Business Maverick: Diageo halts some whiskey sales in India to force price hikes

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One of Hina Nagarajan’s first moves at the helm of liquor giant Diageo Plc’s Indian arm is a standoff with government officials over price caps that have already cost the company almost $9-million in sales, and some say might backfire.

United Spirits has halted whiskey sales in a number of states yet to budge on price caps despite rising inflation. The move to stop sales rather than see margins continue to erode is a risky bet, analysts at Mumbai-based Dolat Capital wrote last month, that could complicate the firm’s pivot to premium products. It also means a mounting loss of revenue across its portfolio while costs rise at a double-digit pace.

Diageo’s difficulties are emblematic of a market where a high potential for growth for alcohol makers is complicated by tradition and taboo. Mahatma Gandhi wanted to rid the country of liquor and some states, such as Bihar and Gujarat, do ban alcohol. But a growing class of urbanist India drinkers, seeking out new tastes and craft beverages, are also a lucrative opportunity.

Investors have so far backed those plans, with United Spirits up more than 20% since Nagarajan’s appointment in July 2021, compared with the 12% gain of India’s benchmark S&P BSE Sensex. Coming out of disruption caused by the Covid-19 pandemic, the company reported its net income rose threefold on an annual basis in the last quarter, beating analyst estimates, even as costs jumped 12%.

 

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