John Distilleries, the maker of Original Choice whisky and Paul John single malt, said it is increasingly becoming difficult to run a profitable liquor company in India due to price control and differences between state and central government in terms of implementing regulations."There seems to be no coordination between state and central regulation and nobody wants to take an interest in that. At some point in time, something needs to be done because it's extremely difficult to operate with two sets of rules," said Paul John, the founder of the company.
For instance, he said, while the central government allows up to 50% alcohol strength in whisky and single malts, a few states restrict the percentage to 42%. In addition, the liquor segment in the country is highly regulated, with the government controlling pricing, retail, as well as distribution in several states. "It is getting worse because, on one hand, we have a lot of price control and regulations on the selling price from the government and, on the other hand, the raw material costs have been shooting up," said John.
In 2021, sales of beer and spirits such as whisky, vodka and gin increased 17-18% by volume, the fastest expansion in more than a decade due to a low base and increased in-home consumption, according to the latest data by IWSR Drinks Market Analysis.
Sazerac, a family-owned spirits company in the US, has 43% in John Distilleries which has been launching their global brands in India. The company will launch a local premium gin brand Malhar as well as Seagram's 83 Canadian whisky from the global portfolio. The company, however, will retain its strategy of focusing on mass and economy brands which account for more than 90% of its sales.
Most companies, including Pernod Ricard's biggest rival, Diageo, want to sell less but more premium products in India, which in turn is helping vacate the mass segment where John Distilleries is among the largest players. "If people are vacating that segment, then there will be an opportunity although there are still a lot of the Indian players waiting to fill up that gap. But we will try and see where we can take maximum share." said John.
However, with increased costs and taxation, profitability will be affected, said experts. "A principal theme has been pricing, with many companies - particularly producers of local value products - lobbying hard for price increases. With India a mix of controlled and more open markets, MRPs (maximum retail prices) operate in many jurisdictions; Corporation states in particular have been reluctant to countenance raising prices, leaving producers to bear all increases in costs and see their margins squeezed. Many will need to decide whether to continue to bottle brands at price points that almost guarantee losses," said the IWSR report.