Ravi KC is the Chairman of Yeti Distillery Private Ltd, a leading liquor company in Nepal with a portfolio of major brands such as Old Durbar – Whisky, Old Durbar Black Chimney – Whisky, Old Forester – Whisky, 8848 – Vodka, Abominable Snowman – Gin. KC is also the former President of Nepal Liquor Manufacturer's Association.
New Business Age caught up with KC to talk about the current scenario, trends, challenges and future prospects of Nepal’s liquor and cigarette industries. Excerpts:
What do you make of the ongoing market trend for liquor, beer and cigarettes?
Leaving aside cigarettes, the market is good and growing. However, the cigarette market is declining every year. Due to annual taxes and excise duty hikes on cigarettes, the real price of cigarettes is going higher and higher if compared to the spending power of consumers. Most of the consumers are shifting to chewing tobacco products like gutkha or khaini from cigarettes. But there is growth in the overall market. There is strong growth in the beer market. Similarly, growth in the liquor industry is not as it should be due to provisions included in the budget.
A lot has changed over the last 10 years or so in the Nepali liquor market. The pouch era has ended. Can we say that Nepali drinkers have now matured?
The growth of the beer, alcohol and cigarette industry depends entirely on the policies that the government pursues through its annual budget every fiscal year. Two kinds of liquor are available in the market – one is locally produced and the other is manufactured by industries. The share of home brewed liquor is 60% and the rest is occupied by industrial produce. The government is increasing taxes like excise duties on alcoholic beverages every year without considering the reality. The increment in the tax rate should have the aim of increasing revenue, not upsetting the market. But, raising rates does not increase revenue as we have seen in the last two or three fiscal years. The government policy has helped the trade in home brewed alcohol to flourish. By increasing the excise duties, the government is losing revenue instead of earning it. It has encouraged the illegal import of cigarettes from the border. The market has not experienced healthy growth due to the budget measures introduced by the government.
We share an open border with India and alcohol is banned in Bihar. Given this circumstance, the business of alcohol should have gone up by multi folds. But that is not happening. In West Bengal and UP states of India, liquor is cheaper than in Nepal. So, we have to lose the opportunity to cater to these markets due to the rise in prices. Instead, you can see Indian alcohol being sold in the border areas on Nepal’s side. It’s the same case with cigarettes. You cannot rule out the possibility even for the beer segment in the future.
What kind of policy intervention is needed to discourage the sale of home brewed alcohol?
When the pouch alcohol was cheaper in Nepal, the demand was very high. People even used to offer it at the temples as prasad instead of the home brewed one. This was because it used to be cheaper for them to use pouch alcohol than the home-brewed alcohol. Due to the government policies, liquor produced by industries or factories is way more expensive than home-made alcohol. This is mainly due to the government's policies related to revenue and tax. Not everyone has the purchasing power to consume branded alcohol. Not everyone can afford red label or black label whisky. Nearly 20 to 25 percent of people in the word have an addiction to a product. Among them, people from the lower class are the largest consumers of alcohol. It is because they do not have any other option for entertainment. So, they find drinking alcohol as a cheaper or easier form of recreation. Those with low income are more likely to consume alcohol. This problem can be addressed either through education or employment. When people are occupied by work, they have less time for this type of recreational drinking. The alcohol the industry produces follows the set healthy standards or certain parameters in relation to public health. That may not be the case with home-made liquor. So, the lower class of people are bearing the brunt of the government policies.
How can we compare the consumer behaviour in Nepal to other comparative countries?
Globally, unemployed people are the heaviest drinkers. The more free time people have, the more they are tempted to consume alcohol products or cigarettes. People living in remote areas drink more than the people living in Kathmandu. One of the major reasons is that they are free and have nothing to do. The behaviour of consumers is determined by the availability of work or employment opportunities. If we can offer employment opportunities to more people, it will help to lower alcohol consumption. People in hilly areas are found to be consuming more alcohol than in Terai areas. As they may not be able to afford liquor produced by factories, they will consume alcohol made from millet, rice, barley or wheat. When people start brewing alcohol from crops like millet, rice, barley or wheat which they need for their meals, it contributes in causing food shortages in places like Jumla, Humla and other remote districts of the country. The government policy is partly responsible for this. Policymakers need to consider such problems before coming up with policies related to liquor.
It is believed that the spending habits and spending levels of Nepali consumers is higher than their counterparts in countries like India. How do you see this?
There is not much of a difference in consumer behaviour among these two countries. The drinking pattern is similar among lower and upper class people. The elite people drink the premium brands as a source of entertainment or a means of show-off while the lower-class resort to drinking as a stress reliever. What their behaviour is like after-drinking could be different.
It’s said the Nepali liquor market is changing from the whiskey age. So, is it now the vodka age, beer age or what?
