Here’s the good news: Many Indians are giving their overworked livers a bit of a break — by drinking less. And here’s the bad news: it’s just another sign of the economic slowdown. Across India, household budgets have shrunk and this has hit consumption hard, especially given the price of onions. Discretionary spending, whether it is on eating out or buying booze, has taken a backseat. And this is expected to take a toll on the final tally of liquor and spirit sales this fiscal year. Growth is likely to be in “single digits” in comparison with the low-double-digit growth that the segment recorded last fiscal year.

United Spirits Ltd, controlled by Diageo, saw just 2.2 per cent year-on-year growth in standalone revenue from operations, at ₹7,296 crore, during the quarter ending September. Overall volumes inched up 1 per cent year on year against 10.3 per cent last year.

Broad-based consumption slowdown

“Our revenue growth in this quarter was impacted by a broad based consumption slowdown as well as liquidity challenges in the trade channel in certain markets. We also faced some one-off operational issues," the company’s CEO Anand Kripalu said recently.

Market sources say the popular segment reported a net sales decline of 1 per cent YoY. On the other hand, the ‘Prestige and above segment’ saw net sales decline by 0.1 per cent YoY. They refer to USL’s numbers as a benchmark.

During a conference call with investors in November (uploaded on the website seekingalpha) Pernod Ricard, the second largest spirit maker globally and Diageo’s biggest rival, said business growth has been “plus 3 per cent for India”; this is a sharp decline from the 34 per cent growth the company witnessed a year ago.

“There is some softening macroeconomic environment happening in India, and we had as well some impact of very severe flooding in Q1,” said Helene de Tissot, the company’s Managing Director in charge of Finance, IT and Operations.

H2 may be slightly better

Amrit Kiran Singh, Executive Chairman, International Spirits and Wines Association of India (ISWAI), expects the industry to put up a better show in the second half of this fiscal year (October onwards). ISWAI is an association of blue chip multinationals, including Diageo, Pernod Ricard, Moet Hennessy, Beam Suntory, Bacardi, Remy Martin, Brown Forman, William Grant and Edrington.

“So far growth has been in single digits in the first half. But as we head towards the fourth quarter, there will be a bump up (increase) in sales over H1. For the full fiscal (FY20), sales are likely to be in single digits (growth); maybe higher single digits if sales pick up in H2,” he told BusinessLine.

Abneesh Ray, EVP, Edelweiss Securities, believes that liquor sales in H2 “may be a bit better, but nothing dramatic”. A growth in consumption of premium categories may not actually affect headline numbers.

“Liquor is a discretionary spend and an economic slowdown will impact sales. Consumption in the premium end is relatively small. And it may not impact headline numbers,” he said, adding that growth in the mid-end within the prestige-and-above category — where maximum consumption happens — has to pick up.

Singh adds that “premium categories” are witnessing “good growth”, while trade-offs —consumers switching from higher priced to lower priced liquor — are happening in the mass categories. Premium brands include those such as Chivas Regal, Johnny Walker, Jack Daniels, Absolut, Ciroc, Beefeater, 100 Pipers, Vat69, Black and White and so on.

“So far this year, premium brand sales have been better. White spirit (primarily vodka and gin) consumption continues to grow; but (they) are very small segments of the market,” he said, adding that India made foreign liquor (IMFL) volumes have been marginally higher or flat.

Long-term Growth

However, Singh feels that the slowdown notwithstanding, long-term growth prospects for the spirit segment remain intact here in India. In fact, a younger population and rising per capita income means greater scope for premium offerings. Liquor makers, he says, are already experimenting with ‘limited edition’ offerings such as Johnny Walker’s ‘Game of Thrones’ edition and so on.

Pernod Ricard reiterated that the country remains a “key market” and, according to de Tissot, it has “strong ambitions” here.

“Our mid-term ambition is low, double-digit, and we believe this is the right as well underlying trend to expect…. So, I would say no change at all in the fundamentals for us in India,” he told analysts during a con call.