United Breweries expects disruptions in business during elections

BENGALURU: United Breweries, the country's largest beer maker, expects demand and operations to be disrupted during the general election as sale and consumption of liquor will be banned on and around the voting days.
“Election is a big disruptor simply because there are a huge amount of restrictions on hours of operations, outlet closures and dry days. So it makes the business of alcohol much more complicated," said Shekhar Ramamurthy, managing director of Heineken-controlled UB.

The April 11-May 19 Lok Sabha election will overlap with the Indian Premiere League cricket matches and the summer months, which have traditionally boosted demand for beer in the country. “It is not a question of dip in sales. It is a question of complexity in operations. For beer, the issue is that if the elections come in peak summer season, it is even a bigger disruptor,” Ramamurthy said.

The maker of Kingfisher beer controls half of the country’s beer market, which saw double-digit growth in 2018, helped by a favourable base year that was volatile due to the highway ban and the implementation of GST. UB now expects the industry to have a lower growth rate of 7-8% during the year, but maintained the event will not affect its strategy in terms of product launches.

While increase in ‘dry days’ during elections is not new, polling will overlap with the label registration cycle this time, something that can directly impact operations and supply chain, say experts. “No new licences will be issued and no new product labels will be registered or granted during the period. Our industry will be in cold storage for about three months,” said Rahul Singh, founder of The Beer Cafe chain. "During the general elections of 2014, when the economy was down, we had lesser number of outlets. While the economy is booming now, the impact of the elections will be far more disruptive this time."

A month ago, United Spirits, the country's biggest liquor maker, and French spirits firm Pernod Ricard also flagged concerns about the general election disrupting sales in the next quarter. "Excise officials, many of them who are posted in our factories, are co-opted for election duty. So, sometimes you don’t have the excise people there to open the factory and shut the factory and supervise the factory during the day," United Spirits managing director Anand Kripalu had said at an investor call for December-quarter earnings.

Analysts, however, feel liquor companies will be more insulated during elections compared with beer makers. "Election related disruptions can affect the crucial summer season sales in 1QFY20. While United Spirits is also likely to be affected due to elections, the impact should be significantly lower as beer consumption is more skewed towards summers, unlike spirits," Krishnan Sambamoorthy and Vishal Punmiya, analysts at Motilal Oswal wrote in a recent investor note.