Level-playing field? Tasmac’s new procurement formula raises doubts

CHENNAI: The State-run Tasmac's decision to divide liquor procurement orders equally among distilleries and breweries has been welcomed by many on social media, as it appears to promise a level-playing field in a business that is beset with controversies and allegations of favouritism.

However, beer manufacturers argue that the revised formula would favour dominant players by allocating procurement equally among licensed brewing units, and not companies or brands, thus helping companies that operate multiple units.

Recently, the State-run liquor retailer has changed the way it distributes purchase orders for beer and the ordinary range (brandy and rum) of Indian Made Foreign Spirits (IMFS). The move, approved by the Tasmac Board on a pilot basis, aims to ensure a "more rational and equitable supply of stocks" while addressing long-standing complaints over preferential procurement.

Beer manufacturers say the concern lies in how the procurement is ultimately divided. They point out that United Breweries, which operates two licensed brewing units in Tamil Nadu, would receive undue advantage under the revised formula. When divided equally among the six beer units, it would receive twice as that of others like SNJ Breweries, KALS Breweries, Accord Distilleries & Breweries, and Tropical Breweries

They further argue that the issue extends beyond the number of brewing units. "Tropical Breweries does not have a brand of its own. Instead, it has entered into contracts with two companies, including UB for which it bottles Kingfisher beer from its plant in Tiruvallur. So, in effect, UB's effective procurement share would be significantly higher than its notional allocation as per the revised formula," an industry source said.

"Currently, UB holds around 38-40% of the market, while SNJ accounts for around 35-40%," the source said, adding that the numbers go vary slightly every month/quarter. DT Next could not independently verify this estimate.

Stakeholders contend that this could result in procurement becoming concentrated with multinational companies that already enjoy a strong presence in the beer market.

To understand the change, it is important to know how Tasmac procures beer. Every shop first estimates how many cases of beer it is likely to sell before the next supply. This requirement, known as an indent, is sent to Tasmac depots, which then place orders with breweries. Suppose a shop needs 180 cases of beer. Earlier, one brewery might have supplied 80 cases, another 60 and a third 40, depending on how their brands performed in previous sales. Under the revised system, the shop will still receive the same 180 cases, but the order will now be divided equally among all eligible breweries instead of being allocated according to past sales.

On the other hand, manufacturers had long argued that the earlier method created a self-reinforcing cycle: Brands that received larger procurement orders enjoyed better shelf availability, leading to higher sales and, consequently, even larger procurement orders in subsequent cycles. While the revised formula removes that sales-linked allocation, beer manufacturers say it addresses only one part of the issue.

The revised formula currently applies only to beer and the mass market range of IMFS, while procurement of medium and premium IMFS will continue under the existing mechanism. Tasmac has also directed Elite and Mall outlets – which sell premium liquor – in the pilot districts to stock at least one case of every medium and premium brand to improve product availability. Despite repeated attempts, both over phone and in person, Tasmac officials did not respond to queries.