The old regime had pushed customers to Gurugram, where carrots of heavy discounts were dangled. It was precisely to stop this business drain that Delhi brought in competitive pricing in its new excise policy
Competition wars around alcohol are now hotting up. And it’s not the brands that are at it. Its neighbouring governments and the need to garner excise revenues from liquor. For years, Delhiites would drive to the border of Gurugram to pick up brands of their choice. When the L1 shops came in, it was even better. The reason being wholesale rates were introduced; special discounts on bulk buying was offered. It was indeed “happy hours.”
But then Delhi hit back recently with attractive discounts which triggered an “arbit-rate” war.
Industry experts say the latest price war in the National Capital Region (NCR) started after Delhi implemented a new excise policy on 16 November 2021. Liquor retailers in Delhi were, for the first time, allowed to sell bottles at a discount, or with offers. Until then, liquor could only be sold at the price prescribed by the state excise department.
The old regime had pushed customers to Gurugram, where carrots of heavy discounts were dangled. It was precisely to stop this business drain that Delhi brought in competitive pricing in its new excise policy.
The price war started with Gurugram after the Delhi government allowed a discount of up to 25 per cent on liquor bottles. Gurugram used to claim the cheapest liquor in the entire NCR. But it was faced with a new obstacle when Delhi hit back by dropping its liquor rates.
To avoid loss in business, retailers in Gurugram were left with no other option but to counterattack. Liquor vendors in Gurugram were ready to keep profit margins to a minimum to stay in the competition. But when Delhi retailers started offering heavy discounts, the trend reversed.
Delhi sold 24.5 million litres of liquor in February this year — almost double the average monthly sale of 13.2 million litres in 2019-20.
All that changed on 28 February, when the Delhi excise commissioner issued an order discontinuing any discount or rebate on the MRP of liquor, saying such pricing would distort market forces, create a monopoly and promote alcoholism.
But this move sent the customers scurrying back to Gurugram where the offers were much better. In a way, it was back to the old regime.
The Delhi government by then had mopped up at least Rs 9,000 crore from the liquor business. Its knee-jerk reactions annoyed the traders who felt they were being used and then dumped.
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Several retail licensees approached the high court seeking a stay on the 28 February order, but the court dismissed the petitions and declined to stay the government order.
Liquor vends in Gurugram put up hoardings listing the wholesale prices of liquor to attract customers, following which complaints were made to excise officials. The department issued directions to take strict action against those mentioning their shops as “L1 (the term used for a wholesale licence)”.
Nearly 200 hoardings were removed from across Gurugram where retailers were offering alcohol at wholesale rates There are only four wholesalers in east zone and five in west zone.
The Delhi excise department said their decision to stop discounts was taken in view of instances of overcrowding and also because licensees were resorting to “unhealthy market practices” by offering discounts of up to 60 per cent on the MRP.
Some popular brands such as Red Label and Ballantine (whiskey) and Absolute Blue (vodka) sold for Rs 1,150 per 750ml bottle dropped down to Rs 1,000 each. Jacob’s Creek Red & White Wine — sold for Rs 1,000 per 750ml — dropped to Rs 850.
Jameson Irish (Whiskey) was sold for Rs 1,450 per 750ml bottle, below from Rs 1,740 per bottle; Tanqueray (gin) Rs 1,375 per 750ml bottle, instead of Rs 1,575; Bombay Sapphire (Gin) at Rs 1,400 per 750ml bottle, instead of over 1,700; and other whiskey brands such as Chivas Regal (12 years old) Rs 1,900 per 750ml bottle instead of Rs 2,200; Jack Daniel’s Rs 2,000 per 750ml bottle, instead of Rs 2,250; and Monkey Shoulder at Rs 2,600 per 750ml bottle, below Rs 3,000.
Retailers in Gurugram complained that they were not allowed to display discounts to attract customers, despite several requests from excise officials.
Another point to remember is since there is no MRP (maximum retail price) of liquor in Haryana, which entails what can be the highest price charged, shopkeepers can sell it at any price, but not below the minimum price. The flip side of this “arbit-rate” war is if the situation remains unchanged, many may not come back to bid as a result the business could close down faced with abysmally low margins.
It’s liquor, so how can politicians be left out? Sure enough, the Opposition parties — BJP and Congress — are protesting.
However, a new tussle has broken over between the policymaker — the Aam Aadmi Party (AAP) government — and the licence holders. This was after the government placed a ban on discounts and rebates given by liquor shops, finding the decision arbitrary and against the policy. At least 17 alcohol companies have filed a petition against the government over the matter.
Under the new policy’s clause 3.5.1, all the L-72 licensees were permitted to give discounts, rebates and concessions on the MRP of liquor as fixed by the excise commissioner. According to the vendors, they paid excise duty upfront and 10 per cent extra, besides the license fee under the new policy with an eye on better business.
While some retail vendors were allowed to give a one-plus-one (buy one get one free) offer and 40-50 per cent discounts, others were given permission for a two-plus-one (buy two get one free) offer and 40-50 per cent discount, among other concessions on the MRP. The policy also proposed to start beer-vending machines and sale of liquor in tetra packs.
Further, the government made a move to close all government shops and paving a way for private sectors to take over the retailing in Delhi. It also introduced air-conditioned premium vends with a walk-in facility.
It also proposed to slash the age limit for drinking from 25 to 21 to bring it at par with neighbouring states. An official nod is still awaited. The dry days were also reduced to only 3 from 21, like in Punjab and Haryana.
Some of the reversals in policy changes were made in view of the upcoming Municipal Corporation of Delhi (MCD) elections as people complained about crowding and the opening of liquor shops in residential areas. The BJP and Congress have targeted the new liquor policy for their MCD poll campaign.
Coming to numbers, the discounts on liquor prices boosted the business of the liquor industry, and sales went up by almost 200 per cent, as per available figures.
The Centre’s total revenue (tax and non-tax, and after adjusting the state’s share in Central taxes) for the financial year 2020-21 stood at Rs 16,32,094 crore, a marginal 3.09 per cent fall over the non-Covid year 2019-20 when total revenue stood at Rs 16,84,059 crore.
The writing on the wall is no business can survive if there is a mindless cut-throat rate war. Gurugram liquor vends would pay the price in the not so long run if their margins keep dropping. Similarly, Delhi is beset with its own problems of politics, elections and revenue collections. The liquor companies clearly feel they are being used, abused and manipulated as and when it suits the political masters. For a while the consumer is undoubtedly the king but for how long.
This is Part 1 of a two-part series.
The author is CEO of nnis. Views expressed are personal.
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