Following the news that United Spirits has paused sales of spirits in Indian states where product prices are capped despite the rising inflation levels:

Bobby Verghese, Consumer Analyst at GlobalData, a leading data and analytics company, offers his view:

“Diageo Plc and its Indian subsidiary, United Spirits, commanded 29% of volume share in the 3.3 billion liter Indian spirits market in 2020^*. However, amid the onslaught of COVID-19, the company amped up its focus on profitability. Accordingly in May this year, Diageo offloaded low-margin Indian brands including Honey Bee, Green Label, Romanov, Old Tavern, and White Mischief to Inbrew Beverages.

“Despite the divestment, United Spirits retains an iconic range of Indian made foreign liquor (IMFL) brands, including Johnnie Walker, VAT 69, Black & White, Smirnoff, Ciroc, McDowell’s, and Director’s Special. With this arsenal, United Spirits will be able to compete in the lucrative premium and super-premium spirits market. As the economy recovers from the COVID-19 impact, this premium-plus IMFL segment is on the rebound, with 29% of Indian respondents in the GlobalData’s Q2 2022 Consumer Survey affirming that their spending on spirits was quite/very high in the last three months (April to June 2022)^**.

“However, to achieve its objective, United Spirits must deal with the varying liquor licensing laws across the 28 states and 8 Union territories in India. Moreover, unlike soft drinks, alcoholic beverages are not under the unified goods and service tax (GST) regime, thereby allowing each state to dictate prices within its borders.

“The challenge for United Spirits is to convince state authorities to link alcohol price caps with inflation levels. The spike in raw materials and fuel costs triggered by the Russia–Ukraine war has eroded the company’s margins since March 2022. Subsequently, the company took the bold step to temporarily freeze sales in several Indian states where alcoholic drinks prices are capped despite the rising inflation levels.

“United Spirits’ stand-off with the state authorities is likely to be short-lived, as a prolonged shortage of stocks of its popular brands can compel the retailers, foodservice operators, and consumers to switch to competitors, such as Pernod Ricard and Bacardi. However, through the bold move, the company is raising the trumpet call for contemporizing India’s outdated liquor regulations. This is pivotal for the success of Diageo in its premium-play ‘long game’ in the Indian spirits market, which GlobalData forecasts will grow from $41.9 billion in 2021 to $49.6 billion by 2026^*.”

*GlobalData Consumer Intelligence Center—Databases—Market Analyzers, accessed in August 2022

**GlobalData 2022 Q2 Consumer Survey—­India with 598 respondents, published in June 2022