Impact of Supreme Court Ban

Impact of Supreme Court Ban

Vijay Chawla, Senior Correspondent, Alco-Bev Industry

The Supreme Court’s purported cure for drunken driving along highways is proving to be a bitter pill for India’s liquor and hospitality industries. The worst affected are the microbreweries, bars and hotels, which are located within 500 metres of national highways. About half the establishments of the country’s fledgling microbrewery industry have been rendered defunct by the ban, and about 27% of premium hotels in 12 Indian cities are going to lose 30% of their revenue.

Indicators are that the industry’s hopes of recovering from the adversity of prohibition in Bihar and demonetization have been dashed by the ban.

Let’s look at some very important official statistics. In 2015, accidents caused 5,01,423 deaths in India. Of these deaths, 16,298 or 3.3% happened due to drunken driving.

Another set of statistics tells us that the ban on liquor sale/consumption within 500 metres of Indian highways from April 1st following a Supreme Court order will deprive the Indian economy of a revenue equivalent to ₹75,000 crore. Plus, about one million jobs associated with highway liquor sale/consumption will simply vanish into thin air.

Needless to say, the above two sets of statistics are linked because the Supreme Court passed the liquor ban order apparently to free India’s 250,000 km of national/state highways of deaths caused by drunken driving.

The order was the culmination of a campaign against liquor vends on highways and drunken driving, led by Harman Sidhu. Paralysed from neck down because of an accident in 1996, Harman runs ArriveSAFE, an NGO, to educate people about the importance of human life and road safety.

No doubt Harman’s is a noble aim, but then it’s natural to compare the cause-effect related to drinking with the cause-effect connected with some other malady afflicting our society. For example, senior Supreme Court advocate Arvind P Datar has aptly asked in a recent article, “If a toll of 16,298 deaths can justify a substantial ban on sale of alcohol, can 10,00,000 deaths due to tobacco consumption justify a total ban by the Supreme Court on sale of all tobacco products?”

Time will tell how the Supreme Court responds to this argument if put forward before it while challenging its liquor ban order. However, for the Indian liquor industry, the ban would not have come at a worse time. In the first nine months of the last financial year which ended on March 31st, liquor sales growth at a mere 0.4% was the lowest in India since 2011.

The industry, which had recorded an impressive 12% CAGR in the decade 2001-11, was struggling all of 2016 to maintain its volumes in the face of adverse developments like prohibition in Bihar, rising input prices and cash crunch heaped on the consumer by demonetization.

Shockingly, the country’s top three distillers – United Spirits, Pernod Ricard and Allied Blenders – reported zero growth by volume in the April-December period. Together the trio accounts for 60% of total liquor sales in India. Now, in view of the Supreme Court ban, there are slim chances of the industry regaining its volumes because one-third of the 65,000 licensed branded liquor outlets need to be relocated or shut. This apprehension got further strengthened when stocks of United Spirits, United Breweries and Radico Khaitan fell following the Supreme Court’s reaffirmation of its liquor ban order on March 31st. Brokerages have also downgraded the ratings of some liquor companies.

Apart from the liquor industry, the hospitality sector also finds itself in troubled waters because of the liquor ban. The Federation of Hotel and Restaurant Associations of India (FHRAI) has warned of a decline in foreign tourist arrivals because a substantial room inventory of FHRAI member-hotels is located on national/state highways, where foreigners may not like to stay due to the non-availability of liquor. The FHRAI member hotels currently contribute 6.3% to India’s GDP, which is likely to decline with reduced tourist arrivals.

The ban outcome for hotels has also a spill-over effect for the wine industry. According to the wine industry observers, wine sales mostly happen at the star hotels, and if they come under the ban purview, then wine is also a loser. The All India Wine Producers’ Association (AIWPA) pegs the overall decline in wine sales at ₹120 crore.

The nascent microbrewery business, which has been growing impressively in metros and IT hubs like Gurgaon and Bangalore, has also taken a beating from the ban. Almost half of the country’s 100 microbreweries are facing closure, rendering scores of people jobless and wasting an investment worth over ₹200 crores.

Actually the ban is a big setback for the evolving wine-and-dine culture among sensible drinkers who join their friends and families for many memorable get-togethers over fine drinks and food in pubs, restaurants or hotels.

If the hospitality sector and drinks lovers are the losers from the ban, then the state governments are not the gainers either. They too have their tale of woes. Liquor revenue is a huge source of income for the state governments and their local bodies. They just can’t generate it from any other source. So, the local bodies are requesting the state governments and the state governments are urging the central government to allow them to turn certain portions of highways, whether state or national, into urban roads so as to take them out of the ban purview. Many states have already denotified some of these portions which fall under their jurisdiction. For others, they are awaiting the centre’s nod.

