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Rising prices force drinkers to stay off alcohol

Sunday, 2 March 2014 - 6:00am IST | Place: Mumbai | Agency: dna

Tipplers are staying sober, not by choice but by compulsion. For many the bottle has become unaffordable because of rising taxes and high inflation.

Liquor companies are staring at a slow growth — the worst in the past decade. Deepak Roy, executive vice-chairman and CEO of Allied Blenders & Distillers (the makers of Officer's Choice), said the volume growth in the first 10 months of this financial year has been only 1%.

This is a far cry from the double digit volume growth that the industry witnessed from 2001-2010. In 2011-12, the volume growth slipped to 7% and in 2012-13 it slipped to 2%.

In fact, some liquor companies saw a fall in growth in the third quarter, which is typically the best for spirits. As a result, analysts say the volume growth will be flat for the entire year and some segments may even register a fall, which clearly means people are giving alcohol a miss.

United Spirits, which commands close to 50% of the entire market share in the spirits category, witnessed a fall of 3.7% as compared to a 7% growth in the same quarter of the last year.

Liquor in the sub Rs300-400 segment (750ml) seems to be the worst hit. As a result, companies are focussing on the premium end, which is above Rs600, as demand is comparatively better.

Roy said a steep increase in duties led to a rise in prices by up to 50% in certain segments two years back. The market's been on a decline since then. The general slowdown has led to people cutting down on discretionary spends and that has made the situation worse.

In this scenario, those who can't give up the bottle usually go for cheaper options.

Vivek Veda, analyst at Espirito Santo Securities, explained that consumers at the lower end of the segment are increasingly downtrading due to increased cost. "We have interacted with several liquor companies... they have been witnessing good growth vis-a-vis the bigger players. It is a clear that consumers are opting for cheaper variants due to the macro economic conditions," Veda said. "Moreover, country liquors have become more refined and the difference in price is huge compared to branded liquor... that is prompting the move."

For liquor companies, it is double whammy: growth is slowing and prices of raw material are going up. As a result, companies are cutting back on capital expenditure plans too.

And a recovery is nowhere in sight as drinkers are likely to stay off alcohol in the coming months as well.

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