How Delhi's new excise policy sinks spirits of private liquor retailers

Delhi’s tipplers may be hiccupping away on historic discounts across a range of liquor brands, but private retailers aren’t raising a toast to the state’s new excise policy.

Trade sources confirm that licensees in nine of the 32 zones in the national capital have surrendered their retail licences and thus all these zones are without any liquor vends now. “South Delhi is the worst affected as retail outlets have either not opened or shut down after the new policy,” said a veteran trader, requesting anonymity.

Many licensees found the business unviable because of their inability to open all outlets allowed under the policy (due to political protests over liquor vends in residential areas, for example) and the deep discounting prevailing in the market.

Another liquor trader said, “Discounting continues even after many retailers are losing money because sales provide cash flow for month-end licence fee payments. But the liquor trade is not united as price fixing is arbitrary. Earlier, the average investment needed to operate a store was Rs 8-10 crore in a year but now, each zone needs investment of Rs 50-60 crore. From an average monthly turnover of each store of Rs 5-6 lakh earlier, turnover has declined to Rs 3-4 lakh.”

The first trader quoted above said that 90 per cent of the liquor in the market is now selling at nearly 50 per cent discount, and only those licensees that also have manufacturing and wholesale operations have been able to sustain business despite such steep discounts. These retailers are able to control the backend as well as retail business, reducing costs, and thus are able to offer jaw-dropping discounts.

The new excise policy of the state government had allowed the entry of private liquor retailers for the first time. It had permitted bidders to bag one or more zones and open multiple retail outlets. The state government had been eyeing a massive jump in revenue due to the new policy; retailers were happy to get entire zones with multiple outlets and consumers were expecting significant discounts.

But the first trader pointed out that against more than 600 retail outlets envisaged across 32 zones in the new policy, “not even 300 are operational”.

“Earlier, 80 MCD (Municipal Corporation of Delhi) wards were dry (did not have a single liquor outlet), but now this number has almost doubled to 150 wards. This could lead to the proliferation of hooch, illicit liquor.”

While retailers are upset with the loss of business and the government also appears to be taking a revenue hit, the policy has been a boon for consumers as well as some liquor brands. Consumers are happy with the heavy discounts, while the beer labels are satisfied with demand outpacing supply in recent months.

Shantanu Upadhyay, co-founder of Kati Patang, said that Delhi contributes to 30 per cent of the brand’s national sales. “The demand for beer in Delhi has skyrocketed this summer and we are able to meet only a quarter of that demand. It took us time to start building inventory as we got massively hit by inflationary headwinds. There was lingering uncertainty related to Covid striking back as well. We are ramping up production now.”

Kati Patang, launched in November 2018, claims to be a “highly influential, pan-India” craft beer brand with presence in seven states.

Premium whiskey brands like Black Label, Chivas Regal and Johnnie Walker Gold Label are also in short supply in Delhi. One of the traders quoted earlier said that many of these premium imported brands have not been registered.

Not only is demand for liquor nearly 1.5 times the usual in a month under the new policy, but some other changes are also noteworthy.

Upadhyay said that one of the biggest reliefs for his brand has been the drastic reduction in label registration charges. “Earlier we had to shell out Rs 15 lakh for each label per year, but now it is just Rs 1 lakh. This has made it easier to bring in more labels. And the state government is considering whether to bring down this levy further for beer. This will help premium draft players to come up with more styles.”

Rishabh Ranjan, founder of made-in-India premium craft brand Beor360, said: “The new excise policy is facing teething issues like any other but we find the policy very good since there is now a lot more opportunity to showcase our brand. Earlier, stores were dingy with no proper brand display, but now the stores have a mandated minimum floor area and are women-friendly. This helps with visibility of our brand.”

In any case, beer companies are happy also because the Delhi government appears to be mulling the idea of allowing micro-breweries in the state to sell beer. So far, such micro-breweries only allow consumption on the site.

Meanwhile, traders and liquor companies are pinning their hopes on rebids for those Delhi zones where the licensees have surrendered their licences. One trader said that rebids were possible in July, while another said that no date has been announced yet but rebids should happen since the state government was losing a large chunk of its revenue due to closed retail outlets.

Traders said that the floor price for all 32 zones had been fixed in the first round of bidding at Rs 7,000 crore, but the state government had received bids worth over Rs 9,000 crore. This time, perhaps, those bidders who do not either have backward linkages or strong political connections would be more sensible in their bids. Till rebids happen, however, not all Delhiites may find their favourite brand close by.

STIFF DRINK
 

• Licensees in 9 of the 32 zones have surrendered retail licenses; many found business unviable due to inability to open all outlets allowed under the policy and prevailing deep discounts

• Monthly turnover at stores has fallen from Rs 5-6 lakh to Rs 3-4 lakh, said a liquor trader

• Another trader said 90% of the liquor is selling at 50% discount, and only licensees having manufacturing and wholesale operations can sustain

• Against 600-plus outlets envisaged in the policy, not even 300 operational; dry MCD wards up from 80 to 150, said a trader

• Drastic dip in label registration charges (from Rs 15 lakh per label annually to Rs 1 lakh) a big relief for brands

• Brands also welcome new policy for giving more display and visibility in stores