High input costs, coupled with labour taxes, state excise duties and the widening of the service tax network during the current financial year has left the alcohol industry high and dry -- whether it is spirits, wine or beer, manufacturers or stockists. The industry experienced new pressures on its operating margins and sales in the wake of increasing input costs and new excise regime.
For the domestic spirits (rum, vodka, whisky, dry gin, brandy) manufacturing industry, the input costs of raw materials such as molasses doubled since March. Packaging costs rose by 15-20 per cent. The widening of the services tax brought an additional 50 per cent new services to be taxed at 12.36 per cent. Besides an increase in labour costs, inflation also played havoc with the operating margins.
"Operating profit margins of all spirit manufactures have eroded by 5-10 per cent this financial year. As such, lower-end brands which constitute 25-30 per cent of the 190 million cases spirits market are making losses as they play in the volumes market and maintain low profit margins of 4-5 per cent," said I B Lal, president, India Glycols Ltd, manufacturers of the IGL brand of spirits and one of the largest suppliers of neutral alcohol to the UB Group.
The lower-end market is largely catered by local domestic brands such as IGL, apart from national brands such as UB Group's Old Tavern and Haywards and Radico Khaitan's Contessa to name a few.
Growing at an impressive 25-30 per cent a year, the wine industry struggled with pricing due to high state duties applied to domestic players not producing in the state concerned, besides being levied on imported wines and spirits in additional to the 150 per cent customs duty on imported alcohol.
"We will have to revise our sales targets downwards of 25 per cent as we were unable to sell our wines in a few key markets for the first-half of this financial year due to the environmental and regulatory changes," said Sanjay Roy, head of wine marketing and sales, United Spirits. With its winery located in Maharashtra, the UB Group is also at an disadvantage in its home market as the state duties on alcohol makes a bottle of its domestic wine, Zinzi, dearer at Rs 550, up from Rs 270 a year ago.
The import schedules of most distributors and importers were also delayed making them miss the festive months of September and October. "The international sales were a complete wash-out so far this season as there were no new stocks of imported wines available in the market for the last three months," says Vivek Gupta, director, Sultania Trade Ltd, which is one of the biggest distributors of imported alcohol products in the metropolis.
The dampeners for the beer industry, which grew at a dismal 6-7 per cent in the first half of the current financial year, included a short summer season along with the high inputs costs and duties regime.
Top breweries also did not sell their produce in the key market of Andhra Pradesh due to differences with the government on the pricing policy of the state in May. Andhra Pradesh accounts for 18 per cent of the overall beer market in India.
"Our growth rate for the first-half of the financial year 2008-09 is a mere 4 per cent as against the corresponding period last year," says Sundeep Kumar, director, corporate affairs and communications, Sab Miller India, which enjoys a 35 per cent market share.