How the Liquor Industry Can Work On Its Revival And the Path Ahead

The liquor industry incurred a huge loss during the COVID-19 led lockdown pandemic and countrywide lockdown

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The first couple of weeks of the unlock 1.0 were positive for the industry as consumers rushed, queued, and stocked up on liquor. The situation that followed yet remains to catch up on pre-COVID sales and volumes. As it looks, it won’t be until next year that the sales are back to the pre-covid level. With the on and off retail trade (on-bars and off-retail shops) hit the hardest, the pressure is now being felt by the wholesalers and brands after the lockdown—the biggest in terms of the payment cycles and trade deals.

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The IMFL sector that is a major chunk of India’s liquor industry observed a 29 per cent decline in sales during the first half of the financial year 2020. As per the data released by the Confederation of Indian Alcoholic Beverage Companies (CIABC), liquor sales showed an improvement in the second quarter of FY20. The first quarter, i.e., April-June incurred the maximum damage. Following the second quarter, i.e., July-September, sales stabilized and started to rise. 

However, the COVID tax levied by several states did not encourage sales, post a couple of weeks from unlocking as consumers stocked up and then rationed their spending on things other than necessities in the time of uncertainty.

Though such COVID taxes have now been removed or slashed down, their impact on consumer spending psychology has still not recovered appropriately. A majority of consumers have also rationalized their liquor expenditure, either by cutting down on volume or going a segment down and with labor and other immigrants. Volumes are still hit hard when compared to year-on-year.

The COVID-induced setbacks didn’t faze entrepreneurs interested in liquor business ads. They instead paid up around 25 per cent higher on license fees for opening vends despite suffering from huge losses in the months of March and April.

Associations representing the industry have collectively asked and submitted requests to respective state excises for their support in such a challenging situation. Several measures have been taken by the respective state excise such as liquor home delivery in several states; opening up of on-trade (bars) with proper measures and social distancing; and support to microbreweries, off-trade retail in some of the other forms, to name some.

 

A few industry players have cut some overheads and expenses, without which operations can be managed, to sustain this period. Combine this with excise support and consumers returning. Hopefully, things should be better next year. The liquor industry, even with a lot of restrictions, is still performing better off than many industries of the economy. 

 

Big players of the industry with deep pockets are better at sustaining through these periods. In contrast, for the local or smaller competition, it comes down to whoever has better cash liquidity, stays ahead of the lot. It’s a matter of time before we hit next year and things start moving in the north direction for the better.

One crucial thing to note was that, the states that did not impose any tax or come up with very marginal tax increments during the corona pandemic were positioned well in liquor sales and the revenue gathered. Also, the Punjab government put an additional excise duty on liquor around the bracket of INR 2 to INR 50 across various liquor types. They took this step to fetch the additional revenue of INR 145 crore. Whereas, the beer sales in Maharashtra plunged to 62.5 per cent per day in October compared to the period prior to the COVID-19 pandemic.

The festive season of Diwali proves to be a great business booster for the beverages and liquor industry. According to Tamil Nadu State Marketing Corporation, INR 465.79 crore sales were made during the week of Diwali. Observing the hike in liquor sales during the Diwali festive season, it can be predicted that as Christmas and New Year approaches, many restaurants, as well as lounge bars, can lead to a rise in beverages and liquor sales.