www.fractionalcolumn.com

Summary 01

Introduction 02

Industry Overview 04

Consumption Trends 07

Growth Drivers 10

Market Trends & Opportunities 11

Challenges 12

India is the 3rd largest liquor market in the world and one of the fastest growing markets in

the world, on the back of demographics & economy. The Indian liquor market, which is

divided into various categories like IMFL (Indian made foreign liquor), imported liquor, beer

and country-made liquor, is brimming with growth. Challenges like the restrictive policies of

states with regard to movement, production, pricing, etc, and impositions applied on

advertising pose huge challenges for the industry. The industry has recently undergone

major transition driven by dynamic consumer preferences, increased premiumization and

entry of international players accompanied by increased M&A activity. The alcoholic

beverages industry, as they say is recession-proof. With a rising and promising GDP, the

economic status of India is robust. Rising social acceptability, conspicuous consumption and

high disposable income of the globalized consumer is pushing the industry to newer heights.

Also, rapid urbanization in metros and tier-2 cities, is contributing further to the growth. This

paper is an attempt to study and understand the trends which are fuelling the growth of the

Indian alcohol industry.

India is the third largest global spirits market by volume in the world, just behind China and

Russia. It is also one of the fastest growing markets in the world . According to a WHO

report, nearly 30% of the Indian population consumes alcohol, it means that roughly 1 in

every 3 Indian consumes alcohol. The Alcohol Industry leaders have recognized that women

and the young population are the key market segments and hence their marketing

campaigns are specially focused on this segment. To attract this segment Companies are

launching new product categories such as flavored drinks and pre-mixed Cocktails. Alcohol is

becoming easily accessible thanks to availability of beer and wine at certain shopping malls

and supermarkets.

A WHO study conducted in 2014 found out that average Indian male drinker over 15-years-

old consumes 33 litres of alcohol a year while the average for women drinkers is 11 litres.

The same study observed that in India, 93% drink hard liquor - whisky or vodka - while only

7% drink beer. India's wine drinking population is very low with only 1% drinking it. Over the

years drinking habits have increased even when the population who abstain from alcohol all

their lives in India is quite high; among men it is 60% and among females it is 90%.

There are 3 broad categories of alcohol – IMFL (Indian Manufactured Foreign Liquor which

includes whiskey, rum, brandy, vodka & gin), Beer and Country Liquor (cheaper, spiced

liquor). The market is divided almost equally by volume. However, the IMFL market is much

larger in terms of value – by the sheer difference in price per bottle. Hence, the IMFL market

would be over 65% by value and beer would be ~15% by value.

It is estimated that a significant portion of sales in India goes unreported due to taxation

structures.

The overall retail market size of liquor is ~$35 billion per annum. Overall growth of the

market is ~8% per annum, mainly driven by IMFL and beer. Country liquor is a slow growth

market.

Type of industry

Market Share PricingGeographical Consumption

Target Audience

IMFL 36%Affordable and

competitiveMostly South

IndiaAbove 35

Country Liquor 48%Cheap prices,

that is the driving factor

All over / large scale in tribal

beltAbove 35

Beer 13% ExpensiveUrban cities,

AP18-40 years

Illicit Liquor NAExtremelycheap / no duty levy

Small towns and villages

NA

Imported Liquor (BIO +

Wine)3% Luxury

Metropolitan Cities

Women / 35 and above

Indian Made Foreign Liquor

In the IMFL segment Indians still prefer brown spirits (which is 95% by volume) over white

spirits (which is 5% by volume). Brown Spirits are categorized as whisky, rum, brandy and

white spirits include gin, vodka, white rum. Among Spirits whisky is the most popular drink

which accounts for almost 60% of the IMFL Market [3].

