Alco-bev industry in tight spot over shrinking margins as states keep MRP constant: ISWAI’s Nita Kapoor

The Indian alcohol industry is grappling with shrinking margins, thanks to the rising cost of raw materials used to produce alcohol, while the state governments are keeping the maximum retail price (MRP) constant. The raw materials for manufacturing alcohol include extra neutral alcohol (ENA), glass, labels, closures, paper packaging, and miscellaneous materials. While ENA witnessed a price increase of 53 per cent between 2018 and 2023, glass prices increased by around 79 per cent, label prices rose by 29 per cent, closures’ prices increased by 22 per cent, and the cost of paper packaging moved up by 31 per cent during the same period, according to data exclusively shared by International Spirits and Wines Association of India (ISWAI). 

To understand the challenges faced by the alco-bev industry, Livemint spoke with ISWAI CEO Nita Kapoor.

Edited Excerpts:

What is the impact of rising manufacturing costs on margins?

If I were to index to MRP, then the state excise collections based on MRP would range as high as 60-80 per cent - it leaves very little for the trade as well as for the manufacturers.

Therefore, whilst the industry is poised for growth, whilst the industry is undergoing premiumisation because of consumerism, the suppliers are facing severe cost pressures. Hence, their margins are getting eroded. There would be profits, but the quantum or the reduction of margins is a challenge suppliers face today. Despite the rising cost, MRP remains constant, leading manufacturers to face the price rise pressure alone.

What are the industries’ expectations from the government?

Every state follows an excise calendar. Usually, Diwali marks the beginning of a new calendar and continues till March or June. The ask of the alcohol industry is ease of doing business. The industry expects ease of doing business with the help of digitisation and fast-tracking the licensing process. A composite outlet, like in Haryana, is needed across the country. What will really help the alcohol industry is the government considering the inflation price index. Additionally, state governments take around four years to collect data and implement price revisions. The Indian alcohol industry seeks an inflation model for rising input costs.

What is the biggest challenge for the alcohol industry?

The rising price of ENA is not being considered by state governments. The state has to give us the scope to increase the manufacturing prices. If the states were to give an increase as per the rising manufacturing cost, we could witness ₹150- ₹250, broadly. If in case the MRP changes, consumers can witness a 4 per cent to 7 per cent price increase.

Unlike any other sector, like FMCG where the manufacturing price hike is also passed on to the consumer, the alcohol industry fails to get it reflected on its MRP.

What is driving the premiumisation trend in the alcohol industry?

When we came out of the pandemic, there was a shift in trend; people were more keen on buying good quality products. In 2022, the industry witnessed a growth of 12 per cent. The industry did not just recover from COVID-19 but also grew handsomely. In 2023, the brands selling at a price band of ₹750- ₹1,000 for 750 ml have grown. The main trigger was the pandemic, but infrastructure, digitisation, and urbanisation became the factors behind sustained growth. Additionally, the increase in global travelling trends has also contributed to the premiumisation trend.

When people stopped going out during the lockdown, they were left with increased savings. Once the lockdown was lifted, people used those savings to buy premium products.

Can you give an example of a state that is using technology to make things easier for the alco-bev industry?

Madhya Pradesh offers an auto-renewal of licences on payment of required licence fees without the need for manual processing. The approving channel of licences and other permit/NOC was reduced to 1-2 levels from 4-5 levels, fastening the overall approval process and enhancing the operational efficiency. The state has also ensured the visibility of information like stocks at the warehouse and retail level through the e-abkari system. Additionally, the complete supply chain of liquor from production to consumption went online through the e-Abkari portal.