After raising a toast to road safety in their campaigns for years, global drinks giants Diageo and Pernod Ricard have fallen silent on last month's Supreme Court order banning liquor outlets and bars on national and state highways. The reason: They, along with other Indian distillers, are probably bracing for a significant business disruption with data suggesting that 42% of liquor vends in the country face dislocation when the court directive takes effect on April 1.
Reuters
In India, 330 million cases (9 litres each) of branded liquor are sold through more than 64,000 licensed outlets. Nearly 26,800 of them need to be relocated or closed down, according to industry data vetted by the country's top distillers.
On December 15, the apex court ruled that shops and bars selling all forms of liquor within a 500-meter radius of highways should cease to exist citing the rising incidence of alcohol-fuelled road accidents. The public works department is expected to determine whether the vends would attract the court gag and must relocate, a complex process which requires the nod of excise departments and local civic bodies.
"While we fully respect the court order, the fact is that most Indian urban agglomerations are centred around highways, making it disruptive for the alcoholic beverages industry. This dislocation of retail trade comes at a very inopportune moment. I have never seen a period worst than the current financial year in my 38-year-old career," said Deepak Roy, vice-chairman of Allied Blenders & Distillers (ABD), the third largest distiller in the country.
BCCL
The domestic liquor consumption has swung negative, with 1% degrowth and volume sales declining for major companies like Diageo-controlled United Spirits and ABD. Pernod Ricard is reporting 2% growth, but is staring at its lowest India growth.
Predictably, United Spirits and Pernod Ricard declined to comment on the story.
Several retail associations are moving a review petition in the top court, the fate of which would be known in the coming days. These petitioners are likely to plead that less than 6% of road accidents in the country are alcohol-induced ones. Roy said the impending dislocation has the potential to push a large part of the trade underground, or causing them to dry up. "The fact that we are perceived as a sin industry and a heavily regulated one reduces the manoeuvring space," he added.
BCCL
The impact on liquor trade will be the most in hilly regions like Meghalaya, Jharkhand and Uttarakhand and densely populated markets ĦŞ which would include the high-profile business corridors in Gurgaon and even the Western Express highway in Mumbai. Most big states such as Maharashtra, Telangana, Andhra, Rajasthan and West Bengal will see between 40% and 60% of the retail trade facing the axe. Telangana is considering a move to denotify state highways in urban centres as excise revenue from the liquor trade fills the coffers of several federal governments.
Interestingly, the Supreme Court order came on a plea by Tamil Nadu challenging the constitutional proprietary of the Central government circular asking state governments to close liquor vends on highways.
BCCL
Some industry watchers argue that the court order may benefit the alcoholic beverage industry. "This could feed into the long-term story of premiumising the industry. The nature of trade dislocation may be such that the impact will be significant on regular and economy-priced brands, and much lighter on the premium ones," said Sanjay Jain, director at Taj Capital, an investment advisory firm working with the sector. "But there must be a balance between regulation and industry viability," Jain added, alluding to rising restrictive moves on the industry.
The talk of prohibition has gathered momentum after Bihar announced one last year, giving fresh lease to a populist political rhetoric which failed in the 1980s and the '90s.
Also Read:Bihar Govt Banned Liquor In The Name Of 'Fighting Crimes', But Data Shows It Has Gone Up!