There could be some differences. Otherwise, it's more or less the same. It depends on the brands of liquor available in that particular country or area. It also depends on the weather. For example, its winter now and there will be a spike in the market for rum. After two months, it's share will fall to around five percent only. In other times, festivals and seasons determine the business of the liquor market. Consumers also tend to go along with brand popularity and market demand. If any brand has a creative buzz in the market, consumers flock to that product. As both vodka and whiskey have built their brands or strengths, there is no swing in consumer demand. The market used to see a huge shift in terms of its taste in liquor in earlier times when consumers were not aware of the brand. Now, such huge changes can’t be seen.
What is the dynamic like between the Nepal grown brands and the imported ones?
This is also determined by the government’s policies. Earlier, the government used to be lenient towards domestic products while raising excise duties. That had provided a relief to the domestic liquor industries. For the last three years, the domestic liquor industries have suffered from the government policies which, in turn, promoted the imported brands.
How is the beer market? Is strong beer still dominant? Or are the other varieties becoming dominant? Some years back there was draught beer, but now craft beer looks to be gaining popularity.
The market share of beer is best illustrated by the pyramid figure. Craft beer consists of high quality ingredients so it is somewhat expensive. Its premium quality puts it on the top of the pyramid. So, draft and craft beers are a bit expensive. In terms of volume of consumption in the last three or four years, the strong beer segment is witnessing a huge growth. But people have now realised that there are so many varieties and flavours of beer that are available. So, there is a new dynamism in the market with the entry of new companies.
Beer consumers now have a variety of options. The internationally known taste of German beer is being produced domestically. There is some appeal in the beer segment. Again, the government's policy on taxation is affecting the beer industry also. If the government continues with its existing policy, there will be a situation where you will not be able to find any Nepali brands. There is a huge difference in the price of liquor in India and Nepal. So far, the impact can be seen largely in the border areas. If this pattern continues, our domestic industry may collapse in a few years. The market is already being disrupted in the areas where we share the open border. There is a risk of the Nepali market getting flooded with Indian liquor. The domestic brands will be bearing this huge brunt in the near future.
Nepal's liquor industry used to be dominated, until a few years ago, by some 3 or 4 houses. You entered this field very recently, but rose to this level pretty fast. How did you manage this?
Nepali consumers are now aware and concerned about the quality of the liquor they consume. Since people have developed the habit of travelling, they have become familiar with the taste of genuine liquor. The products we have launched so far are all in line with this. We have not compromised with the quality. Our products do not include any chemicals, low-quality ingredients, glycerin or additional colouring and flavours. We import high-quality raw materials like malt from the best places to make our beers. Our water is a god-gifted resource and best in the world. Even with the same ingredients, the taste of our beer is far better than that produced in India. For our beers, we use water from the Trishuli River. The ingredients that we use are from Germany. It's not that we depend on imports for raw materials. We also plan to launch a product that sources hundred percent Nepali raw materials.
Being a liquor manufacturer, which is something that is said to be harmful, we should be more responsible towards public health. We are very conscious about quality and don’t compromise with the ingredients we use. If you offer good quality, for instance, the younger generation will be more mindful to promote Nepali products. Our success is also due to a growing realisation among people, particularly the younger generation, that they should choose domestic products over foreign-manufactured products. We offer quality. We don't send a single rupee abroad for the brand name. We pay equal attention to the quality of our product as we want to promote our local brand in the foreign market.
There are other players also entering this market. Is the market size big enough for so many players?
Yes, there is enough space to fit in the new players. Not only in the domestic market, we also have a huge potential for the export of our products. If the government changes certain policies, liquor products like alcohol, beer and whiskey could become a top export item of Nepal in five to seven years. If the government addresses our problems, it would help liquor products to have a good presence in the international market. There should be a win-win situation for both the government and the industry. The government’s revenue and the industry’s capacity should grow in parallel. Due to the altitude and water of Nepal, our liquor product can become a top export product. I am very confident that Nepali alcoholic beverages will do great business on the international level.
We are currently exporting our products to Japan and Australia. We are getting demand from African countries and South Korea. There are maximum queries about our beer from India, Australia and Japan. We are working on it and I am confident that we will succeed in meeting those demands.
The liquor industry has so many issues with the government, ranging from the way the taxes are imposed to the restrictions in sales and advertisement. How are these issues being resolved?
For a very long time we have been hearing that alcohol is detrimental to health. The policymakers are also guided by this mentality. They think that liquor and cigarettes are negative products and should be taxed as much as possible. In reality, this has been an integral part of society. No occasions go without alcohol beverages. It has been an essential part of get-togethers, parties and functions. Policymakers need to consider this. There is an exception to everything. For instance- teachers impart education to students in a fair manner but not all students are successful. Similarly, certain exceptional cases related to the impact of alcoholic beverages should be kept on one side.
The liquor and cigarette industry are not ours. It belongs to the government. If I produce and sell liquor or cigarettes worth Rs 100 in the market, I have to pay Rs 60 to the government even before I take the product out of the factory gate. After factoring in raw materials, investment and other costs, we only get Rs 3 or Rs 4 from that. To earn Rs 3 to Rs 4, I have been paying the government Rs 60. If I earn Rs 6 instead of Rs 3, I will pay the government Rs 120. The day the government understands this sum, it will create a favourable environment for the industry to flourish and to realise its export potential.