New Delhi: Even though Indian liquor manufacturers are beginning to give foreign players in the domestic market stiff competition — particularly in the semi-premium and premium whisky segments — the growth of domestic brands is being curtailed by the “colonial mindset of the state bureaucracy” and a “discriminatory tax structure” that favours foreign brands, said industry experts.
According to a 2021 report by Indian Council for Research on International Economic Relations (ICRIER), India is one of the fastest-growing alcoholic beverages markets globally with an estimated market size of $52.5 billion in 2020, and is expected to grow at a compound annual growth rate (CAGR) of 6.8 per cent between 2020 and 2023.
Vinod Giri, director general at Confederation of Indian Alcoholic Beverage Companies (CIABC), said the Indian liquor market is dominated by whisky, which, he estimated, corners 63 per cent of the market, selling a little over 240 million cases (one case is 9 litres). However, low-value whisky — usually from Indian manufacturers and retailing at around less than Rs 500 per 750 ml — makes up nearly 80 per cent of this market.
The remaining 20 per cent is made up by semi-premium or premium products from both Indian and foreign manufacturers.
What really matters to manufacturers’ bottom line is the premium segment, which offer better margins per bottle, explained Giri. Costs in this segment would be above Rs 1,000 per bottle, but it sees sales of little less than 10 million cases per year today, he added.
In this segment, imported scotch whiskies have an overwhelming market share of 75 per cent, he said.
“The top end of this premium segment consists of single-malt whiskies, which are relatively small at approximately 4,50,000 cases per year but growing well. It is largely in this malt whisky segment that the Indian brands are now giving good competition to foreign brands. The segment consisted of 100 per cent imported products till a few years ago, but now about 1,20,000 cases of these are Indian products,” Giri said.
However, he also claimed that the Indian tax structure is biased “and tends to favour imported products”, holding back Indian brands and their growth in the domestic market. “Otherwise, we would have seen a much bigger growth if we were given a level playing field,” Giri said.
Liquor being a state subject is another pain point for the industry.
“This is a huge hurdle which makes it almost impossible for many brands to make themselves available across the country,” said Asa Abraham, head of public relations and communications at John Distilleries, which produces brands such as Paul John and Original Choice.
According to her, liquor brands in India have to treat each state or Union territory as distinct markets with their own unique pricing, taxation, import and export fees and statutory requirements.
“The second huge hurdle is the colonial mindset of the state bureaucracy and excise departments which makes it easier and cheaper for foreign imported brands to be sold in many states as compared to Indian brands, by offering discriminatory duty structures and lower annual registration fees,” she claimed.
Abraham added that Indian brands, specially the premium and luxury Indian brands, will flourish much more if the statutory bodies allow for a level playing field in many states and if they are allowed to treat India as a single market, like other FMCG products.
Also read: Imperial Blue—walking a tightrope between offensive vs tongue-in-cheek humour
The evolution of India’s liquor industry
“The liquor industry (in India) has evolved beautifully,” said Poonam Chandel, managing director at NeuWorld Spirits, a Delhi-based alco-bev startup which recently launched two whisky brands — Downing Street and Royal Tribe.
She added: “About 20 years ago there were very few players and the choice of brands was very restricted. No new player would ever think of venturing into the industry because people thought it’s very difficult to establish a brand here. But in the past couple of years, a lot of entrepreneurs have had the courage and the steadfastness to enter this industry and come up with new brands.”
According to her, consumers, too, have evolved with access to information on social media and availability of various brands in India via imports.
“…the best thing is that the Indian companies are out there to actually beat the foreign companies in terms of quality, packaging and consistency. They are doing a fantastic job where they are constantly trying to understand the consumer and upskill themselves… and are actually producing products which, outside India, are seen as designer products,” she added.
Giri pointed out that for the past few years, Indian whiskies have been getting global recognition, and almost every year, one or even two Indian malt whisky brands feature in the annual list of top brands in the world.
This started with the launch of Amrut, which entered the market in 2003-04, and today there are eight to nine Indian products in this segment, he said, adding that besides Amrut, Paul John, Indri and GianChand have featured in the annual list of top 10 whiskies.