According to a report by Bank of America-Merrill Lynch (2014); Indians consumed 1.5 billion

litres of whiskey, completely dwarfing the United States' 462 million litres. Whisky

consumption is reportedly expected to grow 8-8.5 percent annually. The overall IMFL market

is increasing at the rate of 9-10 percent annually. In India's 310- million cases strong spirits

market, Whisky sales overwhelmingly dominate with 175-million cases, accounting for 57%

of the market. While the whisky market reported 6.7% growth in the last five years, Rum the

second largest spirits category with 23 million in sales volume reported only a 1.3% growth

in the same period. IMFL dominates the Indian Liquor Market with a lion’s share, this

segment is continuously witnessing growth as large consumers are following the premium

and better quality liquor. With the rise in their propensity to spend and increased hygiene

risk in the consumption of country liquor other segments such as IMFL and Beer set to gain.

The market has undergone several positive changes in the past 5 years and has strongly

positioned itself relative to other segments with several economies of scale. Figure 1 shows

the regional distribution of IMFL in India.

49%

30%

9%

12%

South North East West

Regional Distribution of IMFL

One notable factor in the IMFL segment is the tremendous growth in the vodka market. It is

the fastest growing among all types of liquors. Although it accounts for only about 4 percent

of the IMFL market, its consumption has been growing at the rate of about 44 percent over

the past few years. The growth drivers for white spirits include increasing consumption of

white spirits among women and popularity of white spirits over brown spirits amongst the

younger drinking population.

Country Liquor

Country liquor is the largest consumed alcohol type in India (about 50 percent of the

market), growing at a rate of 6-8 percent per year with faster growth in some states in the

north and east. It is produced in local licensed distilleries and is made of cheap raw material,

primarily rectified spirits of grains or molasses. As the production cost for country liquor is

low, the excise duties are also lower than they are for other liquor. The idea behind country

liquor was to provide cheap alcohol and thus check the illicit trade of alcohol. However, illicit

production of country liquor is still fairly common in India. Some alcoholic drinks that are

low in alcohol content are also made in homes in some tribal areas. It is observed that

Country Liquor market has witnessed a steep decline with a negative growth over the past 5

years. The market share of Country Liquor segment is gradually decreasing. The segment is

continuously witnessing a decline as number of consumers have started switching to

premium and better quality liquor in the IMFL segment with the rise in their propensity to

spend and increased hygiene risk in the consumption of country liquor. Country Liquor is

estimated to lose its market share in the long run to other segments.

Beer

Beer has become a popular beverage in the country only over the last two decades. The

market for beer is growing rapidly now, at a rate of about 17 percent per year. Indians

consume about 1.5 litres of beer annually; the global average is 27 litres. In India, beer is

manufactured in licensed breweries and there are more than 60 beer brands available in the

market. Over the years, strong beers (which contain 5.1-8 percent of alcohol v/v) have been

gaining popularity over standard and premium categories, which have lower alcohol content.

The growth in the beer market appears to be driven by young consumers and professionals

who consider beer a trendy drink, as compared with traditional spirits. There is also a small

demand for foreign beer in the upmarket urban areas. The highest levels of beer

consumption in India are observed in the southern states. From 100 million cases a year in

2004, 200 million in 2010 and 300 million in 2015 the beer industry has grown by leaps and

bounds. Growth is coming from multiple areas. Erosion of the national market share of

smaller/regional brands due to lack of investment or price fluctuation across states is one

reason. The expansion of microbreweries and brew pubs contributing to the growth is

another.

Wine

Wine was not produced or consumed on a large scale in India until recently. Urbanization

and globalization have led to a radical increase in the sale of wine, mainly in the bigger cities

like Mumbai, New Delhi, and Bangalore. Wine companies are especially targeting urban

women. The annual growth rates have been recorded at 20-25 percent and are expected to

increase. Though champagne and other sparkling wines are gaining popularity, they are far

behind in comparison with red and white wines. The major reasons for this upswing in wine

consumption are: increase in the levels of disposable income, lifestyle changes, and

exposure to international experiences. India imports wine from many countries, with France

being the leading exporter, followed by Australia, the United States, and Italy. India has a

small, but growing, production segment in wines. In 2000, there were only six wineries and

the number rose to 65 in 2008. Most of the wineries are located on the Pune-Nashik belt.

