Heineken India stops beer supply to key state over pricing

India | In an unprecedented move, Heineken’s Indian unit, United Breweries, suspended the supply of beer to the southern Indian state of Telangana, following the state's refusal to allow for price rises, which the company said had resulted in huge losses and rendered operations in Telangana unviable.

United Breweries, in which Heineken holds a stake in excess of 60 percent, is the country's biggest brewer, and the state of Telangana, with a population of 40 million people, is one of India’s biggest beer consumers. The timing of this move is especially noteworthy as Telangana is bracing for a hot summer season when beer sales peak.

State-controlled beer prices

United Breweries, on 8 January, said in a stock exchange filing that supplies to the state-owned firm Telangana Beverages Corp were stopped, as the firm had not revised the basic price of United Breweries' beer since the financial year 2019-20. This has led to substantial financial losses for United Breweries in the state. Moreover, significant overdue payments for past beer supplies remain unsettled by Telangana Beverages, which holds a monopoly for wholesale and retail sales of alcohol. Reportedly, the Kingfisher brand alone accounts for 60 percent to 70 percent of total beer sales in the state.

Excise is a major contributor to revenue

The Brewers Association of India has urged the Telangana government to address industry-wide concerns, including inflation-driven cost escalations. The association alleges that the state pays 47 percent less for beer supplies than other states. What irks the brewers is that the government has increased beer prices to consumers, but has not increased the base price paid to manufacturers. Still, beer prices are among the lowest in the country and brewers fear this could put them under pressure from other states to slash prices.

“United Breweries’ move will have a negative impact over the near term as the state contributes between 15 percent and 20 percent of volumes for United Breweries and has an earnings contribution of 10 percent to 12 percent,” Karan Taurani, an analyst at Elara Securities India, was quoted as saying.

Unpaid dues: United Breweries is not alone

In July, United Breweries disclosed that the Telangana state agency had run up approximately USD 105 million in dues. It is not alone. Drinks companies Diageo and Pernod Ricard as well as brewer Carlsberg are reportedly owed USD 466 million in unpaid dues from Telangana state.

Telangana’s excise minister has refuted United Breweries’ contention on non-payment of dues, and instead accused United Breweries of monopolistic practices, saying that its demand for a 33 percent hike in beer prices would “impose a burden on the common man”, raising prices from INR 150 to INR 250 (USD 2.90) per bottle. Telangana’s excise department is one of the major sources of government revenue.