Though the representatives of the liquor and hospitality industries are putting their case before the concerned state and central authorities for redress, no solution seems to be emerging any time soon. Maybe, the industry has lost the case, as the Union Highways Ministry has reportedly issued advisory to all states to chalk out plans to implement the Supreme Court order within one month.

Those well-versed with the drinking behaviour of the masses don’t think that the desired outcome would result from the liquor ban. They root for massive awareness campaigns to inculcate the habit of socially responsible drinking among the masses and stiff penalties for those driving under the influence of liquor. So, the solution lies in the cocktail of education and deterrence, not in the liquor ban, which comes at a huge cost for the economy and also deprives sensible drinkers of some excellent occasions where they get opportunity to bond with their friends or loved ones.

LARGE FOOTPRINT OF THE BAN IMPACT

  • One-third of 65,000 licensed branded liquor outlets to be relocated or shut.
  • 16,000 establishments face closure in Maharashtra.
  • 85% of bars in Goa and Pune lose business.
  • 2500 liquor shops in Goa lose licence.
  • Over 60% of government liquor outlets face closure in Tamil Nadu.
  • Over 200 bars/pubs shut in Delhi–NCR.
  • Wine industry to lose sales worth ₹120 crore.

CRISIL: BAN TO IMPACT 27% PREMIUM HOTELS

  • A study of premium hotels in top 12 Indian cities by the domestic ratings agency Crisil has predicted that 27% of these hotels will be affected by the Supreme Court ban on highway liquor sale. The direct impact will be the loss of 30% of F&B revenue which these hotels generate from liquor sales.
  • The Crisil study analyzed the ban impact on 384 premium hotels across 12 cities. Of these hotels, 102 will be affected by the ban, according to the study.
  • Among the most affected hotels are those in Pune, Kolkata and Agra. However, those in the financial capital Bombay and Goa will be less affected.
  • The study also points to the impact on revenues from other segments like the ‘meetings, incentives, conferences, exhibitions’ (MICE) events and weddings.


HOSPITALITY REVENUES LIKELY TO TAKE A HIT

Souvagya Mohapatra

Executive Director,
MAYFAIR Hotels and Resorts

Drunken driving is not the only cause of accidents on highways, “so it is difficult to say whether the assumed reduction in highway accidents after the implementation of the Supreme Court ban on highway liquor sale would materialize. But yes, the ban will definitely reduce the availability of liquor and make its instant access limited,” says Souvagya Mohapatra, Executive Director, MAYFAIR Hotels and Resorts.

How adverse would be the impact on tourism of the Supreme Court ban? Souvagya doesn’t visualize a significant impact because “the availability of liquor is not a major driver of the tourist’s travel decision.”

Regarding the ban impact on the hospitality sector, he says, “Although it is difficult to predict the actual ban effect at the moment, the hotels and restaurants situated within 500 metres of highways will have lesser footfalls due to the absence of liquor service. Therefore, revenues of hotels and restaurants are likely to take a hit due to the ban.”

What is the situation regarding highway liquor sale in the developed world?

Souvagya responds, “Different measures are taken in USA and other developed countries to limit the negative impact of liquor consumption along highways. For example, liquor shops operating along highways are taxed high. They have limited operation hours and have to adhere to a stipulated volume of liquor sale. There are also restrictions on the number of liquor shops over a particular distance.”

When asked about the measures as an alternative to the Supreme Court ban to check drunken driving,

Souvagya suggests, “Emphasis could be on strict enforcement of the present laws governing liquor purchase and use. Sales stipulations could be also imposed on the liquor shops along highways and they should be taxed more to dissuade over-consumption.”

As another effective measure, he suggests mandatory installation of CCTVs in highway liquor outlets “so that drunk drivers could be identified and their activities tracked.”


DRUNKEN DRIVING CAN HAPPEN DESPITE SC BAN

Vikram Rana

Founder and MD, Vapour Group of Microbreweries

Vikram Rana thinks that bringing the hospitality sector under the purview of the Supreme Court (SC) ban on highway liquor sale is not a reasonable step. For, “Drunken driving is not the problem associated with our clientele which mostly consists of corporate people and educated professionals,” says Vikram.

The Vapour group has five microbreweries – four in Gurgaon and one in Bangalore. The guests coming to these microbreweries, says Vikram, “make sure that they do not drive home in a drunken state. Either they go by taxi or their car is driven by one of their friends who has not savoured drinks that evening.”

Doubting the effectiveness of the SC ban in checking drunken driving, Vikram says, “Truck drivers can satisfy their temptation for drinking by buying liquor from the vends which are not touched by the Supreme Court ban and then drive on highways in a drunken state.”