“Many international experts feel the last big global trend in the whisky market was Japanese whisky, and the next big thing could be Indian whisky,” Giri said, adding that Indian makers export nearly the same amount of malt whisky that they sell in the domestic market — 1,00,000 to 1,20,000 cases to 60-70 countries.
Among the major import markets for Indian malts are the US, Singapore and the Middle East.
“Indian alcohol has moved from the new world category and broken out at as an ‘Indian Single Malt’ category…. We are anticipating a similar trend in Indian craft gins, rums and brandies in the near future,” Abraham added.
The industry feels the Indian tax structure for liquor is holding the industry back.
Giri said that after Prime Minister Narendra Modi’s ‘vocal for local’ call, some institutions responded favourably. He gave the example of the armed forces canteens across India which he said is no longer buy imported brands and keep Indian brands only. “This has helped the domestic industry, but in states, for various reasons, the belief in domestic local products is missing,” he said.
For example, Maharashtra, in November 2021, reduced the excise duty on imported products from 300 per cent to 150 per cent, said media reports, but for all Indian products the duty remained 300 per cent.
“This meant that Indian products like Amrut and Paul John — which before this decision were priced 10-20 per cent lower than similar imported products — became 30 to 40 per cent higher. Consequently, the volume of Indian players in the domestic market crashed,” he said.
In Kerala, he added, the sales tax on imported products is 115 per cent and on domestic products, 251 per cent. “All this makes Indian products more expensive to sell in their own home country”.
In Delhi, too, he said, an imported brand needs to pay a fee of Rs 50,000 a year for label registration, whereas a made-in-India product has to pay a minimum of Rs 25 lakh for the same. “Although this was corrected in the Delhi government’s short-lived new excise policy, after its withdrawal, Delhi has gone back to the old regime. Hence, you don’t see many Indian brands in Delhi anymore,” Giri noted.
Every state a different market
According to Chandel, the varying laws, rules, and regulations of each state, too, are a major hindrance for the industry.
“Every state has different statutory norms,” she said. “In a normal FMCG business, you decide on a name, you file for a trademark application, the trademark is granted and then you go manufacture and start selling the product. You just pay the GST.”
In the liquor business, though, she added, one first needs to apply for a trademark registration and develop packaging once it is received.
“So, my label is going to be different in every state…they will tell you things like you have to write ‘for sale in this state only’, another will say you need to have a barcode, or that you only need a dummy barcode. Some states require you to put ‘drink responsibly’ on the label, while some want the label in the local language. It involves a huge amount of expenditure. Plus, for every state, you have to take a tremendous number of licences, which are very, very expensive, and apply for label registrations,” explained Chandel.
She also spoke of the issue of “differential pricing”. “In some states, they say you should have an MRP, in others MRSP — which is the minimum retail selling price. The government controls the price, so the government will tell me what price to sell at and what price the consumer will get it at. Hence, the same product becomes profitable for me in some states, and is loss-making in others.”
She added that if the government were to take cognisance of these issues and push to make liquor a Centre subject, it will not just be beneficial for the industry but also consumers, who will get the product at the same price across the country.
A trend towards ‘premiumisation’
Abraham noted that while demand and volumes have returned to pre-pandemic levels, the consumption patterns have changed. “We believe Covid may have set the consumer to re-align priorities and there has been a surge in demand for premium products due to this,” she said, adding that the consumers are now more open to experimentation, allowing new and diverse products to create exclusive niches and exist in the market more easily than in the pre-Covid era.
“On the other hand, the regular and economy segments (non-premium or lower priced products) have seen consolidation towards preferred brands,” she added.
The trend towards premiumisation can be seen across all markets in India, said Abraham.
“Premium spirits are found to be a popular choice for the younger working population. However, the drive is led by the more senior generation — those in their 40s to 60s. This generation grew up in liberalised India and views alcohol as just another beverage as long as it is consumed responsibly,” she said.
“This generation has the disposable income to buy the best of the world regularly. The younger generation, having grown up in this environment, starts with the premium brands they have seen at home and then experiments with new and different flavour profiles, which has allowed the market to premiumise and diversify at the same time.”
(Edited by Zinnia Ray Chaudhuri)
Also read: Whisky gets a neat boost but rum’s on the rocks as Indians turn to pricier booze, drinking at home