Small liquor firms decry Delhi's new point-based procurement system as favouring bigger brands

The Delhi excise department plans to prioritise popular brands from large manufacturers, potentially leaving smaller companies at a disadvantage.
The Delhi excise department plans to prioritise popular brands from large manufacturers, potentially leaving smaller companies at a disadvantage.

Summary

Delhi's excise department plans to change its liquor policy with a new ordering system that could place smaller companies at a disadvantage. The objective is to address consumer choice and curb brand pushing in the alcohol market.

Small and medium alcohol companies have objected strongly to a plan being considered by the Delhi government to order liquor using a new sales-based points system that they said would favour their bigger rivals.

According to the proposal, liquor orders will be based on a company's sales figures that will first be normalised as a percentage of the total in each region and then weighted accordingly. Only brands registered with the Delhi excise department will be included in the calculation.

The objective is to give consumers in the national capital a better choice when it comes to buying liquor, according to the proposal, which Mint reviewed. The Delhi excise department said it had received complaints that a “comprehensive selection" of liquor brands is not being offered in the lower-price segment and that certain brands were being pushed.

Small and medium liquor companies said it would be a body blow for them if the policy is implemented by the proposed date of 22 January. The new point system could also lead to brands being suppressed and add to the market inequality.

"Alcohol is a state subject and this circular appears to be based on some vested interests moving it, rather than based on on-ground sales," said Jagatjit Industries promoter and chief restructuring officer Roshini Sanah Jaiswal. “The consumer in Delhi is free to choose. If a system like this prioritises larger brands, how will new brands and domestic brands that sometimes can have a hyper-local strategy ever exist?"

 

"This will only make certain brands available in large numbers and negate consumer choice by restricting the sales of the brands which are doing well in Delhi simply because the consumers prefer them," said Poonam Chandel, managing director of TRDP group-owned NeuWorld Spirits Pvt. Ltd said. “This is clearly an unfair trade practice where preferential treatment is being given to certain companies and brands for reasons only known to the departments."

Undermining choice

Liquor companies with sales in the country outside the National Capital Region (NCR) will get the highest weightage (0.50) in the so-called order index, which will determine the quantity of brand to be purchased by each of the four Delhi government corporations that distribute alcohol in the city.

The next highest weightage (0.45) is for companies that sell in the NCR, which includes Delhi and specified districts of neighbouring states. The smallest weightage (0.05) is for sales in defence canteens and stores.

The Delhi Distillers and Brewers Association has written a letter, which Mint has seen, opposing the proposed fixed ordering system, saying the policy will undermine consumer choice and harm the local industry.

It claimed the new system uses arbitrary national sales patterns, lacks scientific analysis and favours large multinational corporations, which will lead to a market duopoly and threaten competition.

The companies said implementing the new quota system in the middle of the excise year could reduce revenue, harm local brands, and hurt government initiatives to promote startups. The association advocated maintaining the current system, which had driven a 13% increase in excise revenue, and suggested tackling issues like brand pushing through improved oversight and more consumer-friendly retail options.

"The new SOP favours national or large multinational companies, restricting growth opportunities for regional players. The rationale behind the 45%, 50% and 5% defies all logic," said Alcobrew's founder Romesh Pandita.

Mint reached out to the four corporations, the excise department, and the Delhi chief minister's office via email seeking comment on the new plan but did not receive any response till the time of publishing.

Representatives of the Confederation of Indian Alcoholic Beverage Companies were not available for comment.

“The excise department is posting stronger revenues in the last year, so introducing another system like this doesn't make much sense in the middle of the excise year," said Siddharth Banerji, managing director of Kyndal Spirits, the seller of Cutty Sark. "If the bodies are seeing that ‘brand pushing’ is happening, then there should be some proven prosecutions of the same."

Sanjit Padhi, CEO of the International Spirits & Wines Association of India, which represents Pernod Ricard India and Diageo, said the system in place has resulted in many popular national brands not being available, thereby forcing consumers to pick them up from neighbouring cities. This is a loss in revenue to the state of Delhi and can be addressed through a fair and transparent ordering policy.

 

On January 10, the four government corporations that distribute alcohol in Delhi revealed the plan to introduce the new fixed ordering system even as the model code of conduct was in force ahead of the 5 February Delhi assembly election. Among other things, the code prohibits policy, project or scheme announcements that could influence voters.

The circular, issued to bulk alcohol suppliers and associations, highlighted that Delhi does not offer a "comprehensive selection of liquor" in the lower-end price segment. The circular also stated that the new policy aims to curb instances of certain lesser or unknown brands being “pushed in Delhi contrary to customer choice."

It claimed to have studied the ordering patterns of liquor corporations for the three years from 2017 to 2019 and the top-selling brands of neighbouring states to establish that specific brands produced in Punjab were disproportionately promoted. This, the government argued, is a result of “alleged malpractices," which have led to what it calls a “perverse incentive" for certain corporations to push certain products over others.

The Aam Aadmi Party led by Arvind Kejriwal is in power in Delhi and Punjab. The party is seeking a fourth consecutive term in Delhi.

Big brands to benefit

For big brands, especially those with strong national sales, the weighting system means they will likely have a significant advantage. The situation is more challenging for smaller players, which would need to perform exceptionally well in specific regions to offset their limited reach and boost their order index.

“This is a step in the right direction, if and when implemented, as it will correct the distortion in the Delhi liquor market," said Vinod Giri, director-general of the Brewers Association of India. Giri said that this will help increase the availability of larger brands, which have been quite absent from the city's market for the past two-odd years.

However, the new proposal, coming as it does in the middle of an election, could turn out to be as controversial as the New Delhi Excise Policy 2021-22, which was introduced in November 2021 with the intention of revamping retail liquor sales in the capital. The policy was scrapped in August 2022, after allegations of procedural lapses, corruption and financial losses and all private liquor vends in the capital were shut down.

Delhi is a state-controlled alcohol market and liquor sales in the city are handled exclusively by four government-run entities – Delhi State Industrial and Infrastructure Development Corporation (DSIIDC), Delhi Tourism and Transportation Development Corporation (DTTDC), Delhi State Civil Supplies Corporation (DSCSC) and Delhi Consumer's Cooperative Wholesale Store (DCCWS).

According to media reports, the Delhi excise department collected revenue of about ₹7,484 crore in FY24 including VAT, from liquor. It made ₹6,830 crore in the year prior.

Allied Blenders and Distillers Ltd representatives said Delhi should revert to a hybrid system of private and government retailing, with a transparent, forward-looking policy.

"Delhi is our capital, and we should have the best brands available to consumers - in the finest retail environment since the city deserves to be a showcase market," they said.

In the eight-page circular, the corporations said they are also contemplating allowing app-based ordering for buyers who can order liquor from corporation websites to be collected from stores. Liquor orders will be placed in a "fair" manner so that all brands are given fair consideration.

With this new docket, the excise department said it wanted to ensure that market offerings at its corporation stores would be based on genuine consumer demand, not artificial manipulation.

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

topics

MINT SPECIALS