It is said that people drink more when they are depressed. But this adage doesn’t seem to hold true when the depression is caused by financial uncertainties and dropping incomes, at least going by the experience of India’s largest liquor maker United Spirits.
A distinct slowdown in demand during the festive season this year has the company worried.
Generally, the year-end is when United Spirits – home to brands such as Johnnie Walker, Godawan, McDowell's, Royal Challenge Whisky – sees a pickup in sales in the lead-up to Diwali, Christmas and New Year.
“However, this year, we have not seen the same level of pick-up,” said Hina Nagarajan, Managing Director and CEO of United Spirits in the company’s post-earnings conference call with investors.
The Bangalore-based company uses sales in October and Durga Puja season as a lead indicator of how it will be during the Diwali and later on during Christmas and New Year.
“The festival pickup has not been as buoyant as we have seen in previous years,” Nagarajan iterated, adding that the company is seeing “volume pressure” – or a slowdown in the quantity of liquor sold.
This is particularly worrisome for the company because it was banking on a year-end revival to break out of a spell of slowing sales this year.
Economic Distress
While the exact reason for the change in consumer behavior is hard to ascertain, there have been enough clues that the Indian consumer has not been feeling on top of the world for some time.
Sales of many discretionary items, such as footwear, clothing, have seen a sharp slowdown since the middle of the year. Of particular note has been the spending slowdown seen in the rural and the middle income segment within India this year.
The factors blamed for the slowdown include rising inflation, challenging geopolitical tensions that have impacted economic growth and added an element of uncertainty and rising fuel prices.
Nagarajan too linked the slowdown in liquor sales to an overall downtrend in discretionary spends.
On being asked if the slowdown is ‘structural’ – more permanent in nature – or seasonal, the management said it was too early to tell.
Nevertheless, some broad trends were visible by pricing categories.
While nearly all the brands sold by the company occupy the upper half of the brand hierarchy in Indian liquor, some of the non-premium segment priced brands are being hit harder than the rest. For example, the company said that its retained popular and low prestige end of the portfolio was not seeing low demand due to inflationary pressures.
“We are seeing some pressure even in the middle income segment,” Nagarajan said.
Hoping For the Best
Despite the headwinds, the company remained “cautiously optimistic” that demand will improve.
“Despite not seeing the signs of recovery yet, we are hopeful that the upcoming festival season, including Diwali and Christmas, will boost demand. We continue to invest in our brands and focus on what's within our control, and we will assess the situation in the coming quarter,” added.
“But it is a wait-and-watch the area for us. Early indicators of the 45 days into this quarter are also not showing as buoyant a momentum as expected. So, that's by the caution,” she added.
The company said that it was witnessing low sales turnout in the retained popular and low prestige end of its portfolio.
“We continue to monitor the situation and will take necessary action depending on how the scenario evolves in the coming few months,” said Nagarajan.
The slowdown is worrisome for the government too. For example, for a state like Kerala, the tax levied on alcohol is the single biggest revenue source at 15%. For Karnataka and Andhra Pradesh, the contribution is 11% and for Telangana 10%.
Indeed, in 2022-2023 alcohol revenue for Uttar Pradesh excise department created a record in generating a revenue of Rs 41,250 crores.
Despite all this, the company did deliver a strong double digit revenue growth in the three months ended September at 12%.
“This is despite the headwinds related to double Stravan in the July-August-September quarter, and the shift in the festive season to October, November, December,” said Nagarajan.
“Amidst this environment, we've had a strong quarter reflected in our prestige and above segments, which dropped to double digit growth of 12.8 % year on year, lapping the high base,” she added.
Scotch continues to perform well
The company said its Scotch portfolio continued to see healthy growth in the quarter, led by Johnny Walker, benefiting from a favorable base and continued consumer recruitment – driven by the scale-up of Johnny Walker Blonde, along with Black and White, said the company.
Johnny Walker Blonde, launched in December last year, has now been scaled up across all key markets in the country and has been well received by consumers, it added.
Black and White's growth momentum also remains strong, as it continues to be the preferred Scotch for casual occasions.
New launches
The company’s gin brand, Tankare, has recently started its flavor journey in India with the signature Malata and Rangpur variants. “We are optimistic about the potential of this opportunity in line with global trends,” the company said.
United Spirits also launched its global tequila trademark Don Julio in India
The variants of Don Julio will be launched progressively, starting from the core range, Blanco and Reposado, to the iconic Don Julio 1942, said the company.
“I am confident that we will be able to scale this up and touch great milestones similar to our Scotch journey in India, wherein we now have three trademarks, which are clocking upwards of 1 million cases each, that is, Johnny Walker, Black and White, and Black Dogs,” said Nagarajan.
“Overall, we look forward to an exciting period for consumer outreach and engagement, adding to their responsible celebration,” she added.