Two Vapour microbreweries in Gurgaon (located at Sohna Road and Sector 29) face closure because of the SC ban. “We are going to suffer over 50% revenue loss and 200 of our employees are going to lose jobs due to the closure of these microbreweries. There is no business in the attached restaurants in the absence of craft beer service”.

When asked about the government response to their business shock, Vikram responds, “The Haryana government is trying to help us, but nothing concrete has emerged so far. In view of the huge revenue and job losses, the Central government should become proactive to find ways to address our genuine business concerns.”

In case there is no government move to save the hospitality industry from the adverse effects of the ban, then Vikram plans to shift his two microbreweries to new places, but this would happen at a cost as “about 30% of existing microbrewery equipment would have to be replaced and new expense would be required for creating interiors at the new place,” he says.

ADVERSE FALLOUT FOR F&B ASSOCIATES

Sanjiv Nagpal

Director, Om Brewtech & Om Distributors

The Supreme Court (SC) ban on highway liquor sales has thrown about half of the microbreweries out of business in North India, turning crores invested into dead money. Also affected along with these microbreweries are the suppliers like Sanjiv Nagpal who are associated with them. Sanjiv does business with the microbrewery industry through his two firms – Om Brewtech and Om Distributors.

After the implementation of the SC ban, Sanjiv’s own business is down by 60%. “Whether it’s the jobs related to the F&B hierarchy in the hospitality sector or the business of F&B consultants and suppliers, all have been affected adversely by the SC ban,” says Sanjiv.

Through his firm, he supplies essential craft beer ingredients and also provides technical solutions for craft brewing in India and SAARC countries. Before the implementation of the SC ban, Sanjiv was providing technical consultancy and craft beer ingredients like yeast, malts and hops, and bar accessories to four microbreweries in Gurgaon, which have now become non-functional, hitting his revenues.

Giving an example of his ban-related woes, Sanjiv says, “It takes two months for a container of Weyermann Specialty Malts to travel from Bavaria to India. If my monthly sales, are two containers then normally four containers are on the sea and two are in my stock, costing me `1.2 crores, as one container price is `20 lakhs. And, today with the ban taking effect, my investment on malts is not going to bring me timely returns.”

Two young brewers, Kumar Gaurav and Rahul Baliyan, associated with Om Brewtech, are also worried about their future. Though well-trained in their profession, they feel that with so many microbreweries becoming non-functional, it’s not going to be easy to find a new job.

“Earlier there was scarcity of brewers with microbrewery skill-set. But now a lot of these people have been rendered jobless, so it would be difficult to get a job of our liking with the desired pay packet,” says Kumar.

Kumar’s colleague Rahul thinks that the ban has played havoc with the culture of decent drinking that has been taking roots in urban India. “More and more people have been enjoying drinking in the organized hospitality sector. But this ban has for the time being taken a good number of hospitality establishments away from people. They may go back to casual drinking here and there,” says Rahul.

Highway ‘Roads’ Unsafe, Why Blame It on Booze! 

Dr. MOHAN KRISHNA

Founder & Director Cheers Group

The Supreme Court’s decision to stop all outlets from selling alcohol on highways has created much surprise and consternation, in the industry as well as from within the government. While the purpose behind this action is noble enough, the action itself has been seen as being precipitate and too casually dismissive of the impact it will have on businesses.

Would 500 meters stop someone from taking a five-minute detour from buying liquor on their journey and besides what is to stop people from stocking up on alcohol for a journey or drinking before setting out? Five hundred metres is an arbitrary number that may or may not reduce drunken driving, but it certainly puts many restaurants and bars out of business. The rights of the people, who have set up businesses or derive their living from working there have been curtailed. Surely, a more nuanced solution that took more variables on board could have been adopted instead of a single sweeping ruling of this kind.

Enforcing the drunken driving law for safety is the best bet. In fact, people have to be educated about dangers of drunk- driving, making people not drive while on sedative of any form and educating them on values of life of themselves and others will bring in the change.

In fact hotels and liquor vends cannot be lumped together in one category as in many cases highways run through cities and hence hotels within cities need to be seen with a different lens. Also, there is the question of honouring the promise that governments make implicitly when they make businesses go through a tortuous process of approvals before allowing these to be set up. To change the rules of the game abruptly midway makes the business unviable, and creates an environment of extreme uncertainty.

States will lose a huge amount of revenue from the highway liquor ban on highway. States will have no alternative but to raise taxes. The Government unnecessarily encroaches upon personal life of individuals.

The Governments, and Courts should refrain from all kind of bans let citizens decide what they want. Bans drive the same product and service underground where unscrupulous people make money, the corrupt flourish and good people and their businesses suffer.