The major domestic players are Chateau Indage, Sula, and Grover Vineyards.

Foreign Liquor Bottled in Origin (BIO)

Imported liquor forms a very small part of alcohol consumption in India. It is usually imbibed

by the rich and upper middle class in metropolitan cities and is also popular among young

professionals and entrepreneurs who migrate from local brands to international brands.

International exposure to imported liquor and developing a taste for it during international

travel are also reasons for its increasing popularity. Apart from excise duties, it is also

subjected to customs duty, making it much more expensive. The imported spirits market in

India is growing 25 percent yearly and it was observed that Indian spirit imports soared to

five million cases in 2015.

• IMFL is dominated by Whiskey – Almost 60% of the IMFL market is whiskey. India is the

world’s largest whiskey market. 6 of the top 7 selling brands in the world (by volume) are

Indian. Beer is dominated by Strong Beer – India has a distinct preference for strong beer

(8% alcohol v/v). Over 80% of the market is strong beer.

• Premiumization – On the back of growing income, there is a strong trend of

premiumization. All liquor companies are increasingly looking at introducing better

quality, more expensive brands in their portfolio.

• High Growth White Spirits – This is the fastest growing segment in India. Vodka has

emerged as the preferred liquor for the youth. Growth has been at over 25% per annum

over the last few years (albeit on a smaller base of ~9 million cases).

• Unexciting Wine – Wine has been a slow growth market in India, with a very niche

audience. Although it is highly visible in the cities, the total market is just over 1 million

cases. Sula, Four Seasons (UB Group) and Nine Hills (Pernod Ricard) are the leading

brands. Maharashtra and Karnataka are the two states with most of the wineries as well

as wine consumption. This is due to a preferential tax structure in these states.

Income starkly affects alcohol consumption; in rural areas, toddy and country liquor

consumption rises with class and falls only in the richest 5%, while beer and refined liquor

rises with class. For urban areas, country liquor consumption falls as people get richer, while

beer and refined liquor consumption rises exponentially.

South India dominates the alcohol market in India, with that region accounting for about 60

percent of total IMFL sales and 45 percent of total beer sales.

The consumption of spirits and hard liquor accounts for the majority of alcohol consumption

in India. However, the scenario is gradually changing. In fact, most countries are

experiencing changing trends, with people switching over to white spirits like vodka and gin

and to drinks with lower alcoholic content like beer and wine. In India, the IMFL (notably

vodka) market is increasing at a higher rate as compared with country liquor categories and

is likely to see tremendous growth in the distant future.

Consumers are largely inclined towards quality alcohol due to increasing disposable income

and better standard of living. Other drivers include greater inclination towards social

drinking as well as women indulging into alcohol consumption. As India has huge youth

population, the demand of alcohol would remain high in the coming years. The market saw a

boom in Vodka sales in past decade as Vodka was positioned as the alcohol for women.

Youth largely prefer beer and the salaried youth are inclined toward whiskey and rum.

0-20% 20-40% 40-60% 60-80% 80-100%

Rural

0-20% 20-40% 40-60% 60-80% 80-100%

Urban

% o

f Li

qu

or

% o

f Li

qu

or

Income DistributionPoor Rich

Beer, Foreign Liquor & Wine Toddy and Country Liquor

Income DistributionPoor Rich

Though there is a huge market for country liquor and illicit alcohol in India, the most

prominently visible markets are the ones for IMFL and beer. The reason for this is that these

sectors have multiple production units, wide distribution networks, and strategic marketing

plans. These industries have an established infrastructure and they constantly monitor their

growth, market share, and other competitors. On the other hand, the country liquor industry

is more localized. It does not have nationwide known brands; the producers are regional or

local and make local brands. This industry does not even engage in much advertising or

promotion of its brands, partly because there is less competition and the market is local.

