Like other industries, the dark clouds of economic uncertainty have also shrouded the Nepali liquor and beer industry. The recent festive season also failed to bring the much-needed boost in demand for alcoholic beverages that producers have hoped for. Raj Bahadur Shah, Managing Director of Jawalakhel Group of Industries (JGI), estimates that the liquor and beer business is down 30-40 percent currently and that there have been several anomalies in the market due to the government’s policies such as the import ban on foreign liquor. According to him, JGI, which produces 18 different liquor and beer brands including Ruslan, Budweiser, Warsteiner and Foster’s, is cautiously evaluating the country’s economic scenario to bring some new premium liquor brands. In a conversation with the HRM, Shah talked about the challenges surrounding the liquor market, the impacts of government policies on the industrial environment and the plans of JGI. Excerpts:
Q. Nepal’s economy is currently going through a deep slowdown. How is the business of Jawalakhel Group of Industries (JGI) at present?
A. Business all over the world is in a decline and Nepal is no exception. Given the current macroeconomic scenario, we need to tighten our belts and be ready for the rough ride ahead.
When one business suffers, you get a domino effect. In Nepal today, the business of almost all industries has slumped compared to last year by over 25-50 percent. Large industries like steel and cement are on the verge of collapse. The banks will be in some serious trouble soon.
The lack of liquidity and the sharp increase in bank interest rates in the market has forced the trade partners to keep 50 percent lower stocks and give less credit.
Currently, the liquor and beer business in Nepal is down by 30-40 percent. My friends who are in other industries tell me that I am lucky compared to them. We are making less profit but are still surviving for the time being.
I really thought that since the Covid-19 pandemic is almost over, everything would bounce back. But that has not been the case. The overall economy is suffering, and people are more cautious with their spending because of the decline in their disposable income and are uncertain about the future. Even our Nepali workers abroad are calling their families back home telling them to lower their expenses and save cash at home. We, Nepalis have always been known not to save but to spend and celebrate lavishly compared to our neighbors. Is this changing? Will this fear of uncertainty have a long-term change in the Nepali consumer mindset?
Last year, there was a very high tax increase that forced customers to switch to cheaper liquor and beer brands and to also drink less especially at bars and restaurants. There is an increase in counterfeit liquor from import brands. There is also a growth in the market of cheaper homemade liquor and smuggled liquor from India which is one-third the price of legitimately produced liquor.
Q. Did the recent festive season help in boosting the sales of JGI companies? What product segment has performed the best?
A. Surprisingly this festive season, the liquor, meat and clothing sales were quite disappointing compared to previous years. The heavy rains also played a role. We hoped the sales would pick up due to the elections but that also was not good as expected.
Q. The last few years have seen JGI focusing on the beer segment with the introduction of Warsteiner in 2018 and Budweiser in 2021. How are these two reputed international beer brands performing in the Nepali market?
A. Warsteiner has become a niche brand that the premium customer base enjoys the real German pilsner taste which has more character and thus is more bitter than what most customers prefer. Most expats and people who have lived, studied or traveled abroad prefer this brand. Warsteiner is among the top 3 selling brands in Germany. It is not a brand for everyone, and we are focusing sales only on premium outlets and hotels.
Budweiser has recently done exceptionally well as it is the most famous and the biggest beer brand in the world. We have a new state-of-the-art German brewery and use the strictest quality control measures and best raw materials to ensure a great international quality beer.
Budweiser is easy to drink, smooth and refreshing. Even after a few big bottles, the hangover is far less than any other beer in Nepal which is very important to Nepali beer drinkers. Young Nepalis today are always looking for something new and better and the Budweiser demand has been growing every day.
JGI’s primary focus and 90 percent of revenues still come from the liquor industry, and we are strong in this area as we have always been leaders in liquor for many generations. We do have plans for some new premium liquor brands but are cautious looking at the risky and volatile environment. For example, recently, over half a dozen new vodka brands were all launched at the same time and the odds of any of them doing well are slim because the customer doesn’t know which one to choose.
In the beer industry, the taxes have gone up, but the price of 8 percent strong beer is still going down and the discounts are going up every day due to the over competition thus making this segment not just unprofitable but also incurring major losses for producers.
Last week, my father, Mr. Vijay Kumar Shah received the highest individual taxpayer award again which is a matter of great pride for all of us in the JGI family. We hope we can continue this tradition for many generations to come.
