Alcohol companies

Support operations – A challenge for alcohol companies in a context of soaring inflation

According to estimates by the International Spirits and Wines Association of India (ISWAI), At the top of AlcoBev’s high-end industry, wet alcoholic ingredients, such as ENA and scotch, are now 5% more expensive than last year, while the cost of packaging materials such as plastic bottles glass increased by 8%, cartons by 37% and labels and closures by 5% and 15% respectively in just one year (FY21 and FY22 (est)). In addition, the transport costs have increased by 68% between FY18 and FY22, and you have a Molotov cocktail in hand.

The makers of Alcobev are unable to unilaterally increase their prices because the prices are controlled by state government policies that decide the ex-distillery prices (EDP) of suppliers. The retail price that consumers pay for their drink is the EDP (set and approved by the Excise Commissioner) plus state excise duties and taxes and trade margins demanded by wholesalers and retailers. . However, the supplier’s share in the consumer price has steadily declined, down almost 8% since 2016-2017, which has been absorbed by government and trade.

Things got worse during the pandemic when states imposed ad hoc fees and surcharges. Their impact on the final prices of the products varied between 5 and 25%.

With most states retaining all-time low EDPs, no wiggle room to raise prices has been provided to the industry over the years, leading the Indian sector of Alcobev to face a downturn. sustainability.

There are many reasons to lend a helping hand to the industry. Alcobev’s revenues constitute a large part of the States’ own tax revenues (excluding SGST). India’s alcobev industry, one of the world’s fastest growing markets, employs around 1.5 million people. With an estimated market size of 52.5 billion USD (2020), it is expected to grow by 6.8% between 2020 and 2023 according to the report of the Indian Council for Research on International Economic Relations (ICRIER).

The first quarter of 2020 saw a 42% drop in sales due to lockdowns. Although sales fell somewhat to 6% last quarter, overall IMFL sales declined 12% in FY21.

The triple whammy of suppressed volumes, soaring inflation and shrinking suppliers ‘share of consumers’ rupees, makes it very difficult for Alcobev’s manufacturers to maintain their business operations.

What the industry needs is a regulatory overhaul and an inflation-integrated pricing approach. This would take into consideration various factors such as differences in operating conditions between states such as state levies, cost of materials, transportation, etc. Regular consultations with industry stakeholders are essential to forge a predictable and progressive policy. framework, encouraging greater investment in the sector.

The need of the hour, however, is a price increase recognizing the supply chain and inflationary pressures. States have been urged to allow manufacturers of alcobev to raise prices to offset these pressures. State excise policies must adapt to inflation.

Inflation rates at the wholesale and retail levels have shown a consistent upward trend during fiscal 2021. Wholesale price inflation reached 14.23% in November, while inflation for retail prices hit a three-month high of 4.91%. Although some of these can be explained by seasonal trends, inflation is expected to be persistent. The disruption of global supply chains is far from normalizing, especially with the new Omicron alert, which is expected to keep transportation and logistics costs high.

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