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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-yearsold 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
Pricing
Geographical
Consumption
Target
Audience
IMFL
36%
Affordable and
competitive
Mostly South
India
Above 35
Country Liquor
48%
Cheap prices,
that is the
driving factor
All over / large
scale in tribal
belt
Above 35
Beer
13%
Expensive
Urban cities,
AP
18-40 years
Illicit Liquor
NA
Extremely
cheap / 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.
Regional Distribution of IMFL
12%
9%
49%
30%
South
North
East
West
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.
Rural
% of Liquor
% of Liquor
Urban
0-20%
Poor
20-40%
40-60%
60-80%
80-100%
Income Distribution
Rich
Beer, Foreign Liquor & Wine
0-20%
20-40%
Poor
40-60%
60-80%
80-100%
Income Distribution
Rich
Toddy and Country Liquor
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.
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 goaround 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.
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.
• 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_Himanshu
GuptaAPSADposter.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/indiabusiness/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/BattleOf-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