The deadlock between the Vijay Mallya-owned United Spirits Ltd (USL) and the Indian Hotel and Restaurants Association (Ahar) and Maharashtra Wine Merchants Association (MWMA) continued for the third day today, taking a toll on the sales of USL’s two flagship brands, Bagpiper and McDowell.
While the company did not comment on the hit the brands have taken, a leading distributor who did not wish to be named said the two brands had witnessed an over 60 per cent drop in sales since August 1, the date from which Ahar and MWMA members have refused to stock these. The two brands have also been boycotted throughout Maharashtra from August 17.
The strike began on account of the retailers’ margins being squeezed. The associations, among other things, are demanding that the company waive delivery charges, which runs up between Rs 8-14 per case, and also not being accountable for breakages of bottles during transit. They are also demanding uniformity in promotional schemes to all wine shops and hotels across the state. Currently, the company is incentivising only distributors and large wine shops and those who manage more than two shops and neglecting small shops, according to Narayan Alva of Ahar.
Ahar and MWMA members had a meeting with company officials in Mumbai on Tuesday, but could not reach any solution. “We had conducted a meeting with the USL officials yesterday but nothing came out of it. They are predicting an early end to the strike, but we are ready to carry on as long as we have to. Even those few restaurant operators who are trying to sell the two brands despite the strike will be forced to stop,” Alva said.
“The margins at the retailers’ end were restored by the distributors last week. However, the retailers have now put forward a fresh list of demands with 15 points, one of the points being to increase the number of distributors in the city so as to end the distributors’ monopoly,” market sources said.
Other brands that have benefitted from the strike include Royal Stag, Seagram’s Imperial Blue and Allied Blenders and Distillers’ Officers Choice. However, Deepak Roy, executive vice chairman and chief executive officer, Allied Blenders and Distributors, said he has not seen any tangible benefit. “The bootleggers’ network is strong. Besides, retailers may have taken the brands (Bagpiper and McDowell) off display but are still selling the brands to consumers,” he added.
A source within USL, who did not wish to be named, claimed the impact was not severe. “Only 3-4 per cent of a total of 1,600 retailers in the state have held up sales of these two brands. The company has already made available stocks to all the retailers for the month of August in Maharashtra and not a single customer has been denied a bottle of either of these two brands anywhere in the state,” he added.
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A USL spokesperson maintained that the company deals only with distributors and does not deal directly with retailers, and the whole issue is between distributor and retailers. “The distributor’s margin has always remained at 7 per cent. Our understanding of the terms of business between the distributors and the retailers is that the retailer’s margin stands at 12 per cent. Additionally, retailers get 3 per cent cash discount for payment after 15-21 days and schemes between 2-4 per cent. Therefore, retailers have a gross margin of 19-20 per cent. Over and above this, retailers also get window /signboard rentals. In our view, this ensures a very healthy return on capital employed (ROCE),” the spokesperson added.
However, Alva said the company should ensure the distributors promptly pass on the benefits and incentives to the retailers. “The company is showing an indifferent attitude towards the hotels, restaurants and wine shops in Maharashtra. The company is not passing on the full benefit of its promotional schemes to all the hotel owners and it is forcing the shop owners to bear the cost of breakage of bottles, which is hitting our margins,” he said.
He said usually six-seven bottles get damaged in a box while transporting from godown to shops and hotels. The company is asking all shops to bear the cost of this damage. “We are asking the company to bear these costs, as they are already doing it in Mumbai city. The problem is with the wine shops in smaller cities in Maharashtra,” he said.