Most of the larger privately-owned tax paying companies like Ncell, Gurkha Brewery and Surya Nepal are owned by foreigners and their profits go outside the country. All our money stays here and gets reinvested into the economy. I hope more local industrialists will join this list soon.
Q. Budweiser has been a FIFA World Cup partner since 1986 and spends millions of dollars in sponsoring this biggest sporting event in the world. What are your hopes for the FIFA World Cup 2022 in terms of establishing Budweiser as a major beer brand in the Nepali market?
A. It is hard to find a Nepali who is not a die-hard football fan. Even as I say this, I am looking at my clock because I need to go and watch the games with my friends! The FIFA World Cup is by far the most important sporting event in the world and especially in Nepal. It comes only once every four years and this time since it is in Qatar, the evening shows are perfect for Nepal and perfect for Budweiser sales.
Budweiser is the official beer of the FIFA World Cup and has the world’s top footballers as brand ambassadors. We have a special World Cup Edition label and it is almost sold out and the games have just begun!
Q. What challenges are there for JGI companies to expand the market of their products at present?
A. Every Nepali knows that the biggest problem in this country for over 25 years is that there is no political stability. We have a new govt being formed but for how long? Ministers in Nepal sometimes don’t even get a position for even week. We are the poorest country in Asia now because of this. The only option for most young Nepalis is that they are forced to leave the country to work in other countries in difficult conditions.
We have the same problems as all other FMCG or other consumer brands like slow and weak governance and policies, no protection over imported brands, over competition, lax quality control, high risk in credit, trademark violations, tax evasion and corruption.
Lack of liquidity and rapidly increasing bank interest rates are the newest challenges that have caught everyone’s attention.
Besides, we unfortunately still have to most unproductive politicized labor unions and labor laws in South Asia making it very unattractive to invest in industries.
Due to the ongoing recession, we will see almost all companies downsizing and quite a few closing down permanently.
As a group, we are being patient and conservative. We are continuously doing our research. We would love to expand down into the 70UP segment which is the cheapest and has the highest volumes but there is major excise stealing in this segment making it completely unviable until the govt gets its act together and clamps down on it.
We are also looking to invest in entertainment, energy, tourism, real estate, IT, telecom and e-commerce sectors when an opportunity opens up.
Q. The industrial sector has been affected by the acute shortage of liquidity in the banking sector. How is JGI facing a short supply of liquidity in the financial system? How has this affected the plans of the Group?
A. We are patient and are in wait-and-watch mode. We do not like what we are seeing and are seriously concerned about the short-term future. Every industry is seriously downsizing or if not thinking about closing. The bank interest rates are too high and now we are forced to clear bank loans instead of expanding and growing.
Q. The ban on the import of foreign liquor which is in place since April has been extended till mid-December. Has the restriction been actually good for Nepali alcohol makers?
A. You can still buy plenty of imported brands in the market, but you have to look harder and pay more now. I really do not think the temporary ban has made a difference to the consumers yet. Only if the ban is for over one or two years, then customers would be forced to look for other local options. Lots of the not-so-popular imported brands are being sold now so traders are getting rid of the non-moving goods. Instead of banning something, they should just tax it double.
Q. What policy-related hurdles exist for producers of alcoholic beverages in Nepal?
A. We are a young democracy, have a lot to figure out and change is needed now more than ever. We all know that without political stability, no real progress will ever happen. There are some great politicians and govt officers in the system but if they are not given enough time to work, how can they ever get anything done?
We need to liberalize the economy not restrict it. Investor-friendly policies need to be adopted for the long term and policies should not be changed overnight. Genuine stakeholders must be involved in the policy making process. Today, the sad truth is you can get a 12 percent return on a fixed deposit in a bank, and that is better and safer than running any business.
The liquor and beer industry is now polluted and plagued with too many new players too fast so it is becoming too risky. There is hardly any protection.
Q. The government has been increasing excise duty on different types of alcoholic beverages with each budget announcement making the beverages dearer in the local market. Has this increment been any good for consumers of alcoholic beverages?
A. The taxes are being increased too high too fast and the customers are forced to look for cheaper options. I have received firsthand genuine complaints from our loyal customers who say that they no longer can afford our brands that they have been drinking for many years. Prices across the border in India are one-third the price in Nepal. Our liquor tax has become like our vehicle tax which is ridiculous.
People are switching to cheaper brands that are in a cheaper tax segment. This is resulting in the govt getting less tax in the end. What the govt needs to focus on is collecting the existing taxes from everyone.
