Any disruption in business is a disruption in government revenues: CEO, Murree Brewery Co Ltd

BR Research: The Murree Brewery Company has been around for a long time. Please take us through the history of the organisation.
Isphanyar M. Bhandara: The Murree Brewery Company was established in the year 1860 by the British, to cater for the liquor demand of their own troops and other foreigners stationed here. Murree, the hilly area in north of Islamabad, used to be the Simla of this part of the Subcontinent. The town was climatically ideal for Beer, which needs cold temperature. The manufacturing transition to the present facility, in Rawalpindi, gradually started in 1889 because Murree was becoming smaller, whereas Rawalpindi was a flat plateau with ample space. By 1940, the brewery in Murree became non-operational.
The Company came into my family when my grandfather - P. D. Bhandara, who was working as a Director - bought over the Company's majority shares when the British were leaving Pakistan in 1947. He passed away in 1961, and that is when the reins of the Company were passed on to my father, M.P. Bhandara, who was studying in Oxford at that time. At a young age of 22, my father, along with his mother, managed the Murree Brewery Company. He was the CEO of Murree Brewery for over four decades, until he passed away in 2008.
BRR: When did you start running the affairs of the Company?
IB: I have been associated with the Brewery since 1999, and I have worked under my father in a host of roles and positions, e.g., store-keeper, lab assistant, sales accountant, stenographer, lathe machine operator, procurement officer, etc. Since my father's demise in 2008, I have been the Company's CEO.
I must emphasise this point here, that although the majority shareholding of the Company remains with my family, we do not run it like a family. We have defined managerial positions and responsibilities, and business and investment decisions are made by genuine consensus. We also have a very active workers' union for many decades. The products are conceived by our staffs themselves, and there is delegation of responsibilities at each level.
BRR: How is this Company different from other family-owned concerns?
IB: In Pakistan, it is common practice that annual profits of family-owned companies are siphoned off by the families. Whereas we are easily among a few examples in Pakistan where the family's dividends are much less than what we can willingly take home. For instance, just last year, our annual profits were over Rs 500 million, but the family took home roughly Rs 30 million. The rest has been directly distributed to workers in the form of bonuses and salary increments, and to reinvestment within the organisation. That's why the workforce retention rate in Murree Brewery is among the highest in Pakistani companies.
BRR: Please take us through the product lines Murree Brewery is offering to its clientele?
IB: We have two product lines: alcoholic and non-alcoholic. In the alcoholic line, we make various types of Beers, ranging from 3 percent to 7 percent alcohol concentration. We also make a range of different Whiskeys. For instance, there are mature whiskeys, which take many years to develop inside specialised casks, the rarest being 21 years' old. Then there are blended whiskeys, which are made overnight. Another product, which wasn't received well due to taste difference here, is the Irish Cream on the lines of Baileys. People are more into wines and vodkas here, that is why we also make flavoured Vodkas and the Sapphires.
In the non-alcoholic family, we have a vast portfolio. The beverages we make are natural drinks, not artificial colas. We have synthetic drinks branded as 'Big Apple' and 'Lemon Malt'. In the Tops Foods, we have jams, bottled juices, squashes and ketchups. Last year, we acquired 'Sparkletts' (drinking water) from the Hashoo Group. We also make energy drinks, and export to Afghanistan.
BRR: What is the revenue mix?
IB: Roughly seventy percent comes from the alcoholic line - which includes beer and liquor - and thirty percent from the non-alcoholic line. We also manufacture glass bottles for carbonated drinks manufacturers and bottlers. Murree Glass Company, our subsidiary, was established to cater to Murree Brewery's bottling requirements, but over the years, we have installed new machines, and now the existing capacity not only meets Murree Brewery's demand, but also fulfills external demand.
BRR: Why don't you do miniatures?
IB: We are not allowed to do miniature. The sizes are specified by the government. The large size is 758ml; the pint is 378ml; and the nip is the smallest size. As per existing laws, Murree Brewery cannot change the prices, labels or sizes of its products, without prior permission from the Punjab Excise department. At times, they drag their feet.
BRR: How is this business situation affecting you?
IB: We are a highly regulated business, taxed around 65-70 percent. The utilities crisis has deeply affected us in that everything has become inflationary. Every year, we have to ask the Punjab government to allow an increase in products' price. Very soon, we would be charging the same for alcoholic beverages as Smirnoff, and that will put us in a disadvantageous position. These days, it is more like 3,000 containers of imported liquor making their way to Pakistan every year. So we are worried, because people would prefer to have imported liquor over indigenous one if these are selling at similar prices.
BRR: So why wouldn't the government allow liquor imports into the country?
IB: The government should allow imported liquor in Pakistan, in a way that there is a level-playing field for us. The government can clamp import duties on liquor imports, and earn valuable revenues. But it's their so-called rationale that importing liquor would bring a bad name to the Islamic Republic of Pakistan as a Muslim country would be seen as importing liquor. We feel that it's the opposite, because it is going to bring a softer, better name for the country. We Pakistanis need to start thinking through our minds rather than the hearts.
