The latest financial results by two of India’s spirits giants makes for fascinating reading and gives a real insight to casual observers as to the state of the drinks industry in the country.
On the one side, India’s biggest whisky seller, Teacher’s, has finally been knocked off its perch at a time when the company is going through a major corruption probe. On the other, India’s biggest spirits producer showed that, no matter how hard it tries, it just cannot get the better of the local political party’s cast-iron grip on liquor supply.
Teacher’s being taught a lesson
Starting with Beam-owned Teacher’s, which has for almost a decade ruled the roost as India’s top-selling whisky, corporate figures last week revealed the label had seen market share drop over the last three months by more than 6% to emerge just below 30%.
Earlier in the quarter, Beam had halted production of Teacher’s and its other Indian brands, and placed its senior management in the country under suspicion pending investigations into alleged violations of the US Foreign Corrupt Practices Act.
Production however resumed last month, but Teacher’s’ return could not wrest back the share it had ceded to Pernod Ricard’s 100 Pipers, which rose to 33% from 29% a quarter back.
The investigations by Teacher’s’ New York-listed parent Beam’s local unit continue to drag on.
At around the same time, the Vijay Mallya-promoted USL posted a whopping 71% increase in net profit to over Rs80 crore (US$14.9m) in the December-ended quarter.
But the announcement was far from triumphal, with the world’s third-biggest spirits producer not even making a dent on the liquor goldfields of Tamil Nadu.
"Against a capacity of 1m cases per month [in Tamil Nadu] and a demand that is much larger, United Spirits' monthly capacity is being artificially pegged at 0.75m cases," the company opined in an investors’ statement, adding “to benefit new and existing local players” for those who weren’t already aware.
The south-eastern state is India’s biggest market for liquor, with monthly sales of around 4,200,000 cases that are growing at more than 12% by volume.
According to a Times of India report, the state consumed liquor worth Rs300 crore (almost US$56m) over four days to usher in the 2013 New Year. It doesn’t matter if you are a new entrant or an old hand, your shareholders expect you to maximise your position in Tamil Nadu.
However, this is easier said than done for drinks producers from outside the state because of the protectionist roadblock that was erected in 1983 by its then chief minister, MG Ramachandran, when he created the Tamil Nadu State Marketing Corporation (Tasmac), which was charged with selling liquor in the state.
This of course was a political move, which the ruling politicians have since found especially appealing because the huge sum of money Tasmac makes is later earmarked towards election freebies.
And as a result, subsequent governments have increasingly tightened Tasmac’s control over liquor sales to the point that one leadership implemented a ruling that all hotels and bars must buy their liquor from Tasmac (it was only lifted once the agency realised it didn’t have the capacity to store imported bottles).
Another barrier to entry is the fact that only companies with a distillery in the state are allowed to sell there—currently, Tamil Nadu has 11 such facilities.
The result is that the best-known brands in Tamil Nadu have rarely been heard of outside the state. The likes of Activator vanilla vodka, Diamond whisky and Joie de Franc VSOP Deluxe brandy might be wildly popular in the south-east but they certainly haven’t yet travelled well.
Of course, this equates to a government cartel pretty much telling consumers what they can and can’t drink while preventing the quality brands, like the newly launched and Modi Illva India-backed Rockford Reserve, from gaining entry into the state.
So, in spite of its strength on the local and world stage, USL cannot get a foothold in a market that neighbours its Karnataka headquarters, and it doesn’t look like this will change soon.
Vijay Mallya, the outspoken and larger-than-life figure behind USL, prefers not to say much about Tasmac in public, and he really doesn’t need to. Anyone with an interest can easily attain a balanced viewpoint of the way India’s thirstiest state goest about the drinks business.