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Romesh Pandita

Romesh Pandita, Chairman and Managing Director, Alcobrew India Pvt Ltd.

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Indian Liquor Industry – Prospects and Challenges 2019

India is one of the top markets for higher consumption and growing at a healthy rate.

The Indian liquor Industry is one of the most vibrant in the world. The array of liquor sold in India is dazzling and demand for the same is growing among affluent Indians. India is one of the top markets for higher consumption and growing at a healthy rate.

Alcohol, when consumed in moderation is proven to be benign and some forms of alcohol such as wine are known to be good for the heart. Just ask the French many of whom drink much red wine, eat fatting cheese, smoke with abandon, and eat kilos of red meat yet enjoy better health than and outlive those in countries where healthier regimes are regularly followed.   

The Indian consumer has come of age and today is being wooed by international liquor brands which want to do their best to deserve his respect. He has travelled abroad, seen the best, experienced the best, and want to enjoy the best in the company of friends. Among young Indians, drinking often is a prerequisite to socialising and networking. 

While the year gone by gave the Indian consumers access to new vintages, well-brewed beers, and matured liquors and scotch, for the Indian lover of liquor the next year will be even grander. A few trends likely to shape the Indian liquor market next year are described below, but first is an insight into the 3 segments of consumers who make up the Indian liquor market. 

What’s In a Brand Name, Well… Everything 

The brand name liquor carries is crucial to its success and will remain so in the year ahead as well. Demand for branded liquor is led by the most affluent segment of society and brand name led consumption includes demand for imported scotches and single malts. Many of those who consume liquor sold in this segment are liquor connoisseurs and take pride in enjoying all the trappings of an affluent lifestyle which includes knowledge of and consumption of fine liquors. Much thought goes into purchasing liquor among consumers in this segment. People in this segment are involved in the purchase of liquor and they know what kinds of liquors are available in the market. Such consumers enjoy drinking the highest quality liquor and have the means to do so regularly. 

For the Young, Consuming Liquor is Experiential

The experience led consumer purchases whiskey that is in the premium and deluxe segment. People in this demographic are usually younger than those in the former segment many being in their 20's and are employed in prestigious jobs or are college students from relatively well-off backgrounds. They regularly experiment by consuming different brands and hence are not completely won over by a single brand. Such consumers are also open to consuming brands they have not tried before and they can be won over by new brands when brands offer better value such as attractive packaging, superior blend, a better consumer experience, and other high-value offerings. Because people in this segment are younger than those in the former segment, their tastes are not as evolved or as well matured as those of the latter. Many new brands have gained traction in this segment because consumers in this segment prefer such new brands and because they are open to experimentation. 

When the Price has to be Right 

Price point led consumers are very price sensitive and, unlike brand-name led consumers and experience led consumers, display no brand loyalty. Members in this segment regularly close their workday by consuming liquor and have incomes that are far lower than those of people who consume branded liquor and experience led consumers. Many such consumers fall in the lower middle class and many are also daily labourers. They don’t have any brand loyalty and will easily switch from one brand to another as long as doing so saves them money. 

Naturally large established liquor brands don’t serve this segment; rather this segment is served by many regional players and by Indian players as well. Also, while very large quantities of liquor are sold in this segment, because sellers in this segment can’t charge a premium for their brand and don’t command any brand loyalty, profits in this segment are the lowest of the three segments mentioned. Those who produce liquor in this segment are also completely dependent on the price of raw materials and on their availability. Hence if the price of raw materials used by producers in this segment rises, then manufacturers of such liquor brands will earn lower profits or even losses.

In understanding consumers in these segments sit’s crucial to remember that consumers are not a permanent part of any one segment. In reality, as incomes grow, consumers who were motivated to purchase liquor only because of its low price grow to be motivated by experience and at even higher income levels become driven to purchase liquor because of the brand under which it is sold. New trends also reveal that younger consumers of liquor are less conscious of price and become experience led consumers directly, thereby skipping the stage where consumers are driven only by price. Trends also indicate that young consumers, who earlier may have preferred to drink beer or vodka, today are just as likely to consume whiskey. 

Which Liquors are in Favour, Which Aren’t

As income levels continue to increase across India fewer people will select liquor in 2019 based solely on price. Hence the demand for low margin whiskey will shrink next year while demand in the deluxe and premium segments will grow. This is to be expected as liquor whose demand is driven solely by its low price is an inferior good and demand for it will fall as income levels rise and consumers can purchase higher quality liquor. 

