Diageo, the UK based alcohol industry giant, is expanding to craft gin and premium alcohol products in India to increase their profits.
The pandemic changed how Indian people are using alcohol. More people started home consumption and spending extra on premium products. With restaurants and bars closed during lockdowns people were restricted to staying at home. And they also could afford to spend more on commodities. The alcohol industry honed in on this development to increase its sales and profits.
As Movendi International previously reported, the alcohol industry exploited the COVID-19 pandemic to maximize profits. A report by the NCD Alliance and the SPECTRUM Research Consortium exposed four strategies used by Big Alcohol during the COVID-19 pandemic:
- Pandemic-tailored marketing campaigns and stunts,
- Corporate social responsibility programmes,
- Fostering partnerships with governments, international agencies and NGOs, and
- Shaping policy environments.
Already by 2021, the Indian alcohol industry has recovered from any effects of the pandemic.
- Moët Hennessy India reports their revenue per unit grew by nearly 33% in 2021 in comparison to 2019, and our operating profit margin surpassed the pre-pandemic level.
- Amrut Distillery reports sales increased by 20% in the two years of the pandemic.
Abhishek Shahabadi, VP and portfolio head, scotch & premium whites, Diageo India says that as the first wave of COVID-19 passed business saw a rapid recovery. This was driven by premiumization. The business has bounced back even better after the second and third waves.
Indicating Diageo’s intent on cashing in on the emerging Indian craft gin industry, the liquor giant recently bought a minority stake in Nao Spirits an Indian craft gin maker. Diageo-controlled United Spirits Ltd (USL) will acquire a 22.5% stake in Nao Spirits for Rs. 315 million (approx USD 4.1 million). Nao Spirits is one of the best performing businesses in the Indian craft gin market that is rapidly growing.
According to a joint statement by the companies, Diageo will also have a call option to acquire the remaining shares on “pre-agreed principles” in Nao Spirits & Beverages Private Ltd. Nao Spirits was launched in 2016 and is an emerging craft gin brand in India.
Diageo strategizing to dominate Indian market
Movendi International previously reported how Diageo plans to dominate the Indian market. The main aspects of Diageo’s strategy to intervene in public health policy and eliminate threats to sales and profits are:
- Engaging in road safety programs;
- Advocating for the weakening of local alcohol policies under the guise of increasing Indian States’ ease of doing business rankings; and
- Intervening and influencing tax policies.
Alcohol policies in India are mostly state governed. There are heavy taxes and restrictions on sales implemented by local governments. This is bad news for Diageo. That is why the liquor giant has been chipping away at Indian alcohol policy and interfering in policymaking in the country.
Diageo India requires about 200,000 permits and approvals each year to do business across India. Diageo’s aim is to weaken alcohol policy in India so they can sell more alcohol much more easily and thus drive higher profits.
In 2015, Diageo set up a 12-person team to improve the alcohol industry’s reputation and influence public health policy in India.
It’s also working with the International Spirits and Wines Association of India (ISWAI), an alcohol industry lobby front group, to forestall public health regulations that can damage their product sales and profit.
In 2017 India’s Supreme Court took evidence-based action to stop alcohol-related road traffic accidents in the country by banning alcohol at shops, bars, restaurants, and hotels within 500 meters (547 yards) of national and state highways. This led to a profit collapse of almost half for Diageo in that fiscal year – indicating how dependent the liquor giant is on unethical practices to sell alcohol
Since then Diageo has employed a tactic to interfere with road traffic policies by funding programs endorsed by the transport ministry that it says are designed to improve road safety and encourage “responsible” alcohol use. The ministry even allowed Diageo to run programs for university students newly applying for a license.
But research shows that alcohol industry CSR projects – such as the above programs on road safety run by Diageo – are unlikely to reduce and prevent alcohol harms, instead they do provide commercial strategic advantage while at the same time appearing to have a public health purpose.
Diageo is a repeat offender in trying to align with road safety. In a highly unethical campaign in 2019, the liquor giant teamed up with Formula 1 to collect DUI pledges.
Apart from running questionable road safety programs, ISWAI – the lobby group Diageo is funding – has been running programs to “co-create” “mutually beneficial” tax policy for imported brands with excise officials. In 2018 this led to a 30% price cut for Johnnie Walker Black Label in Karnataka.
Meanwhile, the Indian government and people are paying the high price of Diageo’s actions and the rising costs of alcohol harm to society. A study published in the International Journal of Drug Policy showed that current levels of alcohol taxation in India are by far too low to help cover the costs of alcohol harm.
The study found that after adjusting for tax receipts from the alcohol sale, the economic loss from adverse effects of alcohol consumption is about 1.45% of the gross domestic product (GDP). For comparison, the government’s annual expenditure on health is only about 1.1% of the GDP.
Sources
Business Standard: “Diageo India to buy minority stake in gin-maker Nao Spirits for Rs 31.5 cr“
Financial Express: “Liquor industry raises a toast to living it up“
