ALCOHOL AND BEVERAGES INDUSTRY

Amit Atom & Daniel Prabakaran John

I Year MBA, Srinivas Institute of Management Studies, Pandeshwar, Mangalore, India.
Email: atomamit622@gmail.com
danny147john@gmail.com
ABSTRACT

India is the third largest global spirits market by volume in the world, just behind China and
Russia. In some states, certain alcoholic beverages like wine and beer can be sold in
supermarkets that further increase the availability. The Indian alcohol industry is a high-risk
industry, on account of the high taxes and innumerable regulations governing it. The Indian
liquor industry comprises the Indian Made Foreign Liquor (IMFL), country liquor, foreign
Liquor Bottled in Origin (BIO), illicit alcohol, beer and wine segments. The overall IMFL
market is increasing at the rate of 9 to 10 per cent annually and growth rate of 11.9 per cent in
the financial year (2015-16). Country liquor produced in local licensed distilleries and is made
of cheap raw material, primarily rectified spirits of grains or molasses. The production cost for
country liquor is low; the excise duties are also lower than they are for other liquor. Beer has
become a popular beverage in the country only over the last two decades and it’s growing at a
rate of about 17 per cent per year. Imported liquor forms a very small part of alcohol
consumption in India and growing at the rate of 25 per cent annually. Illicit alcohol also evades
all national and state-level taxes and duties, thus, making it very cheap and affordable. South
India dominates the alcohol market in India, with that region accounting for about 60 per cent of
total IMFL sales and 45 per cent of total beer sales. The state governments receive a large part of
their cash flow from this industry. The state governments should be allowed to make state-
specific rules, which should be in conformity with the national legislation.
Keywords: Indian alcohol industry, IMFL, Spirits market.

1. INTRODUCTION:
An Alcoholic beverage is a drink containing ethyl alcohol of agricultural origin in any
percentage, derived either through natural fermentation, or addition during process. Ethanol or
ethyl alcohol is produced through a natural process when the yeast converts the sugar contained
in fruit, cereals and sugarcanes, into alcohol. Pure alcohol is a colorless, pure liquid. The process
used for its preparation is called fermentation. India is the third largest global spirits market by
volume in the world, just behind China and Russia. It is also one of the fastest growing markets
in the world. The domestic alcohol industry has recognized that the young people and women are
the key target populations for them and they are assertively focusing on these vulnerable groups
through their marketing campaigns. India is one of the world‘s most restrictive places for trade
and doing business.. The industry is consistently launching new products, such as flavored
alcoholic drinks, to attract the nondrinkers in this group. The availability of alcohol is increasing
in India; there are more outlets in shopping malls and popular market places, which make it
easily accessible. In some states, certain alcoholic beverages like wine and beer can be sold in
supermarkets that further increase the availability. Increase in physical availability of alcohol
leads to rise in alcohol consumption and alcohol related harm. Intensive engagement of the
alcohol industry is observed in social initiatives and policy related activities under the broad
framework of corporate social responsibility (CSR), which now-a-days are part of a more general

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strategy that is designed to further the industry’s political and economic interests. The Indian
alcohol industry is a high-risk industry, on account of the high taxes and innumerable regulations
governing it. The international liquor industry, the Indian one too has seen players with strong
brands; diversified portfolios and large operations achieve market leadership positions. The
Indian liquor industry comprises the IMFL, country liquor, foreign liquor bottled in origin (BIO),
illicit alcohol, beer and wine segments.

1.1.Market share of the alcohol industry across India by type

Country Liquor 48%

Indian made foreign

36%
liquor(IMFL)

Market share of the

alcohol industry…

Beer 13%

Imported Liquor 3%

0.00% 20.00% 40.00% 60.00%

Indian made foreign liquor:

The maximum permissible limit for alcohol content in spirits is 42.8 per cent v/v (volume to
volume). The overall IMFL market is increasing at the rate of 9 to 10 per cent annually and
growth rate of 11.9 per cent in the last financial year (2011-12). There is a tremendous growth in
the vodka market. It is the fastest growing among all types of liquors. Vodka consumption has
been growing at the rate of about 44 per cent over the past few years.

