And another state goes dry
Evil to him who evil thinks. Only three years ago Bihar’s government lured Carlsberg into the state and made it invest about USD 25 million in setting up a brewery. Then in 2015 the government introduced prohibition, which had been part of an election promise. What do you make of that?
The decision, which will lead to a drop in the state’s revenue collection, may also lead to job losses as companies are left with little choice but to pull out.
Indian media quoted Carlsberg’s India chief Michael Jensen as saying: “It was a sizeable market and investment but they decided to do prohibition in 12 hours.” As the company has no backup plan to cope with such a situation it will likely dismantle the plant in the state if the ban stays in place.
Alcohol producers have appealed against the decision in Bihar’s High Court, claiming compensation for plant and inventories.
Carlsberg’s concern is shared by peers such as Diageo, United Breweries (Heineken) and Molson Coors that have been running more than 70 distilleries and breweries in India’s third-largest state by population. The units sold little in the state itself but served as manufacturing hubs for neighbouring markets. Brewers in particular had been keen on investing in Bihar due to the availability of raw materials.
Late last year, the state government decided to prohibit country liquor and slash the number of shops selling alcohol to fewer than 700 from 4,000. All liquor sales have been banned since March 2016 amid concerns about illegal alcohol. In August more than a dozen people died in Bihar’s Gopalganj district, allegedly after drinking illicit liquor that may have contained toxic additives, it was reported.
The state is (or was) predominately an Indian whisky market and accounted for less than 2 percent of the total liquor market in India.
India’s alcoholic beverages industry is heavily regulated, with excise and other taxes forming an important source of revenue for state governments. In the handful of states that collectively account for 70 percent of the industry’s revenue, the governments control manufacturing, distribution, retailing and pricing. This makes it difficult for most companies to raise volumes and increase profits. After years of annual double digit rises, India’s increases in beer production have slowed to growth in the mid-single digits for the past few years, reaching 20.5 million hl in 2015, according to the Barth Report.
For instance, a 650 ml bottle of Carlsberg costs USD 0.90 in the western coastal state of Goa but in West Bengal, it sells for USD 1.95 and in Maharashtra, Goa’s bigger neighbour, its retails at USD 2.40.
In India, Carlsberg has been focusing on selling brands like such as Tuborg Strong and Carlsberg Elephant because strong beer accounts for 80 percent of country’s overall sales.
With seven breweries, Carlsberg is the number three brewer with an estimated market share of 15 percent, behind market leader United Breweries (Heineken) which has a 51 percent share and SABMiller with 23 percent share.
