"Vocal for Local" was a resounding mantra in our Prime Minister's speech, where he focussed on ways to make India self-reliant. The message has been used and twisted abundantly since then, being interpreted for everything from healthy support of local artists and products to a potentially unhealthy boycott of everything non-Indian.
In today's piece, we look at the impact of this on India's military canteen, and how it impacts the firms, our soldiers and veterans, and the competitive environment in the country.
Liquor dries up
Pernod Ricard and Diageo are two of the largest liquor manufacturers in India are now facing a problem. India's military canteens where these liquors are available at subsidized rates for our soldiers and veterans have now stopped ordering.
The defense canteens are a small but important channel for liquor sales, contributing around 5000 cases for Pernod. The impact the firms may feel however could be lower, as loyalists of these brands continue the purchase of the same, but from external liquor stores. For a brand that dominates the semi-premium whiskey segment with market share north of 40%, this scenario of the customer simply preferring another channel is highly likely - which would mean that while there will be a slight hit the firm has to take, the larger hit will be to the customers in the canteens.
The deep discount
Items sold in the canteens are generally quite subsidized to keep them affordable to the people who have served our country. The discount extends to segments of liquor as well, where the discount for whiskey ranges in the 30-40% range depending on the brand being consumed.
For a generally high-value product, costing upward of 5000 in the open market, that difference adds up to a lot, especially for retired servicemen.
Does the move make sense?
We, as a country love big symbolic gestures - a trait probably embedded by the larger than life Bollywood. Politicians and bureaucrats use this well, pandering to people to control the narrative and environment. It is important for us however to sit back and understand the true impact of the move, and the folks who actually bear the brunt.
The case described fits just that bucket. At US$17 mil of foreign liquor sale of the US$450 million sold in the stores, the incremental benefit to Indian liquor players is negligible. The habit that these products generate would mean loyalists will still prefer the same brand, keeping the negative impact on the international players low. The only one losing out would be our servicemen who now have to pay ~30% more for their purchases.