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Country liquor:
The average alcohol content in country liquor is 33 per cent volume to volume. It is produced in
local licensed distilleries and is made of cheap raw material, primarily rectified spirits of grains
or molasses. In the southern states coconut and other palms are used as raw materials in the
production of local liquor. It is called as arrack, desi sharaab, daru, tharra, toddy, fenny and tari.
The production cost for country liquor is low; the excise duties are also lower than they are for
other liquor. The idea behind country liquor was to provide cheap alcohol and thus check the
illicit trade of alcohol.
Beer:
Beer has become a popular beverage in the country only over the last two decades. It’s growing
at a rate of about 17 per cent per year. In India, beer is manufactured in licensed breweries and
there are more than 60 beer brands available in the market. The growth in the beer market
appears to be driven by young consumers and professionals who consider beer a trendy drink, as
compared with traditional spirits. There is also a small demand for foreign beer in the up market
urban areas. The highest levels of beer consumption in India are observed in the southern states.
Foreign liquor bottled in origin (BIO):
Imported liquor forms a very small part of alcohol consumption in India. It is usually consumed
by the rich and upper middle class in metropolitan cities. It is also subjected to customs duty,
making it much more expensive. The imported spirits market in India is growing at the rate of 25
per cent annually.
Wine:
Wine is an alcoholic beverage made from fermented fruit juice, usually that of grapes. Wines
made from other fruits are usually named after the fruit from which they are produced (for
example, apple wine or elderberry wine) and are generically called fruit wine. The term “wine”
can also refer to the higher alcohol content of starch-fermented or fortified beverages such as
barley wine, sake, and ginger wine.

Illicit alcohol:
The alcohol produced illegally is called illicit alcohol. They do not follow any set standards and
thus have no quality control. The alcohol produced from these units is usually adulterated and
may contain a highly fatal substance called methylated spirit or methanol. This added methylated
spirit can lead to death or blindness. Illicit alcohol also evades all national and state-level taxes
and duties, thus making it very cheap and affordable.
2. THE LIQUOR MARKET IN INDIA:
South India dominates the alcohol market in India, with that region accounting for about 60 per
cent of total IMFL sales and 45 per cent of total beer sales. Globally, most spirits are derived
from grains and other raw materials may include potatoes, sugarcane, and fruit spirit. However,
in India, the most common raw material is molasses, a derivative of sugarcane. Some Indian
alcohol industries are gradually introducing grain-based spirits. The consumption of spirits and
hard liquor accounts for the majority of alcohol consumption in India. However, the scenario is
gradually changing. In fact, most countries are experiencing changing trends, with people
switching over to white spirits like vodka and gin and to drinks with lower alcoholic content like
beer and wine. In India, the IMFL (notably vodka) market is increasing at a higher rate as
compared with country liquor categories and is likely to see tremendous growth in the distant

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future. Though there is a huge market for country liquor and illicit alcohol in India, the most
prominently visible markets are the ones for IMFL and beer. The reason for this is that these
sectors have multiple production units, wide distribution networks, and strategic marketing plans.
These industries have an established infrastructure and they constantly monitor their growth,
market share, and other competitors. On the other hand, the country liquor industry is more
localized. It does not have nationwide known brands; the producers are regional or local and
make local brands. This industry does not even engage in much advertising or promotion of its
brands, partly because there is less competition and the market is local. The illicit industry is also
a local industry and is run by local criminals directly or sometimes indirectly when they provide
protection to the owners of the illicit distilleries. The price of the product is very low and no
marketing is done as the industry cannot be legally visible.
3. ALCOHOL COMPANIES AND THEIR MAJOR BRANDS IN INDIA

Sr. Company Whisky Rum Vodka Brandy Beer Gin

No.
1. Empee Old Secret, Napoleon
Distilleries Victoria,Sixer
2. Globus Spirits County Hannibal Le' Mans White
club Rum Lace
3. Imperial Glen Black Magic, Black Imperial, Seagull
Spirits Special, Hatrick Magic, Imperial London
Gold Coast Imperial Exclusive Dry
Malt Iceberg VSOP
Premium
4. Mohan Summer Old Monk Triple Big
Meakins Hall, Crown, Ben
Colonel's Doctor's London
special, Reserve
Golden No.1
Eagle
5. Radico After Dark, Contessa Magic Old
Khaitan 8PM Moments Admiral,
Morpheus
6. Som Black Fort Hunter,Wood
Distilleries pecker
7. Tilaknagar Mansion Madira XXX Castle Club Mansion Savoy
Inds. House, Rum House Club
Senate
Royale
8. United Kingfisher,
Breweries Zingaro,
London
Pilsner
Heineken,
Sandpiper.
Black label,

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9. United Spirits McDowell McDowell Red McDowell Blue
N0.1, RC, Celebrations, Romanov, No.1, Riband
Bagpiper, Old Cask White Honey Bee
Black Dog, Mischief
Whyte and
Mackay.

