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Alcoholic beverage companies in India are in for challenging times as the growth wave they have been riding on in the last few years is beginning to subside. The growth in the Indian spirits market is expected to slow down to a CAGR of 4.3% through 2018, compared to 17% CAGR growth from 2007-12, according to research firm IWSR.
While rising inflation is tightening purse strings in India, the world’s second-largest spirits market, a continuous increase in taxes on alcoholic beverages have increased MRPs. The spirits market includes whisky, brandy, rum, vodka, gin, tequila and flavoured spirits.
Besides, IWSR says the conversion in India to IMFL (Indian-Made Foreign Liquor) from much country liquor is largely over for now.
“The impact of slowdown in the discretionary spending is already evident in FMCG products and a similar impact is on the IMFL segment also. High taxes and regular increases are already impacting the volumes,” says analyst Vivek Veda of Espirito Santo Securities.
For instance, industry bodies expect an increase in the excise duty by about 15-20% in West Bengal in fiscal 2014, for a consecutive year, to result in a sales expecting a sales dip of about 15% during the festive season. However, Veda says the IMFL segment will be more impacted compared to country liquor especially in overall slowdown scenario and with elections approaching some down trading may take place.
Analyst Abneesh Roy of Edelweiss Securities says the forecast appeared conservative and that the total CAGR growth rate in volumes of spirits may reach 5 to 6%.
India second fastest growing market
Despite the headwinds in the country and the slowdown in the global spirits market, India is still expected to record the second-fastest growth (after China), with the total size of the Indian spirits market growing to almost 390 million nine-liter cases in 2018 from about 301 million cases in 2012.
Globally, the CAGR of total spirits consumption is expected to drop to 1.5% through 2018 from 6.4% between 2007 and 2012, according to data from the research-firm.
For about a decade now, the growth in the Indian market has attracted many foreign and domestic players. It has contributed to much of the success of Bangalore-based United Spirits Ltd, making it one of the largest spirits companies in the world. London-based Diageo, the world’s largest spirits company, has bought a 25% stake in the USL and other international names like Pernod Ricard are pursuing long-term growth strategies in the country.
“However, opportunity still abounds due to the young demographic profile. Thus no doubt that in spite of slowdown India will remain as one of the fastest growing spirit market in the world,” says Vivek Veda of Espirito Santo Securities.
In 2020, India will have one of the youngest populations in the world with the average age at 29, compared to 37 in China, 45 in Western Europe and 48 in Japan. Low per capita consumption compared to other countries is also expected to help.
IWSR says that India is also the third fastest-growing market for international brands, with an expected volume total of over 2.5 million nine-liter cases. In the whisky category too, India is forecast to be the leading growth market with volume gains of almost 61 million cases, taking the total market size to about 230.5 million cases by 2018. However, Russia is overtaking the Indian market in regards to super-premium-and-above whisky brands, IWSR says.