Next year as income levels rise and there is greater awareness among consumers about scotches and imported whiskeys, demand for scotches and whiskeys will increase comparatively faster. Other reasons why there will be greater demand for scotches and whiskeys next year is that this segment serves a small market than it has the potential to and because such liquor is becoming available in more parts of the country. 

In 2019 it is expected that the demand for vodka and brandy will grow while demand for rum will fall. Next year will also mark the entry of premium rum and of artisanal gins although the expected demand for both will be low. 

Indian Liquor Brands Are Coming On Strong

The Indian liquor industry is growing in size and domestic liquor manufacturers are poised to take advantage of this expanding industry. Next year Indian liquor companies will do better business than they did in 2018 yet only if they continue to offer good value for money to consumers. To ensure their success in 2019, Indian companies will have to introduce new products to the market quickly and manage trade relations with their partners better as well. Evidence of such faster growth is that over the past few years Indian liquor companies have created product offerings that have been well received by consumers. The continuation of the same will result in greater sales and will also attract new first time consumers of liquor and consumers who earlier were driven solely by price. However, while Indian liquor companies will thrive next year they will not successfully steal any significant market share from established players. 

It won’t all be Smooth Sailing In 2019

Despite the upbeat momentum of the Indian liquor industry next year, there are a few challenges the industry will have to face. One such challenge is the rising cost of doing business in India. This rising cost is in the space of dry and wet goods. Another challenge the liquor industry will face is that companies will need to make greater investments to pay excise duties. 

Companies that sell to consumers who are highly conscious of price will be burdened by higher costs of raw materials next year. As the profit margins of many companies in this space are small, some players in this segment will find it difficult to remain viable. Next year it is likely that may liquor distributors will stake their claim in the liquor industry by launching their own brands. This will disrupt the distribution of liquor for many existing brands. 

The entry costs to the liquor business will be higher next year which will dampen the introduction of craft and niche liquor brands thereby depriving consumers of greater variety. Finally, the scale of a liquor business will be more important than ever before to ensure the success of the business. 

More Indian’s Saying Cheers to Liquor

Over the coming year, it’s expected that demand for whiskey will grow by 3.5 percent and will grow at this rate every year for the next 3 years while whiskey's share of the entire Indian liquor market will be  60%. Whiskey sales will comprise73% of the value of liquor sold in India in 2019 clearly revealing that premium prices attached to whiskey don’t dampen Indian consumer’s appreciation of this liquor. Within the whiskey segment, it is estimated that demand for Bottled in India (BII) Scotch, Premium Whisky, and Semi-premium Whisky will grow between16%, 10%, and 8% respectively. 

Demand for scotch, Indian made foreign liquor (IMFL), deluxe whiskey, and regular whiskey will be between 12%, 3%, 15%, and -2% respectively. The drop in demand for regular whiskey is commensurate with rising standards of living in India and signals the aspirations of Indians some of whom prefer to consume more a higher quality whiskey instead of regular whiskey. A very large number of those who consume whiskey next year will consume regular whiskey signalling once again that despite an aspirational class, low prices still have an impact on the average consumer’s decision to purchase whiskey in India.

Other liquors such as rum, brandy, and white spirits share by volume in India is expected to be 15%, 22%, and 3% while their share by value is expected to be 10%, 12%, and 5%. A casual examination of these numbers reveals that in India consumers still prefer relatively inexpensive rum and whiskey while those who consume white spirits are more likely to consume a premium product.

Both Premium Brandy and Beer are poised to grow in coming years while Rum will be declining along with Regular Brandy. Hence the demand for each of the mentioned categories of liquor except massbrandy will grow. The decline in demand for mass brandy is also a result of rising aspirations of Indians who will be more likely next year to opt to purchase a higher quality of liquor than a mass brandy. The rise in demand for beer is congruent with the increasing numbers of young Indians who consume beer to have a good time. 

More and more Indians are saying cheers among friends every evening, a trend that is likely to continue. Excitingly more Indians are willing to pay extra for a higher quality branded liquor than did in the past; this trend is likely to increase the demand for branded liquor over the next few decades at the expense of unbranded liquor brands. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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