Inflation hits spirits cos’ margins
NEW DELHI: Surging input costs and the war in Ukraine causing disruption in supply chains have shrunk margins of spirits makers in India, pushing them to seek a price hike. Two of the largest input costs for Indian made foreign liquor (IMFL) – extra neutral alcohol (ENA) and glass, for instance – are up by 26-30% compared to 2018, showed data sourced from International Spirits and Wines Association of India (ISWAI).
“Margins of liquor companies are currently down to around 15% from 25% in 2018,” said Nita Kapoor, CEO at ISWAI. “The alco-bev industry needs to pass on the rising costs to sustain itself.” While companies and industry bodies are currently in dialogue with state governments to raise prices, senior industry executives said the task is easier said than done despite consumers willing to pay more.
“Glass bottles are highly dependent on energy and soda ash. Prices of both have gone up significantly,” Shekhar Ramamurthy, executive deputy chairman of Allied Blenders and Distillers (ABD) told TOI. “But despite the pressure, we do not have the freedom to increase prices, as we are subject to state government rules and regulations.”
In most states, there are no mechanisms to pass on the input cost inflation as they have a minimum ex-distillery price (EDP) policy framework that ISWAI alleged is not revised periodically.
In addition, static taxation slabs not accounting for inflation and states benchmarking EDPs to other states, which have not revised rates, are factors that do not let companies pass on rising input costs to consumers. This has led to several spirits makers to take a relook at operating costs.
Apart from streamlining operations, beer maker Bira, for instance, is trying to introduce more premium products to mitigate the cost of inflation with a higher revenue per litre. “This is a very difficult operating environment for all businesses, especially beer,” said Ankur Jain, founder & CEO at Bira 91.
“Whether it’s glass or aluminium where prices have gone up by 75% over the last 12 months or barley and wheat where prices have soared by 30-40% in three to four months.”