Hotels join margin-cut stir

MUMBAI: The agitation in the state against the sale of United Spirits��� (USL) two flagship brands, Bagpiper Whisky and McDowell���s No 1, intensified on Monday with the Indian Hotels & Restaurants Association (AHAR) also joining in. Ten days ago, USL, the manufacturer of these two brands, had slashed margins at the distributors��� level which resulted in margins for retailers also dropping. At that point, the Maharashtra Wine Merchants��� Association took the decision not to sell the two brands. Now, bars and restaurants too are facing a situation of lower margins which has led them to join the agitation.

The margin for the distributor is now down to 5.5% from 7%, while the retailers��� margin stands at 2% from what was earlier 4%. AHAR represents over 7,000 restaurants in the state. These establishments account for over a third of the total sale of spirits in the state. In all, there are over 1,600 retail outlets apart from 2,500 permit rooms in Maharashtra. Chandrahas K Shetty, advisor and the former president of AHAR, confirmed that all its members have agreed to boycott the two USL brands.

For USL, 8% of its business comes from the state. All the company���s brands together account for as much as for 80% of the over 10 million cases of branded spirit that Maharashtra consumes. Vijay Rekhi, president, USL said: ���There is no problem now. I believe the distributors have already resolved the matter by agreeing to pay a 3% margin to retailers.��� Distributors from the state that ET spoke to, however, said it would be difficult for them to offer a 3% margin to retailers unless their own margin of 7% is brought back. The two brands ��� Bagpiper and McDowell���s ��� together sell over 2.5 million cases (each case contains 12 bottles) a year in the state.

AHAR���s president, Narayan Alva, said: ���There will be a meeting between company officials, distributors and representatives from both retailers and restaurateurs. The agitation will continue if no settlement is reached.��� The cascading effect of USL���s decision to slash margins became more pronounced when the distributors also reduced the credit period for the retailers from 25 days to a maximum of seven days.

USL, the largest player in the spirits business, accounts for over half of the 200-million cases that India consumes annually. Its closest rival Pernod Ricard, which has brands like Royal Stag, 100 Pipers and Royal Salute, sells about 14 million cases. The UB Group���s numero uno position in the Indian spirit industry took place six years ago, after it bought over its nearest rival Shaw Wallace.

Over time, the UB Group���s monopoly position has seen the trade facing some pressure with talk of discontent brewing for a while.