The Hindu Business Line : High costs force UB to cut output of economy brands

FACED with mounting cost pressure, UB Spirits Division (UBSPD) is cutting back production of its two `millionaire' brands in the economy price band. The volume sales of Vin Malt whisky and Majestic rum and whisky, which sells over a million cases annually, is expected to drop significantly with the company slashing production as molasses and Extra Neutral Alcohol (ENA) prices rule at record high.

Top company officials said, "It is almost unviable to do business with these brands" as input cost did not justify the price band in which it operated. "For instance, we had registered the basic price of Vin Malt in Andhra Pradesh at Rs 228 per case, but cannot make supplies at anything less than Rs 325 per case. So, we have stopped production," the company sources said. Vin and Majestic were among the latest additions to the company's millionaire list, which included eight other brands. The other names in the list are frontline brands such as Bagpiper, McDowell No.1 Whisky, Celebration Rum, McDowell No.1 Brandy, Honey Bee Brandy, Kerala Malta Whisky, Blue Riband Gin and Old Cask Rum.

It must be mentioned that prices of molasses, Extra Neutral Alcohol and Rectified Spirit - three essentials for manufacturing IMFL - have seen never-before hikes. The industry information suggests that there has been a severe drought and decline in acreage in cane crushing belts particularly in Uttar Pradesh, Maharashtra, Karnataka and Tamil Nadu and the crushing capacity is expected to be cut by at least 40 per cent this season. As a result, the price of molasses has seen a five-fold increase. Further there has been diversion of ethanol (ethyl alcohol) for purposes of mixing with petroleum products, shrinking the availability of spirits for the IMFL sector.

Vin and Majestic mopped up most of its sales from the State controlled southern markets, especially Andhra Pradesh and Kerala, as the low priced IMFL sales boomed in these States. Sources said the cost pressure, which is expected to continue well into the next year, could threaten the future of these brands. "The consumers of low-priced drinks are not really brand conscious, and volumes are garnered through the company's production and supply abilities as well as their sourcing credibility. So, it should not also be a problem for UBSPD to recoup the volumes with other brands once the input cost crisis is resolved," sources added.