06/11/2023

How do you tackle the Indian beverage alcohol market?

IWSR assesses the opportunities and nuances of India's market landscape

India’s constitution enshrines an ‘endeavour’ to prohibit alcohol, any implementation of which is devolved to the individual states. Whilst it would be naïve, therefore, to ignore this context or overtly challenge this ethos, India has evolved into a hugely promising market for beverage alcohol brand owners, with yet more enormous growth potential – but in such a complex, regulated and sometimes challenging country, detailed local knowledge is key.

Recent consumption growth in India has been both dynamic and broad-based: in 2022, spirits volumes climbed by 12%, beer rose by 38%, RTDs were up 40% and wine increased by 19%, according to IWSR figures; and, in all cases, value rose ahead of volume.

“The volume growth seen in India in 2022 was still in the nature of a recovery following the Covid-19 pandemic, particularly in beer,” explains Emily Neill, COO Research, IWSR. “All categories are offering strong double-digit growth in the context of a global market only registering single-digit advances.”

IWSR category forecasts also point to a positive outlook for all major categories in India in the years ahead: while global TBA (total beverage alcohol) volumes are expected to rise at a CAGR of only +1% between 2022 and 2027, the forecast figure for India’s spirits volumes is +4%, with beer at +3%, RTDs at +10% and wine at +7%. Value trends are forecast to follow a similar trajectory.

Favourable demographics and a knowledgeable consumer base

Demographic factors underpin this growth: India’s drinking age population is relatively young and increasingly affluent. The country’s median age was 25.7 in 2012, versus 35.2 in China and 37.0 in the US, and will be 37.2 in 2050 (with China at 48.7 and the US at 40.0). Each year another 15 to 20 million citizens reach LDA age (source: UN World Population Prospects).

By 2050, India’s working age population is predicted to top 1.1bn (versus 790m in China and 255m in the US) (source: UN World Population Prospects). Between 2021 and 2031, it’s estimated that another 283m people will join India’s middle classes (source: ICE360 household survey).

Generational attitudes show a greater interest in alcohol among younger LDA Indians, according to IWSR consumer research. While older (40+) drinkers are moderating their consumption, millennials are over-indexing significantly on nine out of the top 10 drinks categories, including beer, wine, Champagne, and a number of spirits segments.

Beyond demographic factors, the intrinsic nature of the country’s beverage alcohol market is also advantageous. “One of the key attributes of the Indian market is that demand is configured in a western way,” explains Jason Holway, IWSR Senior Market Analyst. “If you compare it to, say, China, where baijiu dominates spirits volumes, Indian consumers already drink whisky, brandy, rum, vodka and gin.

“So, on a purely practical level, if you’re looking to encourage more or better consumption, domestic demand for these products already exists – the biggest volumes in each spirits categories are for Indian made foreign liquor (IMFL). In many other emerging markets, you first have to convert consumers to your product before you can take them up to premium, higher-priced brands.

“The main function of an international brand in this context is to be aspirational – but, in India, you don’t have to tell people as much about how or when to use your product. They already know that.”

Again, the quality of local products is improving all the time, meaning that Indian whiskies and gins, for example, are credibly moving up the price ladder and becoming increasingly aspirational to local consumers, increasing competition.

IWSR consumer research also reveals a heightened interest in moderation. “India will almost certainly be a key market in any reconfiguration of TBA globally to no/low-alcohol” says Luke Tegner, Consulting Director – Rest of World, IWSR. “But, in an extremely price-sensitive market, pricing itself will be a challenge. Whilst lowered excise rates should permit no/low products to be attractively priced against their alcohol inclusive equivalents, they are likely to remain much more expensive than many soft drinks.”

A fragmented and complex market landscape

While the scale of the opportunity in India is clear enough, so too are the challenges and barriers to growth – above and beyond the obvious issues of high import and excise tariffs.

India’s beverage alcohol market is very fragmented and extremely complex, Tegner cautions. “The levels of bureaucracy are phenomenal and, whatever you do, you have to do on a state-by-state basis,” he explains. “You can’t do things nationwide, so you really need a well-connected, knowledgeable importer and distributor. You certainly don’t want to try to do it all yourself.”

Logistics need to be planned at a local level; it’s easy to lose sight of the sheer size of some of Indian states. The size of Maharashtra’s population, for example, is equivalent to that of Japan, while Karnataka’s rivals that of the UK.

Local challenges, meanwhile, include labelling – which will often specify that a product can only be sold in a certain state – and maximum retail pricing, which can destroy margins, especially at a time of rising costs.

The conformation of the market also complicates the establishment of a viable ecommerce channel in India – something which would seem to be an obvious benefit, given the widespread use of mobile technology and the cheapness of data.

In a country where the legal drinking age varies from 18 to 25, having chain of custody proof of age technology is likely to require “massive investment which may do little more than just increase unit costs”, warns Holway. He also points out that the consumer need is already being met via informal ‘quick commerce’, where a purchaser simply calls a liquor store and arranges local delivery for cash.

However, the fragmentation of India’s beverage alcohol landscape could also prove beneficial to market newcomers, who can start small and expand their market presence progressively.

“The advantage here is that you don’t have to be nationwide and launch everywhere straightaway,” says Holway, who advises prioritising key regions/cities, such as Maharashtra, Haryana, Delhi/NCR, Karnataka, West Bengal, Tamil Nadu and/or Goa.

“Some of these regions are cheaper and easier to become involved in,” Holway adds. “And one of the reasons why it’s good to be in these places is the recent improvement in the quality of retail, with high-class, duty free-style stores popping up in big metropolitan areas such as Mumbai, Hyderabad and Chennai. These have mainly been in Tier 1 cities to date but establishment in Tier 2 cities is already on the horizon.

“So, however you approach the Indian market, you must be selective and build slowly – you don’t need to have a presence everywhere from the very beginning.”