Imagine clinking glasses while watching your portfolio registering profits. Looking at the upsides of the alcoholic beverages industry in India, this does not seem far-fetched. While the Indian alcohol industry has long been dominated by traditional spirits like whiskey and rum, other beverages like beer and wine are slowly leaving their imprint on the map. With a growing middle class and evolving consumer tastes, the Indian alcohol industry presents a compelling opportunity for investors seeking to tap into a market with substantial growth potential. In this edition of Industry Analysis, we will see the trends, challenges and opportunities that characterise this sector.
Industry Overview
The Indian Alcoholic beverages (Alcobev) industry is propelled by stable macroeconomics, a young and urbanising population, and a burgeoning middle class. Despite being one of the largest whisky markets globally, India's per capita consumption of Total Beverage Alcohol (TBA) remains relatively low, indicating substantial room for growth. The market is segmented into IMFL (Indian Made Foreign Liquor), IMIL (Indian Made Indian Liquor), Wine, Beer, and imported alcohol, with whiskey dominating the spirits sector by a significant margin. Key consuming states include Karnataka, Maharashtra, and West Bengal, while liquor stores constitute the primary sales channel, particularly in tier I and II cities. Additionally, the sector's trajectory is bolstered by the revival of GDP, driving the consumption of IMFL, and the increasing trend of premiumisation, as reflected in the focus on semi-premium and premium categories by major players.
The Indian alco-beverage industry has exhibited remarkable growth, with the per capita consumption of pure alcohol growing from 0.9 litres in 2000 to 3 litres in 2015 at a CAGR of over 8%. The market, comprising more than a billion cases per annum, is dominated by spirits mostly.
The sector's size, estimated at Rs 2.5 lakh Crore in FY 2020, positions it as one of the world's largest markets, poised to grow at a CAGR of 8% in volume and 11% in value from 2021 to 2025. Indian-made foreign liquor constitutes a significant share, contributing close to 68% in value to the overall market.
Regulations and Challenges in the Alcoholic Beverages Industry
In India, both central and state governments impose various restrictions on the production, movement, and sale of Alcobev in India. The Food Safety and Standards Authority of India (FSSAI) also regulates the sector. Moreover, direct advertising of these products is prohibited in the country.
Then, there is the issue of high inter-state duties which often necessitate national Alcobev players to establish manufacturing facilities in each state. Also, licensing is mandatory for all aspects of production, storage, distribution, and retail and distribution is tightly controlled at both wholesale and retail levels, with some states enforcing government-set prices and quotas, limiting market share expansion for industry players.
These regulations create operational challenges and contribute to persistent pricing issues due to continuous excise duty hikes, resulting in increased consumer prices without benefiting the company. Despite some progress in securing pricing in various Indian states during fiscal year 2023, the impact of inflation remains a concern.
Growth Drivers
The preference for premium alcoholic beverages has surged in India as consumers increasingly opt for high-end brands. This trend was facilitated by the rise in off-trade sales, with a particular inclination towards pricier drinks. The significance of new sales channels, such as home delivery and limited e-commerce of alcoholic beverages, has been emphasised, contributing to the maintenance of alcohol sales volumes and related excise revenues.
Consumers are increasingly preferring premium brands like Sula and Kingfisher. Despite a setback, the on-trade segment, known for driving growth and premiumisation, is expected to regain momentum in the backdrop of increasing corporate events, travel and social drinking.
In terms of marketing, digital media, including influencer-led campaigns, has become a key channel for alcoholic beverage companies to reach their target audience, given the ban on traditional advertising. The increased visibility of Indian wine brands on social media platforms like Instagram has significantly expanded their reach.
Furthermore, there has been a noticeable reduction in the social stigma associated with alcohol consumption, particularly as drinking becomes more prevalent across various demographics and settings, including family and professional environments.
For your cursory analysis, here are some of the notable players in the Indian Alcobev industry along with the products that they offer:
Name of the Company | Market Cap | Last Traded Price | P/E Ratio | Products Offered |
United Breweries | ₹ 42,227 Cr. | ₹ 1,597 | 148 | Kingfisher, Kalyani Black label, Sandpiper, Heineken |
Sula Vineyards | ₹ 3,934 Cr. | ₹ 466 | 42.1 | Sula Shiraz cabernet, Sula chenin Blanc, Sula Zinfandel Rose, Madera Red, Dindori Reserve Shiraz, Satori, Samara Red, Rasa Cabernet Sauvignon, The Source Grenache Rose, Dindori Reserve Chardonnay, Sula Sparkling Shiraz |
Radico Khaitan | ₹ 15,959 Cr. | ₹ 1,192 | 76.2 | 8 PM, Magic Moments |
Globus Spirits Ltd | ₹ 2,295 Cr. | ₹ 797 | 18.6 | Country Club, Governor's Reserve |
Piccadily Agro Industries Ltd | ₹ 2,282 Cr. | ₹ 242 | 88.7 | INDRI-Dru, INDRI - Travel Retail Exclusive, Camikara 12 Years aged. |
United Spirits Ltd | ₹ 73,612 Cr. | ₹ 1,011 | 59.7 | McDowell No. 1, Royal Challenge, Signature, VAT 69, Black Dog, Johnnie Walker |
Tilaknagar Industries Ltd | ₹ 3,678 Cr. | ₹ 192 | 38.0 | Mansion House brandy, Madiraa, Mansion House Whisky and Senate Royale Whisky. |
Prospects With Low Alcohol Beverages
While India stands out as a prominent market for spirits, its expanding income levels and evolving consumer preferences indicate promising prospects for other beverage segments, particularly those with lower alcohol content. Presently, spirits dominate the alcohol consumption landscape in India, with more than 90% of the market share. Comparisons with global trends reveal that the share of low alcoholic beverages in India's overall alcohol consumption remains at a relatively modest level of about 8%.
The wine consumption landscape in India, although currently at a very low level with per capita consumption of less than 100 ml, holds the potential for substantial growth. In contrast, developed countries exhibit higher wine consumption rates, reaching nearly 30% of overall alcohol consumption in Europe.
A useful comparison in this regard is that with China, which demonstrates that despite a relatively low contribution of wine to the overall alcohol consumption at about 3%, China's per capita wine consumption surpasses that of India by more than 50 times. The growth trajectory of wine consumption in China is closely tied to the country's economic development. This indicates promising prospects for India, especially considering India's per capita income has recently exceeded the benchmark established by China during its growth period.
With the current per capita wine consumption in India being one of the lowest among major global economies, the country's favourable economic growth, positive demographic dividends, and increasing acceptance of beverages with lower alcohol content are expected to drive a robust and sustained period of growth in the Indian wine market. This sets the stage for the Indian wine market to expand exponentially, leveraging various growth opportunities in the market.
The Gist
In conclusion, the Indian alcoholic beverages industry faces challenges like stringent government regulations, including advertising restrictions and high inter-state duties leading to operational challenges. Despite this, the sector has seen a surge in premiumisation, particularly during the pandemic, with increased home consumption and the emergence of new sales channels. Digital media and influencer-led campaigns have become pivotal in marketing strategies. In addition, reduced societal stigma surrounding alcohol consumption has opened up opportunities for beverages with lower alcohol content. While being predominantly led by spirits, the sector is witnessing a steady rise in the wine and beer segments, driven by a young and urbanising population painting an optimistic picture for low-alcohol beverages.
ความคิดเห็น