India: Heineken-owned United Breweries stops supplying beer to Telangana over pricing

Heineken-owned United Breweries on January 8 stopped supplying beer to Telangana in southern India, following the state's refusal to allow price rises, which the company said had resulted in huge losses, Reuters reported.

United Breweries, maker of India's Kingfisher brand, is the country's biggest beer company and the state of Telangana is India's biggest beer consumer.

"Despite our continuous efforts over the past two years, there has been no increase in the base prices offered for our products. This has resulted in escalating losses, making our operations in the state unviable," United Breweries said in a statement announcing the suspension of supplies.

United Breweries did not give financial details on the size of its losses.

Last May, United Breweries CEO Vivek Gupta said in an earnings call that it was owed 7-8 billion rupees in lost revenue from the south Indian state.

In response to the supply halt, Telangana's minister of Excise and Prohibition, Jupally Krishna Rao, said at a press conference on Wednesday that United Breweries had asked for a 33.1% price hike on its beer, which would "become a burden on consumers."

The minister said the state has formed an independent committee to review the price hike request. Based on its report, the government will decide on the size of the increase.

"(The) Price hike will be done accordingly, but not as much as the company is demanding," Rao said.

In India, regulations for the alcohol sector require states to sign off on liquor pricing changes every year.

United Breweries counts Telangana as one of its key operating states, contributing roughly 15-20% of its beer sales by volume. The state forms 10%-12% of the company's earnings, said Karan Taurani, an analyst at Elara Securities.

News of the supply halt sent United Breweries shares down as much as 7%, before they settled 3.6% lower at the close.

Meanwhile, some liquor dealers have started to stock up on the beer brands to prepare for any shortage of supply, which the state government estimated to be at 1.4 million cases, as of Wednesday.

Telangana has 18 state-run liquor depots that supply to dealers and shops, which in turn, sell to consumers.

"In one of the liquor depots in Hyderabad city, 12,000 cases, or 144,000 bottles, of beer were sold out in 30 minutes," said D. Venkateshwara Rao, President of Telangana Wine Dealers Association, which represents the state's alcohol sellers.

Last year, the Brewers Association of India (BAI), a federation of some of the country's largest beer makers, called for price hikes for alcoholic beverages to compensate for inflation in the state, which accounts for the sale of roughly 500 million litres of beer a year.

The state rejected the request, a government source familiar with the matter told Reuters on Wednesday on condition of anonymity.

"It's a matter of who blinks first, especially if the entire industry chooses to take actions like stopping supplies," said former United Breweries Chief Marketing Officer Samar Singh Sheikhawat.

"In such a scenario, the state loses much more than any individual manufacturer," he added.

($1 = 85.8690 Indian rupees)