India’s recent move to relax liquor sales norms, 40 days into the coronavirus lockdown, has come as a breather for craft beer maker Simba.
The six-year-old brewer hopes to make the most of what remains of the summer, the peak sales time for beer makers. “We have been sitting on fresh stock and raw material ever since the lockdown began on March 25. With the opening of (standalone) liquor shops, we now have a chance to liquidate the first batch of our beer stock for the summer,” said Prabhtej Singh Bhatia, founder of Simba Beer.
Yet, the company has taken some tough measures, including discontinuing discounts to drinkers and trimming marketing spends.
Simba, which operates a brewery in the central Indian state Chhattisgarh, also had plans to open a new plant outside the state. The uncertain business environment has put a pause on the move. “Survival is the only focus for us. We are identifying areas where we can reduce wasteful expenditure and drive our core business of making and selling beer,” added Bhatia.
In a conversation with Quartz, he spoke about the company’s efforts to save every single job at the brewery and the cost-cutting measures it is implementing. Edited excerpts:
What’s been the impact of the coronavirus lockdown?
For the beer industry, April-June is peak season. The lockdown has meant zero sales so far this year. However, with standalone liquor shops being allowed to open in orange and green zones, (from May 4), we are looking to make up for lost sales.
We have internally revised our growth targets. As against the earlier estimates of growing our business at 20-25%, we are now looking at 4-5%. We closed 2019 with revenues of Rs145 crore ($19.17 million) and are looking to end 2020 with between Rs145 and Rs250 crore.
A large part of our revenue comes from states that have not been majorly affected by coronavirus—the northeast, Jharkhand, and Uttar Pradesh. It’s impacted badly in Delhi, Mumbai, and Bengaluru.
How, and in what ways, has your business strategy been impacted by the lockdown?
Our plant (brewery) is in Chhattisgarh, which is a labour hub. Unlike a lot of other businesses, we are not going to face a labour shortage due to migration of workers. Yet, in the short-term, the movement of goods will be impacted. Therefore, we are going to focus on selling our products in the local market. In the immediate future, the focus will be on selling in Chhattisgarh and neighbouring Madhya Pradesh and Jharkhand.
What are the hard decisions you had to take?
If the lockdown would have continued for a few more months, without any relaxation, the industry would have been in real trouble.
Simba employs 400 people and we have not laid off a single person. As a worst-case scenario, we calculated that we would be forced to ask 20 to 22 people to leave. But we have always told ourselves that we will avoid taking this extreme measure. We will try and save every single job. If need be, the management will first go for across-the-board salary cuts in the range of 10-15%.
In the wake of coronavirus crisis, we have cut down heavily on wasteful and discretionary spending. We spend 10% of our revenues on marketing, which we are now looking to cut by 30%. The company will also stop offering crazy discounts to drinkers.
Your expansion plans are also on hold?
Yes. There is going to be no fresh investment this year. Before the lockdown, we were planning to add more capacity to our Chhattisgarh plant. The company was also exploring the possibility of a brewery outside Chhattisgarh. Now, a lot of additional capacity would be available in the market. We will be looking to tie-up with such players.
Craft beer market will see consolidation and a lot of upcoming breweries will be absorbed by the existing players. In a volatile world, no business would be making long-term plans. Rather, they would be looking at surviving and at best make decisions taking a short-term view of the business. The decisions would be made with a three-year business plan in mind.
What are your recommendations for the government to support the liquor industry?
It needs to ease up regulations for acquiring land to set up breweries. There is an urgent need to simplify labour laws making it much easier and transparent for entrepreneurs to hire contractual labour. Getting a licence to sell liquor has to be made easier as well.
At a time when the government is struggling for revenues, it should look at widening the tax base rather than increasing the tax burden on existing taxpayers. Currently, 50-60% of what drinkers pay goes as state taxes. This has to change to help support the industry.