The resources costs of Indian Alco-Bev industries have been on the rise in recent months due to high raw material costs and state taxes.
According to an ICRIER report, India is one of the fastest growing alcoholic beverages markets globally with an estimated market size of 52.5 billion dollars (about Rs 3.9 lakh crore) and the market is expected to grow at a CAGR of 6.8 per cent till 2023, it said.
Government across the globe tax liquor and related products within their regulatory framework.
The liquor manufactures pleads to state governments to allow it to raise product prices to offset an increase in the cost of raw materials especially glass and extra neutral alcohol (ENA).
The alcobev companies have seen their manufacturing costs rise on a sequential basis.
The revenues for the alcobev industry grew 24 percent year-on-year and 3 percent from the previous quarter. However, the inflationary pressures escalated the input costs which resulted in a mid-single digit YoY and sequential growth in operating profit.
Experts claims that the alcobev industry business is “leaving no stone unturned” in a bid to drive efficiencies and keep operating costs down, however despite the good efforts, high costs disrupt the operating profit margin.
Leading industry bodies like the International Spirits & Wines Association of India (ISWAI) said costs for alco-bev manufacturers have spiralled due to the COVID19 crisis, followed by the Russia-Ukraine war and overall retail inflation.
“The alco-bev sector is under tremendous pressure with rising costs, higher taxes and shrinking margins” says alcobev industry body Uttar Pradesh Distillers Association (UPDA).
One way to keep price rises to a minimum is to cut back on non-essential spending in other areas, such as marketing, and proactive maintenance in order to keep costs down. But, considering the marketing prices and level of territorial competition, the companies are left with no budget to think beyond.
Another solution for industry will be to keep wages down. However, finding the latest inflation trend up above 6.95%, it is hard to cut the wages expenditure as it will impact the economy. To your amaze, the alcobev industry is employing 1.5 million people and has an estimated market size of $52.5 billion (2020), which is the ninth-largest in the world.
India’s alcobev industry is the third largest in the world with a value of $35 billion. India alcoholic beverage industry is one of the biggest alcohol industry across the globe only behind from two major countries such as China and Russia.
The alcobev industry is employing 15 lakhs plus jobs in the country, having a fair taxation mechanism for alcobev industry can bring more investments, more revenue and employment generation in the country.
According to ICRIER, the government should focus on phased tariff and other duties reduction and Indian companies should be encouraged to export to improve the trade balance.
Duty reduction for intermediate products can enhance value addition in India and boost domestic manufacturing potential. This can help India in bringing in more investments into the sector, encourage innovation, improve ease of doing business, increase domestic manufacturing capabilities, generate employment and enhance exports.
The alcobev industry should be taken well care in the pricing structure and which will ensure its growth in contribution to India’s GDP in the days to come.