The fight for the top spot in the Indian liquor industry, the third largest in the world, is now turning out to be a see-saw battle, with United Spirits — owned by the world’s largest spirits maker Diageo — edging past Pernod Ricard, the second largest in the world.

Last year in the July-September quarter, Pernod Ricard held the position until United Spirits Ltd (USL) toppled it in the same period this year. India is considered one of the toughest markets for liquor makers because of its varied policies which swings from being highly restricted in one State to liberal in another.

According to the Organisation for Economic Cooperation and Development (OECD), consumption of alcohol in India has grown 55 per cent over a period of 20 years, expanding at an average of nearly 9 per cent every year during the past six years. India is now the third-largest liquor market in the world with a size of $35 billion.

Announcing its quarterly numbers, French liquor maker Pernod Ricard, which owns marquee brands such as Chivas whiskey and Absolut vodka, said sales in India rose 2 per cent in the July-September quarter, having previously slowed to 1 per cent growth in its past financial year, from 12 per cent in 2015-16. It also said disruption from a ban on alcohol sales near highways in India, its second largest market, continued to weigh in on sales, but that it is now easing off. A questionnaire sent to Pernod Ricard remained unanswered.

In comparison, United Spirits’ second quarter (July-September) saw net sales growing 3.27 per cent to ₹6,214.6 crore. What was heartening for the company was that the prestige-and-above segment where it competes directly with Pernod Ricard, reported 10 per cent increase in net sales, while underlying net sales (with all other parameters remaining the same) grew 12 per cent. The prestige-and-above segment for United Spirits represents 48 per cent of its total volumes and 63 per cent of total net sales, up 7 percentage points and 6 percentage points, respectively, compared with last year.

The Bengaluru-based United Spirits said its Scotch portfolio in the premium and luxury segment grew volume 5 per cent and net sales 8 per cent in the second quarter driven mainly by its international brands, Johnnie Walker and Black Dog.

The liquor market in the country was hit by a Supreme Court ban on alcohol sales on highways early this year, which according to various estimates affected about 1 lakh businesses and wiped out $10 billion in sales. However, Anand Kripalu, the top boss of United Spirits, said despite the implementation of GST, which has resulted in stranded taxes, he is pleased the company has been able to deliver a robust underlying gross margin improvement in both the second quarter and the first half because of continued focus on premiumisation.

Analysts cautious

But a few analysts said the growth in the liquor market may not be sustainable for long. In a report titled, ‘One swallow doesn’t make a summer,’ HDFC Securities said United Spirits’ management has been pushing for premiumisation, cost control, de-leveraging, and has franchised brands at the lower end.

All these strategic initiatives were played out in a single quarter. Long-term investors in India’s consumption story have been motivated by the transformation of United Spirits. “We believe in most of the repair work done at UNSP (USL). We foresee persistent hurdles for liquor branding, distribution and pricing power in India. Liquor is a whipping boy for State governments across the political spectrum.”

Related Topics
comment COMMENT NOW