United Spirits, the largest liquor company in India, has reported lower-than-expected demand momentum in the current quarter. However, the company anticipates a recovery driven by upcoming festivities and the cricket World Cup.
“We remain cautiously optimistic that demand will pick up, though we don’t see the signs right now,” Hina Nagarajan, managing director at Diageo-controlled USL, told investors on an earnings call. “But we still have a big festival season to go through – Diwali and then Christmas, etc. So, we are cautiously optimistic and we are definitely investing and activating for growth.”
The company will persist in directing its attention towards factors it can influence.
It aims to “have the right investment going on for our brands and we will see what happens in the quarter,” she added.
The Indian spirits market experienced a 10% growth in the first half of the calendar year, standing out as the sole discretionary category to maintain robust momentum, especially when compared to cutbacks in other lifestyle segments like apparel and electronics by consumers. Traditionally, the December quarter marks a peak period for spirits, driven by factors such as weddings, festivals, and the winter season.
The producer of Johnnie Walker and Smirnoff reported that demand was relatively subdued in September due to a delayed festive season, and October did not show significant improvement. The company noted a slowdown in discretionary spending during this period, with the festival-related pickup not matching the buoyancy observed in previous years.
“Durga Puja on the eastern side of the country becomes the lead indicator, because that’s where the festivities begin even before the Diwali celebrations happen in the north,” USL chief financial officer Pradeep Jain said on the earnings call. “Having seen October now, we just haven’t experienced the kind of national pickup that we get typically in every year.”
In the September quarter, United Spirits Limited (USL) recorded a 12.2% increase in sales compared to the previous year, but the growth in the popular or mass-priced segment was limited to just 1%. The company attributed this to increased pressure on lower-priced products due to inflation, while the premium whisky and scotch portfolio continued to show strength. Liquor companies, facing a record surge in prices of raw materials like extra neutral alcohol (ENA), glass, and packaging materials over the past two years, are now experiencing a moderation in these cost increases.
Radico Khaitan, known for brands like Rampur and Magic Moments, mentioned that prices of specific packaging materials have recently shown a decline. However, the company is carefully observing the trends in Extra Neutral Alcohol (ENA) and glass bottles, where volatility continues to be a concern.