In letter, but not in spirit? Taking stock of Andhra's 'phased prohibition'

After taking over the liquor retail trade, the government opened 3,500 stores —about 20 per cent fewer since the last excise year lasting October to September
Andhra Pradesh’s 'phased prohibition' policy has had a strange hangover. Sales declined when the government took over retail business last October to implement the policy but people have had to wait longer as they queue up at liquor stores.


Customers are confused when they find unfamiliar brands on the shelves and the ones they know missing, said an onlooker. "Undecided at the first instance, people come back again to join the queue to buy a bottle since the stores are filled with labels they hardly recognise," said Suresh Reddy, a resident of Guntur who has experience in liquor business.


Chief Minister Y S Jagan Mohan Reddy's has said that he would sacrifice liquor revenues—ranging from Rs 18,000 crore to Rs 20,000 crore annually—for the sake of public good, but phased prohibition appears to prove otherwise.


The government's funds crisis is so severe that it has failed to settle nearly Rs 2,000 crore it owes to liquor and beer suppliers for bills pending since mid-August 2019, according to multiple sources.


Phased prohibition, strange effect


Revenue from liquor and beer sales grew by around 6 percent at Rs 18,320 crore up to December 31, 2019 compared to Rs 17,320 crore in the same period previous year, according to official data. This indicates no revenue sacrifice for now.


"Even the dip in sales revenues registered in the months of September and October were not on account of prohibition but because retailers did not lift the stock as their license term was ending in September. Any remainder of stock will have to be surrendered to the government first and (businesses will have to) wait for the refund for months afterwards, which no one would like to do," said a Vijayawada-based industry association leader.


Liquor volumes (quantity in cases sold) declined 20.63 per cent and beer 12 per cent in April-December 2019, matching the government's claim that the phased prohibition is working. The numbers are a paradox though: sale revenues increased as volumes climbed down, thanks to the increase in liquor prices.


Meddling with the market


Liquor ban failed when it was tried out in undivided Andhra and elsewhere in the country, but chief minister Reddy has said his government would succeed with its gradual prohibition approach. His government seeks to curtail the availability of liquor before completely banning the sale in the last year of its term in 2024.


But industry insiders say that many things that have been happening in the name of the phased prohibition are either not helping the cause or have got nothing to do with the stated objective. Alleged meddling with brands is one of those trends that is no way connected to the stated policy and it is seen where ever governments hold absolute control over retail liquor trade.


After taking over the liquor retail trade, the government opened 3,500 stores--about 20 percent fewer since the last excise year lasting October to September. The government will gradually reduce stores each year till none exist by 2024.


People, however, question the logic in reducing liquor stores in big towns and cities but not touching those in rural areas. "Traveling a couple of more miles in the city to buy a bottle of liquor is not a big deal as every household will at least have a bicycle. How would it help reduce the liquor consumption?" said a liquor industry representative said on condition of anonymity.


Leaving that aside, the pricing and repositioning of mass market categories looks largely responsible for the decline in the sales volume. The only evidence the government can produce to prove the success of the 'phased prohibition' would be a decline in sales volumes each year until the day it entirely stops alcohol sales.


The government, before it implemented phased prohibition, increased the price of lower category liquor (90 ml quantity) to Rs 100 from Rs 80, to Rs 120 from Rs 100 for the category a notch above, and to Rs 140 from Rs 120 for mid-level spirits. The pricing protected, if not increased, liquor revenue.


The lower, or base-category liquor, alone had 40 percent share in overall sales volumes of around 3-3.2 million cases per month followed by the Rs 120 price category liquor with around 35 percent share before the 'phased prohibition was introduced. These two categories roughly commanded 75 percent of the total liquor volumes in the state.


After the new policy, the volumes of lower-category liquor (Rs 100-price point) fell by 50 percent while Rs 120-price category sales increased to 40-50 percent of the total volumes, according to the distillery industry sources. The fall in volume growth has significantly come from the lowest category level.


"There seems to be a conscious attempt to push the customers of lower category liquor to the next price point while pulling the consumers of middle and premium segments to the levels down below them. There is a talk in the government that from April onwards only the Rs 120-price point will be made available at the lower end," a senior official, who heads the operations of a popular mass market liquor brand, told Business Standard on condition of anonymity.


Increasing prices gave the government a problem: smuggling. The cheapest liquor in Telangana costs Rs 85, but in Andhra it’s Rs 100 MRP or Rs 120 if sold illegally at the doorsteps. This 35-rupee price arbitrage has already encouraged many enterprising individuals to bring liquor from Telangana on bikes and other means to sell and make a living in their neighborhoods, according to a businessman who ran liquor stores for decades till the government stopped giving retail licenses in October last year.


Customers are unhappy at the steep rise in liquor prices and the way the unknown brands are pushed, according to Suresh Reddy.


It was thought that liquor companies had stopped supplies when the government withheld payments but subsequent developments revealed the actual fact.


On November 25, a large brewery unit of the UB Group in Srikakulam was shut down. The reason being that the state-owned AP Beverages Corporation did not place fresh orders for the highly popular King Fisher brand owned by the company for unknown reasons.


Brands owned by international companies, including Diageo, Pernod and Record, disappeared from the shelves in Andhra on December 15.


"(The market) system became vulnerable as soon as the state government took over the retail liquor trade. From December 15, things have gone completely awry. All sorts of deals are being alleged but we still have to verify the facts," said Amrit Kiran Singh, executive chairman of International Spirits and Wines Association of India (ISWAI).


Maharashtra, Kerala and UP have been trying to build liquor revenues through consumption of premium brands, but Andhra is going the other way, says Singh.


According to him, ISWAI member companies would like Andhra to follow an indenting system based on average national market share of each brand, so that no particular label is unfairly promoted. This system would ensure that brand market shares would continue to be more or less in line with the market shares that existed in Andhra prior to the state government taking over the retail trade.

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