2005 will see growth and consolidation in the liquor industry

Liquor industry's year of opportunity despite excessive regulation

The liquor industry is all set to reach a new high in 2005, notwithstanding the stranglehold of regulations and taxation.

The long-term aim of the industry is to unshackle itself, first by lobbying for deregulation of beer and wine sales, but even without that, the mood is upbeat.

Growth prospects are being powered by three factors: changing cultural attitudes towards consumption of alcohol, tangible increases in per capita disposable income and, most importantly, willingness of a new generation of young consumers to spend.

Said Kalyan Ganguly, MD, UB Limited: "The fortunes of the beer industry are strongly linked to optimism in the economy. With India at the centre of the global boom, we anticipate a growth of 12-13 per cent over the next year." The industry has witnessed a compound annual growth of 10-11 per cent over the past few years.

Increasing incomes has tied up nicely with the massive country liquor industry. Those patronising the country spirits business in the unorganised sector comprising principally of cheap unbranded products, switch to branded IMFL when they want to upgrade and appear respectable to their peers. Large spirits players are addressing the segment by releasing a range of little known brands with decent labelling but hardly any promotional spending.

Along with growth, the industry is likely to see more consolidation and existing leaders like UB are likely to improve their market share. It already controls a major market share in both beer and spirits (through McDowell).

With Shaw Wallace Distilleries on the block, UB is pulling out all stops to acquire the spirits business which is expected to be valued at Rs 2,000 crore - Rs 2,500 crore.

Shaw Wallace, till now counted as one key challenger of UB, has already divested its beer business to SAB Miller. Once its spirits business is sold, the year will most probably see the virtual exit of Shaw Wallace from the Indian liquor market.

Said an industry analyst: "SAB Miller is putting its weight behind its Indian operations and next year we can expect to see some interesting moves from this multinational to take on the might of UB in the beer market."

Anticipating this, UB recently roped in UK-based Scottish & Newcastle to be its strategic partner in its beer business. This will undoubtedly help UB spur its growth against stiff competition.