Alco-beverage Industry

Summary

A Industry Analysis

Industry Overview

India’s GDP and GDP Growth
India is the world’s 6th largest economy and expected to be in the top 3 global economies by FY 2050 Currently, India ranks sixth in the world in terms of nominal gross domestic product (“GDP”) and is the third largest economy in the world in terms of purchasing power parity (“PPP”). India is estimated to be among the top three global economies in terms of nominal GDP by FY 2050.

India expected to fare better than developed economies and recover to a high growth path in coming years India’s real GDP has sustained an average growth of approximately 7 per cent. since FY 2015, making it the fastest-growing G20 economy since FY 2015. India’s economy grew at ~6 per cent. in FY 2019. The real growth rate declined to 4 per cent. in FY 2020 and witnessed a degrowth of 7.3 per cent. in FY 2021 due to the outbreak of the COVID-19 pandemic, which led to the imposition of lockdowns towards the last quarter of FY 2020 and a
major part of the first quarter of FY 2021 causing a contraction in the economy.

Global Consumption Trends in Alco-beverages
Alcohol consumption is captured by WHO as total alcohol per capita consumption in litres of pure alcohol per person per year and alcohol consumption in grams of pure alcohol per person per day. Alcohol consumption is further divided into recorded data and unrecorded data. Recorded data is alcohol sales captured through excise department in most countries. World per capita alcohol consumption in CY 2021 is estimated at 6.6 liters of pure alcohol per year for the world population of 15 years above. The recorded alcohol per capita consumption for CY 2021 is estimated at 4.8 liters.

Alcohol consumption is divided in three major product categories including spirits, beer and wine
Alcohol consumption is divided across three major categories of alcoholic beverages with varying trends across countries. The consumption of different alcoholic beverages has matured in developed economies, but it is still going through a transition in developing countries. Spirits as a category are more popular in developing countries, whereas contribution of beer and wine is higher in developed countries. An overall comparison shows that beer is the largest category in terms of actual volume consumed. Wine consumption is almost equivalent to spirits’ consumption in actual litres of sales. As per WHO, contribution of wine in the consumption of alcoholic beverages has progressively risen from 8.6 per cent. in 2005 to 11.7 per cent. in 2016, and it is estimated to reach 13.5 per cent. in CY 2021 as per data on recorded 100 per cent. pure alcohol consumption.

Indian Alco-beverage Industry
Size and Growth of the Indian Alco-beverage Industry
India is one of the fastest growing alcohol markets among the top economies in the world. The recorded per capita consumption of pure alcohol in India has moved from 0.9 liter in 2000 to 3 liter in 2015 at a CAGR of more than 8 per cent.. The percentage drinking population of world is close to 41.7 per cent. and projected to stabilize around 40 per cent. in 2025. India’s percentage of drinking population is projected to be close to ~33 per cent. in FY 2021 and 39 per cent. in 2025.

Indian alcohol beverage market is more than a billion cases in size and highly dominated by spirits The Indian alcohol industry size is estimated at more than one billion cases per annum in FY 2020. Recorded per capita consumption of pure alcohol has moved from 0.9 liters to 2.7 liters for the period between 2000 to 2010 with a CAGR of close to 12 per cent.. Recorded per capita consumption of pure alcohol has been rangebound around 3 liters from 2015.

High alcohol content spirits have dominated the Indian alcohol market. A volume-based analysis shows that alcohol beverage market in India is equally divided between country liquor, Indian-made foreign liquor (“IMFL”) and beer with a small contribution from wines and imported spirits. Beer and wine are poised to drive both volume and value growth for the alco-beverage market. The industry is projected to cross 1200 million cases in volume by 2025.

Indian alco-beverage sector size is estimated at INR 2.6 lakh Crore in FY 2022, making it one of the biggest markets in the world.
Indian alco-beverage market is the third largest market in the world after China and USA by volume in terms of actual alcohol content of alco-beverages in CY 2020. It is also the largest western spirits market in the world. Indian alco-beverage is projected to grow by a CAGR of 8 per cent. in volume for the period between FY 2022 to FY 2025 against the projected world market growth of 1.5 per cent. in volume for the same period as per IWSR. Indian market is projected to grow at 12 per cent. per annum in value terms for the period between FY 2022 to 2025. Indian market is dominated by IMFL which contribute close to 67 per cent. in value to the overall market in FY 2022.

Wines are getting popular as availability of wine improves with rising preference of premium food and drink experiences, and increasing perception of low alcoholic beverages being relatively healthier
Indian wines industry is growing at much quicker pace at 18.3 per cent. by value between FY 2014 to FY 2019 than the IMFL market growing at 12.3 per cent. by value for the same period. There is growing awareness towards perceived health benefits of wine which makes it more acceptable as compared to spirits. The supply of domestic wines that are reasonably priced and easily available as compared to the imported wines has also helped expand the market as leaders in domestic market have invested in the complete value chain of wines and wine making. Growth in income, increasing urbanisation, high share of young population as well as increasing preference for wines among women driving consumption of wines. As of CY 2021, the share of wine as a form of alcohol consumption in India is very low at less than 1 per cent., whereas contribution of wines to alcohol consumption is close to 13.5 per cent. in the world in terms of 100 per cent. pure alcohol in CY 2021. Its contribution is as high as close to 50 per cent. in select European countries. 

Though wine consumption is low in India, positive factors can lead to multi-fold growth of wine category in the country. Indian wine makers can take inspiration from a non-native market like China where contribution of wine at close to 4 per cent. to alcohol consumption is more than 50 times that of India. Economic trends common with China including growing income, rapid urbanization and growing international travel in the country will lead to growth of wine category in India. Wine category in India is estimated at 2.6 million cases in FY 2022 and projected to grow to 3.9 million cases by FY 2025 with a compounded annual growth rate of more than 14 per cent. in volume.

