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| India, April 17th 2008 |
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| Indian hotels told to lower wine prices |
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by Subhash Arora
India’s government has directed hotels and restaurants enjoying duty free wine and liquor purchases to cap their gross profits on wines at 250% or face withdrawal of duty- free benefit. It has given a directive to keep the liquor profit margins to four times the cost. If it becomes operational, it could result in a price drop of 25-30 % and will spell a boom for importers, hoteliers and consumers alike.
Hotels and restaurants get a special license under SFIS (Served from India Scheme) which entitles them to import wine and spirits at no customs duty (against the normal 150%), limited to 5% of their average three year foreign exchange earnings through credit cards.
This step was taken more than four years ago under pressure from the strong hotel lobby convincing the government that it would help promote tourism. However, the benefits were not fully passed on to the customers, which has caused resentment.
Kamal Nath, India’s Commerce Minister, has warned hotels to pass on the benefits to the consumer or else and prices have moved slowly downwards. There was no such talk at this year's budget address by the Finance Minister, giving rise to speculation that duty benefit withdrawal was on the card.
Smaller importers are happier over the directive which comes in the form of a 'voluntary' commitment by the trade associations, Federation of Hotels and Restaurant Associations of India (FHRAI) and the Hotel Association of India (HAI) committing to the government that the members will stick to its wishes.
Says one importer under conditions of anonymity, “my Barolo may now be available for under Rs.4000 ($100) in a hotel. The demand will increase and I can sell much bigger quantity.” He has a portfolio of high quality wines which languish as the demand is flat for such wines after taxes and heavy mark-ups.
The hoteliers have found an ally in Sanjay Menon, a leading importer, who ridicules the 'directive' as untenable. “How can you force someone to reduce the sales price!” he says. “It is true they charged big margins years ago. Now, they (hoteliers) are well informed and believe in aggressive pricing.”
One factor which the hoteliers often cite for high prices has been the unreasonable annual license fees they have to shell out. ”A license for each restaurant serving alcohol costs Rs. 500,000 ($12,500) a year. They must recover these costs through low sales volumes,” adds Menon.
The mood is distinctly downbeat in most hotels. Skirting the issue but admitting privately that they are being coerced to follow the 'directive', their accounts departments are working overtime to change the menu prices, and at least appear to follow the directive, lest the industry loses the duty-free bonanza.
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