Alcoholic beverage makers write to state govts to allow price hikes

A rise in prices of raw materials is also hitting the alcoholic beverages market in India, which has already been struggling due to declining sales for a year owing to the COVID-19 pandemic.

The Confederation of Indian Alcoholic Beverage Companies (CIABC) that includes Radico Khaitan, Allied Blenders & Distillers and Amrut Distilleries among others as members is writing to state governments urging them to allow alcoholic beverage makers to hike prices to offset rising input costs.

The industry body has cited ‘unprecedented surge’ in the cost of production of alcoholic beverages in past three-four months, a letter to the Delhi Excise Commissioner viewed by CNBC-TV18 showed.

CIABC is reaching out to all state governments where there is pricing challenge. It has written to or is in the process of writing to states such as Delhi, UP, Haryana, Punjab, Telangana, AP, Kerala, Rajasthan, MP, Odisha, Chhattisgarh, among others.

In India, alcohol prices are controlled by individual states and around 21 states get over 15 percent of their tax revenues from the sale of liquor.

In its letter, the CIABC has said that prices of key raw materials continue to rise, with the price of Extra Neutral Alcohol (ENA), a key ingredient of liquor, going up by 5 percent and the cost of Vatted Malt Spirits increasing by 10 percent.

CIABC has also said that cost of dry raw materials has gone up as well. Prices of glass bottles are up around 9-13 percent, those of PET bottles are up 7-10 percent, while prices of smart caps have increased by 3-5 percent and of ROPP caps (the aluminum caps on glass bottles) have increased by 17-21 percent.

In addition, the price of mono cartons, CIABC said, has increased by 14-17 percent, and that of labels by 11-13 percent. Adding to this, it said cost of transportation also increased by about 15 percent and continues to rise amid rising fuel prices.

“Such an all-round increase in both dry and wet goods coupled with transportation costs is seriously impacting commercial viability of the manufacturers of alcoholic beverages who supply IMFL to Delhi and unless suitable relief measures are provided it may become unsustainable to feed the market,” Vinod Giri, Director General of CIABC, wrote in the letter to Delhi.

Radico Khaitan also alluded to rising raw material prices in its earnings call for the July-September quarter where it said gross margins were impacted due to commodity inflation, particularly in the non-IMFL (India made foreign liquor) business and a significant increase in the prices of packaging materials.

“Although, the operating environment has improved significantly on a quarter on quarter basis, we have seen unprecedented levels input cost inflation which has impacted the profit margins, particularly for our non-IMFL business. We strongly believe that this is a temporary phenomenon and given our focus on premiumisation, margins trajectory shall improve. During this period of uncertainty, we continue to focus on sustainable, premium volume growth and work alongside the supply chain to minimise the impact of input cost increases,” Abhishek Khaitan, Managing Director, Radico Khaitan, said at that time.

CIABC also added in its letter to states that it has advised member companies to approach states to seek a price increase for their products based on their individual cost impact, urging states to consider their requests favourably. CIABC also added that the price hikes are being sought to cover up for increase in costs and not for other commercial gains.

This also comes just as liquor sales start to see recovery in the country after sales of Indian made foreign liquor (IMFL) declined by 12 percent in FY21.