26/02/2024

India’s growth potential in 2024 and beyond

IWSR analyses the drivers for India's beverage alcohol market

India offers strong growth prospects for beverage alcohol companies in 2024 and beyond, driven by a mix of positive demographics, premiumisation, an increasingly sophisticated retail channel, and a progressively more adventurous consumer base.

The market could be boosted still further by any relaxation of the country’s complex and burdensome regulatory framework and any reduction of high taxes, thanks in part to the expected signing of free trade agreements, such as that with the UK.

Indian consumers have long been drawn to the aspirational status of imported products, such as Scotch whisky, but they are also increasingly taking pride in the rising quality levels of domestic spirits, some of which now rival imports in terms of prestige and pricing. Craft gins and Indian single malts currently epitomise this reappraisal.

What’s happening now?

India offers a beverage alcohol market with strong growth prospects. Against a backdrop of a +1% volume growth for global total beverage alcohol in 2022, spirits volumes in India increased by +12%, with beer up +38%, wine up +19% and RTDs up +40%. In all cases, value grew ahead of volume. IWSR forecasts suggest a continued upward trajectory.

“India is one of the few large beverage alcohol markets in the world to consistently display growth momentum, and this is expected to continue,” says Jason Holway, Senior Research Consultant at IWSR. “Imported spirits and wines, while dwarfed by sales of IMFL (Indian Made Foreign Liquor), remain a notable and still growing element of demand, tapping into the local premiumisation momentum.

“Importantly, Indian drinkers are already accustomed to international-style products. They know their applications, they enjoy them and they have long been open to spending a little more on imported – and now also local – products.”

India’s demographic dividend

Demographics are one of India’s key assets. Now the world’s most populous country, India has a median age below 30, while in the US and China this metric is closer to 40. Not only does this deliver around 15 to 20 million legal drinking age (LDA) prospects per year (source: UN World Population Prospects), it also means that the working age population is expanding, absolutely vital to sustaining economic growth. Between 2021 and 2031, the country is expected to add 283m more middle-class consumers (source: ICE 360 data).

Persistent premiumisation meets localisation

Unsurprisingly, ongoing premiumisation in India is being driven by these rising levels of affluence, an aspirational consumer base and an overwhelmingly positive outlook across almost all personal confidence metrics.

Value growth continues to outpace volume advances across beverage alcohol, with IWSR consumer research indicating an uptick in claimed spend, and consumers stating an intention to prioritise higher-quality products in future.

This trend is illustrated by IWSR market data forecasts: premium-and-above blended Scotch volumes are predicted to grow at a CAGR of +13% between 2022 and 2027, and premium-plus malt Scotch at a +19% CAGR. ISMs (Indian Single Malts) and craft gins are also expected to post strong double digit CAGRs to 2027.

“Premiumisation is now acquiring a distinctly Indian element,” says Holway. “A number of local players operating at the value/low-price end of the market are now offering credible, premium-quality, premium-priced spirits.”

As producers extend their ranges upwards, they are spanning a greater breadth of price points: Indian whiskies are now available from INR500 a bottle to INR13,000 – similar to a super-premium imported single malt.

This trend is partly supply-driven, as distillers face rising costs that far outpace price increases and so naturally focus more attention on higher margin expressions, but also demand-driven: “Such strategies meet with success, not least because there is a gathering enthusiasm for local products, many of which are now of more than acceptable quality – a fact that fills many consumers, particularly the young, with pride,” Holway points out.

Expanding repertoires

The Indian TBA market remains skewed to spirits – accounting for 53% of TBA volumes – and whisky (66% of spirits volumes), but the scene is evolving as consumers expand their repertoires and bring previously niche categories into the mainstream.

Agave spirits grew by triple digits (off a small base) in the first half of 2023, and there was very strong double-digit growth for Irish, American, and Japanese whiskies, and for spirit aperitifs.

“Niche drinks are increasing their penetration of the Indian market, thanks to a willingness to experiment – supported by social acceptance, urbanisation, rising incomes and product innovations, not to mention growing participation by female LDA+ consumers,” explains Holway.

“Younger LDA consumers have a greater variety of entry points into beverage alcohol and, as a result, repertoires are evolving. Traditional patterns of consumption that may have invariably begun with whisky, brandy and rum – or arrived at those destinations soon enough – can no longer be relied upon.”

Reinvigorating retail

As India’s excise policy has evolved, so has its retail offer, providing the perfect environment for ongoing premiumisation.

Haryana has a number of well-lit, attractively fitted and conveniently located outlets, some of them open 24/7 and staffed by well-informed, young employees. Many have BYOB outlets just footsteps away.

“Positive changes in the experience of buying alcohol are having a real impact. It’s a virtuous circle – attractive outlets bring more consumers and deliver more revenues, both to the licence-holders and the state,” comments Holway.

“This then prompts change elsewhere. For instance, premium alcohol outlets are now permitted in malls in Uttar Pradesh, India’s most populous state. In Gujarat, a dry state, alcohol will be on sale in GIFT City, a signature development. Steady steps rather than abrupt change are essential to forestall any backlash.”

Regulatory changes

Local and imported products alike have to navigate a complex beverage alcohol landscape in India with high costs of entry what with tariffs, customs duties and licencing fees and levels of taxation that can vary markedly from state to state.

Building a business in India is slowed by bureaucracy and the advisability of consolidating in one state before moving on to the next. Nevertheless, India remains an increasingly attractive trading partner and one with which both the UK and the EU hope to imminently conclude FTAs.

That should only be good news for importers looking in and exporters looking out, with the prospect of an easing of the cost burden proving especially attractive for the Scotch industry.

There is solid evidence from Maharashtra in the last two to three years to suggest that the cutting of excise rates has an immediate and positive impact on sales volumes, which should be of benefit to all: imports maintaining their growth momentum, ongoing premiumisation encouraging the further participation of domestic players, and the states themselves realising more revenues.