Confederation of Indian Alcoholic Beverage Companies (CIABC), the apex body of liquor manufacturers, has urged the Government of Kerala to reduce what it described as an exorbitantly high commission pitched under the new tender conditions for 2022-23.

In a letter addressed to the State government, the body urged for review of the new tender conditions “in order to create an excise policy ecosystem which works for the benefit of all stakeholders”.

It has already been reported that the CIABC, along with the Association of Distillers Brewers and Vintners of India, had approached the National Company Law Appellate Tribunal (NCLAT), alleging abuse of dominant position by the Kerala State Beverages Corporation (KSBC), the retail and wholesale monopoly in the State.

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Cash discount hiked

The new tender conditions requite brands to pay up to 33 per cent as commission to the KSBC, comprising up to 25 per cent in cash discount and a wholesaler’s margin of 8 per cent. “Is a total margin of 33 per cent for the wholesaler justifiable?” the CIABC asked in the letter. 

The cash discount was introduced as an incentive for faster payments which meant that companies willing to give up that amount would be paid immediately and ahead of the due payment cycle. 

KSBC had initially started with a cash discount of 2 per cent, which was reasonable, but later increased it to 7.75 per cent “without any justification or discussion with suppliers”, the letter said. 

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Cost of carrying inventory

The cost of carrying inventory for two months, which is the time it takes for fast moving products to sell out, is 1.5-2 per cent. Hence 7.75 per cent was far too excessive, the letter said.

The CIABC also raised concerns over charging a ‘cash discount’ but still paying the supplier only after stocks are sold out. It wondered if it was fair to charge a cash discount when KSBC pays back the supplier a couple of months later and only after the stock is sold out. 

“If the cash discount is being charged for providing wholesaling services, then what is the wholesaler commission of 8 per cent for?” the liquor manufacturer’s confederation sought to know.

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Bias against some brands

Vinod Giri, Director-General, CIABC, said the role of KSBC is to be a neutral channel for wholesaling services,. “By offering to sell all stock of a product if it pays a cash discount of 25 per cent, KSBC seems to be promoting certain products at the expense of others,” he said. 

“Isn’t this depriving consumers of their preferred brand choice and forcing them to choose unknown brands? By promoting unknown and new products for a higher payoff, KSBC may be promoting products of unknown quality and poor provenance, thus putting consumer health at risk.”

Against established notions

Giri also said for providing wholesaling services, i.e. warehousing and shifting stocks to the retail shops, KSBC charges 8 per cent as wholesale margin over and above the cash discount. That margin is also the highest in the country, be it for government-owned or privately owned wholesale.

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In the new tender for 2022-23, KSBC intends to charge 20 per cent as cash discount from all brands with annual sales of more than 10,000 cases. “This means that the cash discount applicable on fast-moving brands is being increased from 7.75 per cent to 20 per cent,” Giri said. 

It means that no distinction would be made between a slow-moving and fast-moving brand which is against established notions of cash discount. It has also been proposed that if a brand agrees for 25 per cent, KSBC will ensure that its stocks are sold out … this does not sound fair and responsible. KSBC seems to be leveraging its monopolistic position,” Giri added.

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