Liquor firms in a twist over permit rollout in Punjab

A circular issued in Ludhiana district defined that retailers or retail groups can only buy 1,000 cases of IMFL spirits in a month. If they want more, they would need to apply for an additional permit after submitting a utilization report of the first 1,000 cases. The quota is applicable for the entire state of Punjab. Mint has reviewed a copy of this circular.

Companies are estimating that the state's IMFL market of one million cases (of 9 litres each) per month, primarily driven by whisky, could shrink to a fourth because of the new rule.

Till FY24-end, Punjab's excise policy had allowed distributors and retailers to pick up unlimited stock. 

Poonam Chandel, managing director of NeuWorld Spirits, which makes whiskies like Downing Street and Royal Tribe, said the company is already seeing an impact on business. “Our sales have dropped by 50% since this circular was issued last week," said Chandel. “If it isn't revoked, it will be the death knell for mid-segment and smaller players in Punjab." NeuWorld Spirits began business about two years ago.

According to industry estimates, Punjab has about 230 retail groups with about 6,500 stores. The state had recently announced its FY25 targets for excise revenue to touch ₹10,000 crore from liquor sales, 13% higher than last year's ₹8,850 crore.

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Chandel said that while NeuWorld's exports to other states are intact, Punjab remains a major consumer of whisky and vodka. “Both whisky and vodka sales are significantly impacted in the state across a number of companies," she said. “Punjab is a crucial market for us as we are working hard to establish our presence in the state."

Impact of the new rule

Other manufacturers Mint spoke with have said that retail groups are only buying in bulk popular brands of bigger companies as they cannot afford to stock products that sell less frequently. 

In fact, even the larger players, which may have potentially benefitted from the circular, are also unable to sell their less popular brands. 

Siddharth Banerji, owner and managing director of Kyndal Group, the spirits company behind well-known scotch brands such as Cutty Sark and The Famous Grouse, said smaller and niche brands are likely to suffer the most while bigger players will see some amount of losses, too.

The business head of a large listed alcohol business in India, who requested not to be named said that circular is likely to give rise to black marketing of alcohol given the supply will be restricted to far less than the demand. 

“In addition, retailers have already paid hefty fees for their licences under the pretext that they would be able to sell a certain volume. Restricting them now could mean they may just start to sell local, unauthorized alcohol and avert state duties in the process," this person said, adding that organized players could see a huge dip in sales as illicit liquor increases in supply.

Companies like Diageo, Jagatjit Industries and Pernod Ricard India declined to comment on the issue.

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Companies Mint spoke with said that delays in clearing labels for brands and other administrative licences for retailers have also impacted revenues, wiping out an entire quarter from April to June in the state. As a regular protocol, new labels are approved each year for brands.

Mint also reached out to the excise commissioner via email and WhatsApp, but did not receive any response to a detailed questionnaire till the time of publishing this story.

The election connection

Vinod Giri, a former director-general of industry body Confederation of Indian Alcoholic Beverage Companies (CIABC) and director-general of the Brewers Association of India (BAI), said that the issue began when in view of the impending general elections, the Punjab government began to limit supplies to the trade in the state to ensure liquor was not being unlawfully exported to other states. However it is yet to be put back to the system of free order and supply even though elections are long over.

“Manufacturers across the board are impacted by the slowdown in sales in Punjab as a result of limiting supplies," Giri said, adding that while it may appear that bigger brands would benefit from the move, the fact is that most alcohol companies are feeling the brunt. 

“This is because each company will have some lesser selling products in their brand portfolios which are not being picked up by retail groups. The government will have to look into this issue soon," he said.

An open policy in the state earlier meant that businesses could see growth of 100-150% over the previous years, he said.

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The foreign element

A third issue could also potentially bring down the sales of IMFL spirits. The state in its revised excise policy for FY25 earlier in March and significantly decreased the fee on imported spirits or bottled-in-origin products by about ₹100-200 per bottle, reducing the attractiveness of IMFL spirits. BIO or bottled-in-origin spirits are bottled in their country of production. 

According to estimates put out by alcohol advocacy body CIABC, at a country-wide level, IMFL products in FY23 accounted for about 385 million cases of (9 litres each), growing 14% above FY22 and 12% over pre-covid levels of FY20. Experts estimate that 80% of Punjab's sales are centred around whisky.

Historically, Punjab has always been an open market operating on the back of retail syndicates or groups. 

“The excise department originally seemingly wanted to control the illegal movement of liquor from the state to other dry states; retailers are not allowed to move any liquor out of the state but they were for the last few years," a manufacturer of spirits with a strong presence in Punjab said. 

"Then the excise department began to clamp down on giving retailers the permit slips in a month. So the retailers began to pick only the largest selling brands so the smaller companies got clamped down in the whisky market."

According to public policy organization Indian Council for Research on International Economic Relations (ICRIER), India is one of the fastest growing alcoholic beverages markets globally, with an estimated market size of $52.5 billion in 2020.