“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 continue to focus on what’s within its control.
It aims to “have the right investment going on for our brands and we will see what happens in the quarter,” she added.
The spirits market in India expanded 10% during the first half of the calendar year, the only discretionary category to retain strong growth momentum as consumers cut back on other lifestyle segments such as apparel and electronics. The December quarter is generally a peak period for spirits due to weddings, festivals and winter months.
Last week, the maker of Johnnie Walker and Smirnoff, said September was a fairly soft month in terms of demand due to the delayed festive season but October was not strong either. It said there was a slowdown in discretionary spending in the period, and the festival pickup has not been as buoyant as 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.”
During the September quarter, USL posted 12.2% sales growth from the year earlier but the popular or mass-priced segment expanded just 1%. The company said pressure on the lower-priced product has gone up due to inflation even as the premium whisky and scotch portfolio remained robust. Liquor companies have seen a record surge in prices of raw materials such as extra neutral alcohol (ENA), glass and packaging materials over the past two years, which is now moderating.
Radico Khaitan, which sells Rampur and Magic Moments, said prices of certain packaging materials have softened recently, but it is cautiously monitoring the trends of ENA and glass bottles where volatility persists.