Alcohol consumption is reportedly decreasing in the developed world; however, it is

increasing manifold in developing countries, including India. Country Liquor and IMFL have

the highest consumption levels in India. It is observed about 32% of Indians consume alcohol

(almost 1/3 of India’s population), out of which 4-13% are daily consumers. Around 30-35%

of adult men and approximately 5% of adult women consume alcohol on average. The

average age of initiation of alcohol use has reduced from 28 years during the 1980s to 17

years in recent years.

Despite the fact that per capita alcohol consumption in India is among the lowest in the

world (0.9 litres vs. 4.5 litres global average), hazardous drinking (binge drinking and solitary

consumption to the point of intoxication) is the hallmark of alcohol consumption here. It is a

pattern of drinking observed in more than half of the drinkers in India. Again, typically,

brown spirits (particularly whisky and rum) are the preferred alcohol beverages (high alcohol

content; over 40 percent v/v) rather than beers, wines, and other products with lower

alcohol content. The white spirits, beers, wines, and other ready to drink alcohol products

have begun gaining some popularity among Indian drinkers only until recently.

This is a favorable time for the alcohol industry in India due to the following factors:

Urbanization: More and more people are migrating towards bigger cities, where they are

exposed to a wider variety of alcoholic products, including IMFL.

Favourable demographics: India is a young country, with more than 60 percent of Indians

falling in the 15-45 years age group. This is the cohort the industry targets as potential

customers. About 485 million Indians are currently of drinking age and another 150 million

will be added to this group in the next five years.

Changing social norms: Over the years, there has been a change in attitudes, making

consumption of alcohol more socially acceptable. This acceptability extends to drinking in

family environments, at social events, and by females/youngsters.

Rise in disposable income: More and more Indians are now moving towards the

upper/middle-income group. The per capita income has witnessed a continuous growth,

from just over Rs. 27,000 in 2006 to over Rs. 93,000 in 2015.

Increased alcohol accessibility and availability: There has been an increase in the variety of

alcohol brands and types and all of them are easily available in government-licensed outlets,

government shops (monopolies), private licensed retail chains (permitted since the past

couple of years), restaurants, and bars.

Other factors that have been conducive to the industry include relaxed overseas trade rules,

the availability of alternative and innovative means of targeted marketing and promotion.

The influence of these factors is visible in the increase in alcohol consumption.

Global Development - Indian alcohol manufacturers are tapping the international market by

entering into joint ventures. The aim is to increase their sales and expand their operations

globally. For example, United Spirits completed the acquisition of major Scotch whisky player

Whyte & Mackay in 2007 and it is also exporting its brands to China. Radico Khaitan has

been building up its exports in the Middle East and Africa. Even as local companies are

expanding globally, international companies are entering the Indian markets on a large scale.

Investment by International Companies - Looking at the potential in the Indian alcohol

market, many international companies have tied up with local players. In 2012, Diageo,

which is the biggest alcohol company globally, acquired a 27.4% stake in United Breweries

Ltd., which is a leading spirits company in India. Other big liquor companies like SABMiller,

AB InBev, and Carlsberg have also entered the Indian market and are geared to collaborate

with Indian companies.

Increasing Alcohol Consumption in the Country: There is a decline in the consumption of

whisky in the western world but an increase in India. This, and its huge population, makes

India a very lucrative market for international companies. Along with the market for whisky,

the market for other alcoholic drinks like beer and wine is also getting better and stronger,

making India an even more attractive proposition. However, the levy of high taxes and

customs duty is a deterrent. Despite its WTO commitments, India has not reduced the taxes

and duties on certain products like alcohol. Therefore, there is no big inflow of imported

liquor into India at cheap prices.