BRR: What is the development on the export side?
IB: The government wants to open up liquor exports, at least in principle, but there is no progress yet. Though our sales in Pakistan are good, but we could also export, but these exports have been banned since 1977.
BRR: Who are your primary customers? How difficult is it to market your brands in an environment where liquor consumption is generally prohibited?
IB: Our primary customers are the hotels in Pakistan, and whoever they choose to supply to is not our concern. We are also supplying to wine shops in Karachi and Baluchistan, and to hotels in Punjab. These are all licensed entities, permitted by the Government of Pakistan; so essentially, we don't get to choose our customers. Roughly sixty percent liquor goes to wine shops and 40 percent to hotels in Punjab.
In Khyber-Pakhtunkhwa, liquor was banned in 2002 by the then MMA government. But even today, everything is available, and bootleggers are making money. The more they suppressed it, the more it is being sold.
BRR: What are your expansion plans in the two product segments?
IB: In the Alcoholic family, even if we have to expand the capacity, we have to go to the government. Today, liquor manufacture and trade is governed by the 1912 Excise Manual. The government needs to revisit that and bring it up to date with 2012. It is ridiculous that the factory cannot be opened until Resident Inspector reached the premises and does it himself. We have to shut the Brewery gate at 4.30 pm every working day, as per the law. If the Excise puts a lock after 4.30 pm, they are legally right. But this is 2012 - a century on since the law was formed. Realities have changed. Hurdles need to be removed, but that happens to be the cream and butter for some.
In non-alcoholic category, we have expanded, for instance into Tetra-Pak machines to increase our capacity to launch new products. Sindh is a big market for us. It's a hot climatic place, and the minority population is huge over there. It's a relief for them to enjoy a chilled beer in hot climatic conditions.
BRR: Why were your operations shut down last year?
IB: Unfortunately, the business community is not being gauged by how many taxes they pay, but by 'other' criteria. Even a low-ranking officer, or a police ASI for that matter, can disrupt a company's operations, due to enormous discretionary powers. They shouldn't be doing so, as doing so means disruption of government revenue. Our business was disrupted last year, and it caused the exchequer losses of tens of millions of Rupees.
To understand this issue, you must know how we operate in the liquor business. We have a small distillery, attached with the Brewery, to make our own alcohol from Molasses. Our sales started growing in 2004, and we found out that our own distillery was not enough to meet our needs which were met through purchasing the liquid from outside.
In July last year, the Punjab Excise dept. told us to pay the excise duty before we make the product, in addition to the regular duty that we were paying after making the product. It was like paying the duty twice, and that is why we resisted. Charging double duty is not allowed in any form as the duty is charged either before or after. That is when we decided to go to court.
We consulted our lawyer, and came to a compromise, because we had to run the business and restore our supplies. The Excise also realised they had a weak case. We agreed that if they wanted to clamp the duty from present, then they can do it, provided they give us that much proportional increase in the prices that we charge.
So, they gave us a price increase. Now, if the Excise goes to court some day, we have a solid case against them. But this was an unfortunate incident, as they shut down our operations for almost six months, and then kept asking for retrospective duties. However, this is worth noting that the CM Punjab did take up my complaint and replied in two days. He constituted a high level team, and I am very thankful for that. But still, we suffered a lot.
BRR: What was the impact of this shutdown?
IB: The government needs to understand that it will be a disaster to close down liquor business in the country. There are very few entertainment options left in the country, so if anyone addicted to whiskey doesn't find it, he will end up having homemade Moon Shine. This proved to be correct, unfortunately, when we were choked out of our sales by the Punjab Excise from July 11 to December 15 last year. We were in a fix as our supply was reduced to only 20 percent. Many deaths happened due to our product shortage.
BRR: How well-guarded is your position in domestic liquor production?
IB: No threats as such. We have two small competitors: Indus Brewery and QDL.
BRR: How is Murree Brewery coping with competition from major bottlers in the carbonated drinks segment?
IB: Competition is always healthy, but in last decade, multinationals have grown in their influence and market clout. They pay enormous amount to buy off the rights to sell their products inside organisations like hotels, restaurants, airlines, cinemas and professional clubs. It is a well-known fact that the soft drinks and FMCGs continue to pay millions of Rupees to organisations for exclusivity rights. The CCP should take notice of this incidence, as this unethical practice eliminates competition. You cannot call this a business strategy, this is an unhealthy practice. Consumers must have a choice.
BRR: Your non-alcoholic beverages are not available in rural areas where other MNCs are already fighting it out?
IB: We realise this, and there is obvious growth potential in the rural areas. We have strengthened our distribution system. We are doing more advertising now. We are also engaging in below-the-line activities. For us, availability of our product is very crucial for the off take to happen. But in the carbonated drinks category, we face stiff competition from bottlers of foreign companies who have huge supply-chain networks and often sell at below their cost to gain and maintain their market shares.