Maharashtra deals a blow to beer makers with excise duty hike

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Bengaluru: Beer sales in Maharashtra will be significantly hit by the state government’s decision to increase excise duty on the beverage by 17%. Given that Maharashtra is among the top alcohol consuming states, the increase is expected to dent the business of beer makers.

Maharashtra’s excise duty increase, announced on 23 October, should result in a price hike of at least Rs20 per 330 ml bottle for the end consumer, according to industry estimates. That increase will likely kick in over the next few days as retail outlets, bars and restaurants replenish stocks.

It would then worsen the already depressed demand for beer which, along with that for other alcoholic beverages like spirits, has been hurt over the last two quarters by a Supreme Court decision to ban alcohol sales near highways.

“Clearly it will have a negative impact on the business, without a doubt. If at one shot the price of a bottle of beer goes up by 15-20%, consumers are going to reduce the amount of beer they drink and shift to hard liquor. It’s unfortunate for the beer industry and it is going to be a big setback,” said Shekhar Ramamurthy, managing director of India’s largest beer maker United Breweries Ltd.

Beer is already highly taxed compared with beverages that have higher alcohol by volume (ABV), like spirits. A consumer will probably have to pay Rs180-190 for a bottle of beer soon in Maharashtra, according to industry estimates. In contrast, 180ml of a regular whisky costs only Rs100-110.

“The uncertain market condition, coupled with the highway ban, has resulted in the category shrinking 15%, and this price increase will further cripple the beer industry. We have a large production base generating employment within the state that will be affected. The existing prices have already curtailed beer sales,” said Pooja Bedi, director of legal, compliance and corporate affairs, at Anheuser-Busch InBev SA, the second largest brewer in India. United Breweries’s Ramamurthy said the impact from the duty hike may last at least a year, unless there is some other disruption, since it will take time for people to get used to higher prices.

“Demand has been suppressed. Maharashtra has been negative for quite some time, three years now, primarily in beer. We are going to see some hit to major beer companies unless it is offset by some other state and that seems unlikely right now,” said an analyst on the condition of anonymity.

Maharashtra’s excise duty hike comes at a time when demand for beer eases. November and December are not very conducive to beer sales, which normally peak during the summers.

“On top of this, when you put the price increase, there’ll hardly be any consumption. It will further decline by 15-20% this season,” said Shobhan Roy, director general of the All India Brewers Association (AIBA).  While the excise duty hike may prove positive for the spirits industry, liquor firms aren’t celebrating the move either.

“We are not heading in the right direction. Today it is beer, tomorrow it’ll be spirits,” said Deepak Roy, executive vice-chairman of Allied Blenders & Distillers Pvt. Ltd (ABD).