The ban will be denying millions of responsible adults and hundreds of businesses a chance to use this legal product. The liquor trade should be rebutting the false assertions by critics who know nothing about the facts. The trade bodies should continue the uphill battle to inform that banning liquor on highways is not the answer.

Unfortunately, the critics’ coverage has focused on the perceived negative aspects of drunk driving as a result of ignorance about the basic facts. No one has ever tried to do a research to find the facts, so all the criticisms are just speculation and are inaccurate.

Gujarat accounts for a record number of fatal road accidents leading to deaths in spite of the state being dry. This is a clear cut case that drunk driving is not the only issue, hence firmer evidentiary foundation to draw a conclusion is required.

All of the criticisms are just hyperbole created by people who have no knowledge of the real facts. In summary, there is no good reason to ban liquor on highways and there are plenty of reasons not to ban it. When the product is legal, regulated and taxed, why should it be banned although it’s the responsible thing to do to keep it out of the hands of the drivers of the vehicles.

There are a lot of things that the State does or does not do, that ultimately affect peoples’ lives. For instance, people would probably live longer, and there would be fewer deaths by heart attacks, if the State was to ban all junk food. That, however, would not justify invoking Article 21 and directing the State to ban all junk food.

Under the Constitution, the power to grant liquor licenCes rests with the states under List II of the Seventh Schedule. Although there is no fundamental right under Article 19(1) (g) to trade in alcohol, surely the right to consume alcohol as an aspect of personal choice is a fundamental right under Article 21.

If in case all the retail shops move 500metres away from national and state highways then there are higher chances that the legal liquor shops do lesser business than the illegal road side dhabas and small hotels mint money by illegally making the liquor easily reach the hands of the consumers in smaller towns and also along the highways.

Road accidents occur due to many reasons. In order to control the drunken driving accidents, let there be road-dividers, highway paroling, and installation of CC cameras outside the liquor outlets to scare drivers. On highways, it is hardly difficult to set up check posts that monitor alcohol levels of drivers randomly.

Even if shops are relocated more than 500 metres or 220 metres away from the highways, the purpose will still not be served. The habitual driver takes the turn and starts searching for liquor and tries to stock more due to difficult availability and also may drive more faster and recklessly than earlier to makeup the time he spent in hunting for liquor.

Moreover, curbing the illicit liquor is a very difficult task and it would be the most difficult job to handle the illegal ways of making money with the genuine liquor. The ultimate sufferers would be the licence holders who in spite of investing huge money earn less and the one who sells illegally without investing earns more. Also, the ban will be a hindrance to the tourism industry throughout the country and the people visiting India.

The world looks at India as an emerging country and they are increasing their investments. With the latest development, these international players looking for investing in India may now shy away thinking India is staring at prohibition.

BRAUHAS BREAK-EVEN HOPES DASHED

HARSH YADAV

Owner & Founder, Brauhas Gurgaon

Young Harsh Yadav was happy at the prospect of his microbrewery Brauhas, breaking even in April 2017 the first time since its inauguration in July 2016. However, the Supreme Court’s highway liquor ban ended the Brauhas break-even story before it could even begin, as the microbrewery falls within 500 metres of a national highway, hence can’t continue with its core business.

For about five months (till December 2016), Brauhas, located in Omaxe Gurgaon Mall in Delhi-NCR, did not earn much, as Harsh was on the learning curve of running a microbrewery. But they did good business in March and this month “We thought of doing better than the last month because the summer has set in, the Navratra fasting was over, and the IPL has begun.”

But for now, as a fall out from the Supreme Court (SC) ban, the 33-strong staff at Brauhas including the housekeepers, managers and the chefs have become jobless. “Besides, a big chain of suppliers like food vendors, grocery vendors, and meat vendors are not getting any business from us,” says Harsh.

He feels that the SC ban is a big blow to the decent culture of socializing over drinking. “Restaurants, bars and hotels are the safest places to drink. A lot of couples bond over craft beer in microbreweries. The good thing about microbreweries is that they keep people away from heavy drinking. They serve virgin beer which is free from enzymes, flavours, preservatives and harmful chemicals,” he says.

As far as checking accidents on highways is concerned, Harsh doesn’t think that the SC ban is the right step, particularly in relation to the hospitality sector. “About 60-65% of our customers book cabs for home drop after enjoying beer and food at our brewery. They are all corporate people. They drink in a socially responsible way and don’t drive after drinks,” he says.

So what is the alternative before Harsh? “I have to shift to a new place at a huge cost. It’s a big headache, as lots of licensing and other formalities must be completed. The most painful thing is that I have to ask my family for money, when their earlier investment has been rendered useless by the SC ban.”

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