Alcohol in the Supermarket - The retailing regulation for alcoholic drinks was eased out a

couple of years ago when some state governments gave permission to sell alcohol in

supermarkets. Maharashtra has been at the forefront of these changes with retailing of beer

and wine being permitted in supermarkets. West Bengal has also given the green light to the

retailing of beer and wine through supermarkets. Chandigarh too jumped on the

bandwagon, with excise policy changes allowing retailing of wine through supermarkets.

Diageo tied up with retail giant Reliance Retail for the distribution of wine.

The Indian liquor market is characterized by very high regulation. The liquor industry is a

State subject and hence subject to laws in each state. This means a company has to have

licenses and permissions to operate in each state. Hence, there are very few players who are

truly “National”.

Independent Licenses are required to produce, bottle, store, distribute or retail all liquor

products. Licenses to produce and bottle are particularly scarce and contract manufacturing

is a well-established market entry strategy.

Taxation is high, Price is controlled – Excise duties, sales tax, VAT and various intermediary

margins contribute bulk of the retail price. To give you an idea, the typical manufacturer/

brand realizations are below. In most states, the government tightly controls the retail price

of liquor. In many cases, a tender process is used to determine prices and volumes that will

be bought by the distributors.

Market control – There is a complete ban on liquor advertising in India. Brands try to go-

around this by using surrogate products (Bacardi Music CDs, Johnnie Walker golf, Tuborg

beverage).

There exists quite a few restraints in the market such as high taxes, stringent government

regulations on manufacturing and selling liquor, and ban on advertisements among others.

Alcohol consumption is also subjected to the overall economy’s growth in terms of gross net

income per capita and household expenditure. Thus, development in the economy would

give a thrust to the alcohol market further but in a less pronounced manner.

• Citations:

• Local Spirits, Big Growth - The Financialist. (2013). Retrieved October 10, 2016, from https://www.thefinancialist.com/local-spirits-big-growth/

• The Indian Liquor Industry - IndigoEdge. (n.d.). Retrieved October 10, 2016, from http://indigoedge.com/insight-case-study.pdf

• Conclusions and Recommendations - etouches. (n.d.). Retrieved October 10, 2016, from https://www.eiseverywhere.com/file_uploads/149e1cb1e51afe47d45ddd917c81aeb3_HimanshuGuptaAPSADposter.pdfToI Article by Anshul Dhamija: Indian whiskies tighten grip over global growth charts

• Colombia, B. (n.d.). Indian whiskies tighten grip over global growth charts - Times of India. Retrieved October 10, 2016, from http://timesofindia.indiatimes.com/business/india-business/Indian-whiskies-tighten-grip-over-global-growth-charts/articleshow/40032433.cmsFNB News Article:

• Sinha, A. (n.d.). None. Retrieved October 10, 2016, from http://businessworld.in/article/Battle-Of-The-Brew/19-01-2016-90403/Vivek B. Indian Liquor Industry- A Regulatory Hangover

• India Wine Report - Reference Guide - Indian Wine Academy. (n.d.). Retrieved October 10, 2016, from http://www.indianwineacademy.com/Comprehensive_Study_IWM_Reference_Section.pdf

• S., R. (2014). India's biggest drinkers. Retrieved October 10, 2016, from http://www.thehindu.com/opinion/blogs/blog-datadelve/article6344654.ece

The Indian Alcohol Market is healthy and growing but faces increasing challenges from the

regulatory environment in the form of Independent licences, high taxation and Price control.

The consumption of alcohol is starkly related to the income levels and varies accross

demographics & geographics (rural vs urban). However, there are growth driver such as

urbanization, changing social norms etc. that are driving sales in the country. Drinking

behaviors are changing accross generations and the age of initiation of alcohol consumption

is also dropping. Producer and responding to changing Indian market dynamics by creating

and reinventing categories to boost sales and it seems that the industry is heading towards

premiumization as more number of consumers are paying more to get better value for what

they buy. All these trends suggest that the Indian Alcohol industry is a key market for alcohol

companies and will remain so; now and in the future.