Key Players in Indian Alco-beverage Industry
Indian alcoholic beverage market has strong market leaders in all the segments controlling majority of the markets. Given the nature of industry and strict regulations, there are high entry barriers in the industry. Established players are well entrenched with manufacturing units across the country, collaboration for raw material and working relationship with state and central government officials.

The top two spirits companies of the world control the Indian spirits market. The top three players in the spirits market control close to 50 per cent. of the spirits market in India by volume in FY 2022. The top three players in beer market control close to 80 per cent. of the beer market by volume in FY 2022. In case of wines, top three players control close to 80 per cent. by value of the domestic 100 per cent. grape wine market. There is a long tail of players in each of the segments with regional strong players especially in the spirits’ market.

Key Trends in Alco-beverage Industry and Impact on Consumption
Indian alco-beverage industry is leveraging demographic dividend, growing income level and rapid urbanization to become one of the fastest growing markets in the world
Indian alco-beverage industry has been one of the fastest growing markets in the world and the outlook continues to remain positive due to favorable demographics, expanding middle class, rising disposable income levels, greater preference for premium food and drink experiences, and greater acceptance of alcoholic beverages in social circles. Increased consumption of liquor in rural areas will be another major reason for the growth in the market.

India is expected to add close to 10-12 million people to its workforce every year over the next two decades, with the working-age population projected to cross 1 billion mark by 2030. This provides tremendous opportunity to drive growth of alco-beverage industry on the back of its rising working-age population. Technology boom and increasing number of multinational companies in India have led to increased disposable income and prevalence of western culture of social drinking, which is boosting alcohol consumption. Growing prominence of ‘pub and cocktail culture’ in urban cities and emergence of novel food and beverage formats will further push demand for
alcoholic beverages in the country.

Premiumization of alco-beverages in India
Premiumization is the most important theme in each of sub-segments of Indian alco-beverage sector as volume growth led by popular segment in first decade and half of the century transitioned to value led growth in more premium segments in the last decade. The trend of premiumization is prevalent across the value chain including launch of new products, branding of shelf space in retail outlets, and company outreach to its customers through multiple marketing initiatives.

Moreover, with the rise in disposable income, consumers would tend to upgrade their preferences, resulting in higher demand for prestige, premium and luxury segments. Rapid urbanization is also leading to spur in aspirational values of people, leading to higher consumption of premium alco-beverage brands. Indians traveling abroad is also leading to an upgrade towards premium segments in the alco-beverage market. The trend is further being amplified with the rising influence of social media on the millennials and rising aspirations.

Growth in spirits market in India in the last five years is led by the premium segment followed by prestige and luxury segments with growth in popular segment being less than 5 per cent. by volume. Another trend which is gaining traction is the growing popularity of grain-based liquor as against traditionally popular molasses-based liquor. Diageo India entered premium craft whiskies with the launch of Epitome Reserve, a limited first batch of 2,000 bottles which is made from rice. Bacardi launched Bacardi Reserva Ocho in India in 2019 and Radico
Khaitan launched premium variants of its Magic Moments Vodka portfolio in 2021.

Growth in Indian beer sector is led by premium category growing at close to double the rate of popular category. 

The Industry has evolved from manufacturing standard beers such as strong and lager beer to flavoured and variety beers in line with trends in developed countries. There are multiple launches in premium beer segment from the top three players.

The top three companies in the Indian wine market have been focusing on the premium segment with the growing prominence of premium wines like Dindori Reserve Shiraz, Rasa Shiraz, Riesling White Wine, Sparkling Wine, Chenin Blanc White Wine, Fratelli Sete, etc.

Growth Drivers

Prominence of new channel of sales
COVID-19 has ensured that new channels of sales get more prominence. Home delivery and limited e-commerce of alco-beverages became a reality during the pandemic. Convenience and better purchase experience with higher comfort level of women make home delivery a promising channel of sales. Home delivery can improve the penetration of alco-beverage industry as the number of outlets remain very limited. However, this may also be a temporary phenomenon as state governments allow home delivery to ensure that alcohol sales volume and related excise revenues is maintained. Home delivery of alcohol was started in some states during COVID-induced lockdown to cover losses in revenue as well as to control the crowd at liquor shops. However, there is a need for detailed regulations in this space as this channel has a lot of potential for growing the alco-beverage market, especially drinks with lower alcoholic content like wine.

Increase of in-home consumption
There has been a shift in consumer drinking habits post COVID-19, with drinking becoming more common at homes. Consumers can spend lesser amount of money and consume more premium alcoholic beverages while drinking at home as compared to drinking in restaurants. Alco-beverages have been a part of their social life for many consumers, which was majorly disrupted due to lockdown and restriction in the food services industry, hence, house parties and small social gatherings involving alcohol have become increasingly common post COVID-19. This has led to an increase in the sales of wine which is perceived as a drink that can be consumed in family setting.

Power of brand recall for ordering home delivery from Off-Trade and increase in Off-Trade contributions
Brand recall is a key factor while ordering for home delivery since the consumers do not have various options in front of them. This has helped brands with larger market share that are more recognized and top of mind among consumers to increase their sales. While ordering alcohol for home delivery, certain brands depending on the category of alcohol are top of the mind recall for consumers. Sula as the category creator in wines and Kingfisher in beers are home grown brands with high consumer recall which have advantage over other brands.