Alcobev cos note improving recovery and growth in premium spirits category post pandemic: Emkay Global report

Liquor companies indicate improving recovery, growth in premium spirits and faster recovery in beer since trade reopened post-pandemic, Emkay Global Financial Services said in its report based on its recent annual alcobev conference which hosted companies such as United Breweries (UB), Radico Khaitan, United Spirits Ltd, Pernod Ricard and Allied Blenders & Distilleries (ABD).

USL the country’s largest liquor company controlled by Diageo, said its Prestige & Above portfolio – which has mid-segment and premium brands such as McDowell’s No 1, Royal Challenge, Johnnie Walker and Vat 69 and is about 40% of the Indian Made Foreign Liquor (IMFL) market – has performed better and has noted demand shift from ‘duty-free’ to ‘duty-paid’.

Companies highlighted the impact on the regular segment as consumers downtraded to cheap or country liquor in some states amid the pandemic due to high taxation in some states.

Many state governments, which had noted their revenues plummet amid the lockdown to contain the Covid-19 pandemic, had increased tax on alcohol by up to 75% of maximum retail price to boost their coffers since the Centre allowed reopening of liquor shops in the first week of May.

While stating that overall volumes are yet to return to pre-Covid levels, the maker of Kingfisher highlighted continued month-on-month recovery driven by on-trade opening and reversal of Covid-related taxes by few states.

With 80% of the alcobev consumption in economy or value-and-below (including country liquor) segment, companies such as Pernod Ricard and USL expect premiumisation to drive faster growth in premium spirits. For instance, Radico Khaitan, which sells brands Magic Moments and 8 PM, plans to increase its presence in the premium whisky segment.

Indian alcobev consumption is skewed toward spirits, which makes up 92% of overall servings compared to 8% for beer. Whisky remains the dominant category with 63% share in volume and 80% share in profits, added the report.

Pernod Ricard and USL also expect changes in consumer preferences and increased experimentation to fasten the pace of innovation in spirits going forward. In beer, UB wants to scale up new premium variants and non-alcoholic beer.

Digital spends of alcobev companies are rising with overall spend allocation at 10-15% of the total. Companies pointed at benign input inflation and emphasised on initiatives to drive structural cost reduction to come out stronger from the pandemic, the report added.

India is the third largest spirits market in the world by volume, according to liquor apex body Confederation of Indian Alcoholic Beverage Companies. Liquor attracts the highest taxation of any beverage in the country, with more than half the retail price going to state and central governments through value added tax (VAT) and excise duty.

With annual revenues of Rs 4.5-lakh crore, it is also one of the largest industries within Indian economy. The industry also contributes approximately Rs 2.4-lakh crore in taxes to the governments, thus making it one of the highest tax contributors. It accounts for 20-40% of tax revenues of most state governments.

The liquor industry directly and indirectly employs about 50 lakh farmers impacting 3.5 crore people in rural India, besides employing 20 lakh people in its production and supply chain.

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