When 'special' may cost less

Several high-end IMFL brands have migrated to lower segments

Liquor manufacturers in the country are understood to become increasingly jittery over doing business in Andhra Pradesh.

The reason for the unease is apparently the state government's insistence on lowering the price bars for leading well known IMFL (Indian made foreign liquor) brands of alcohol.

Though the manufacturers and the state government have equally benefited on account of promoting low price liquor categories in the state for the last several years, the growing input costs have also made the price issue a major bone of contention between the two now.

In Andhra Pradesh, the government policy ensures that all liquor sold by companies is first sold to the government and then the government in turn sells it to retailers.

Going against the declared policy of keeping liquor away from the poor and low income groups under its 'partial prohibition' policy, the government has actually promoted the cheaper categories which has led to higher volumes of consumption.

Government sources point out that this was done to check the menace of illicitly distilled liquor and other cheaper versions illegally entering the state borders.

This has ensured that several upper segment brands have migrated to lower levels as the business trend was more favourable towards cheaper brands. The government had added 'O' category in 2001 to the existing 'A', 'B', 'C' and 'D' segments with a view to expand the scope of lower segments even further.

Now 'O' and 'A' (a finer version of cheap liquor) categories comprise almost 80 per cent of the total volume of liquor consumed in the state. The total sales value of liquor including beer has increased from Rs 1,303.75 crore in 1997-98 to Rs 3,842.93 crore during 2003-04 mainly on account of these cheaper categories.

'A' category ranges from Rs 276 to Rs 400 per case while 'B' category ranges from Rs 401 to Rs 600, 'C' category (popularly known as regular) ranges from Rs 600 to Rs 900. Those labels having the purchase price above Rs 900 comes under 'D' category (premium).

Purchase prices are nothing but the procurement prices of Andhra Pradesh Beverages Corporation (APBCL). The issue price of these labels would double with the combination of excise duties and sales taxes coming in to play.

So the next time if you suddenly find a regular liquor brand with a prefix 'Special' or some thing similar, do not mistake it with any premium version. It is actually other way round. Many 'B' and 'C' category brands have migrated to 'A' category sporting some kind of prefixes or other indications.

The growing sales of IMFL in the state can be primarily attributed to the cheaper versions and also constant price reduction by the manufacturers within the segments. In the process, government sources point out that the quality of the product may be greatly compromised.

At the same time reducing the price of a regular brand may result in decrease in sales tax revenues on that particular segment, but the end result is quite different. Unlike other states, the Andhra Pradesh government heavily depends on excise revenue for its budgetary requirements.

After the introduction of 'O' category, the sale of 'A', 'B' and 'C' categories dwindled. 'B' category had almost wiped out from the business as it was treated on par with 'C' category as far as excise duty is concerned. That has triggered a major migration from 'B' category to 'A' category. Other compulsions also drove these categories in the same direction.

Sales under 'A' category, the hitherto top most segment in terms of volume has been reduced by half after the introduction of 'O' category. According to latest figures, over 1.17 crore cases of 'O' category liquor was sold in 2003-04 as compared to the sale of 77.87 lakh cases in A category. About 2.28 crore cases under all the categories were sold during 2003-04.

On the other hand, revenues from 'C' category sales has come down to Rs 107 crore in 2003-04 as compared to Rs 231.69 crore in 1998-99 resulting in a loss of 124 crore for the last fiscal. In quantity terms 'C' category sales came down from 34.03 lakh cases in 1999-2000 to 27.82 lakh cases during 2002-03.

At the same time, government revenues from 'A' category sales have grown manifold levels from a mere Rs 74 crore in 1998-99 to Rs 394 crore in 2003-04.

Accordingly the 'O' category sales have grown to Rs 371 crore in 2003-04 when compared to Rs 201.9 crore in 2001-02. The state government has received Rs 1,907 crore through the excise revenues for 2003-04.

The manufacturers of higher category brands are sore at the government policy for other valid reason. Higher labels provide higher margins while the income from lower labels mainly depend on the volume of business.

They accuse the government, especially APBCL which controls the wholesale liquor trade in the state of forcing them to reduce the prices not keeping in mind the damage that happens to the brand as well as the quality of a particular brand. But government officials deny any pressure on the manufacturers on that count.

According to them, the manufacturers themselves have been migrating from higher categories to lower categories besides reducing the price within the segment for the sole reason of enhancing their business turnover.

"Some of them have begun reducing the prices very frequently to beat the rivals. To contain this phenomenon we have even introduced a new clause allowing them to reduce the price only once in a quarter," a senior official commented.

The prices within each category has become an issue this year when the manufacturers of cheaper brands have discontinued their relatively cheaper labels by not registering them with the APBCL.

For example, in 'O' category (popularly known as cheap liquor that has the upper limit of Rs 275 per case), manufacturers have retained only 22 labels, whose prices have touched almost the upper limit of the APBCL's purchase price of that category.

They have discontinued almost 100 labels, the prices of which were relatively lower, saying that they can no more supply these labels with existing prices as the cost of extra neutral alcohol (ENA) and the cost of bottles have gone up.

Excise commissioner A Apparao has asked the manufacturers to continue those cheaper labels. His contention is that absence of cheaper labels will make way for the illicit distilled liquor called arrack which can cause serious problems.