4. CHARACTERISTICS OF THE INDIAN LIQUOR MARKET:

Characteristics of the Indian liquor market Indian liquors are predominantly molasses-based,
however, with a portion of the appropriate grain/fruit spirit being added to them. There is a shift
in global demand from dark spirits (such as whisky, dark rum and brandy) towards white spirits
(such as vodka, white rum and gin). Consumption of spirits exceeds that of beer and wine due to
their lower cost per unit of alcohol. Large liquor multinationals enjoy high margins. Preference
for brown spirits (molasses flavour) in Indian market. Liquor packed in 180, 375, 500, 750 and
1000 ML bottles - glass and plastic bottles. 180 ML and 750 ML are fast moving. The market is
highly competitive with many local and international players vying for a share in the market. The
alcohol industry is very important from the Government’s revenue perspective. It generates an
estimated Rs. 16,000 crores per annum. India is seeing an increasing trend of white spirits being
adopted over brown spirits.

1.2.IMFL industry break-up

Whisky, 59% Whisky

Rum
White spirits
Brandy, 1.2
Rum, 20% Brandy

White spirits, 5%

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 1.3.Region-wise market structure of IMFL

West, 30% South

South, 49% North

East
West
East , 9%

North, 12%

1.4.Market share of IMFL companies

Tilak Nagar, 4% Mohan

Meakins
, 9% United spirits
Radico
Jagatjit, 9% Jagatjit
United spirits, 53% Tilak Nagar
Radico, 12%
Mohan Meakins
Others

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5. MACRO ENVIRONMENT:
 Legal
 Social
 Economic

6. LEGAL ENVIRONMENT:
 Ban on advertising
 Excise regulations and Licenses
 Subject to licensing under Industrial(Development and Regulation) Act, 1956
 Cap on licensed capacity; special license for expansion

7. SOCIAL ENVIRONMENT:
 Increase in disposal income
 Western culture influence
 Changing trends- Youngsters, Parties, and celebrations
 Minimum age
 Beer- from 18 to 21
 Hard liquor- form 21 to 25
 62% drinkers classified as light, 29% as moderate drinkers and 9% as hard drinkers.

8. ECONOMIC ENVIRONMENT:
 It is well developed – Rs 8200-8500 Crores industry in India
 Past growth 12% CAGR per annum
 South and North India share 60 % of market
 Market size- 20 million cases in 1999 to 84 million cases in 2011

9. FACTORS INFLUENCING THE GROWTH OF ALCOHOL INDUSTRY IN INDIA:

Urbanization:
More and more people are migrating towards bigger cities, where they are exposed to a wider
variety of alcoholic products, including IMFL.

Favorable demographics:

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 India is a young country, with more than 60 per cent of Indians falling in the 15-45 years age
group. This is the cohort the industry targets as potential customers. About 485 million Indians
are currently of drinking age and another 150 million will be added to this group in the next five
years.

Changing social norms:

Over the years, there has been a change in attitudes, making consumption of alcohol more
socially acceptable. This acceptability extends to drinking in family environments, at social
events, and by females/ youngsters.
Rise in disposable income:
More and more Indians are now moving towards the upper/middle-income group. The per capita
income has witnessed a continuous growth, from just over Rs. 27,000 in 2006 to over Rs. 54,000
in 2011 (projected: over Rs. 1, 00,000 in 2015).

Increased alcohol accessibility and availability:

There has been an increase in the variety of alcohol brands and types and all of them are easily
available in government-licensed outlets, government shops (monopolies), private licensed retail
chains (permitted since the past couple of years), restaurants and bars.
10. STRATEGIES FOR PROMOTION AND ADVERTISEMENTS OF ALCOHOL
PRODUCTS:
Surrogate advertising of alcohol products:
Advertising of liquor products is banned in India; alcohol companies can promote their brands
legally at points of sale. But they know that is not enough to boost their sales. As there is a
complete ban on advertising of alcohol brands, the companies resort to covert advertising
strategies such as surrogate advertising. Despite the fact that surrogate advertising is also
prohibited under Indian laws, the companies manage to promote their products through such
strategies. Surrogate advertising involves advertising for products (non-alcoholic) that use the
same brand name as the alcohol products. For example, many alcohol companies advertise music
CDs, packaged drinking water and other items under the same brand name as their alcohol
product.
Sponsorship of events:
Among the many innovative ways that alcohol companies have devised to promote their
products, one of the most effective has been sponsorship of events. In India the alcohol industry
sponsors major cricket events since cricket is the most popular sport here and is highly watched
across all ages and genders. It has the maximum youth viewership and that is what works very
well for the alcohol industry.
Promotion and the entertainment industry:
The entertainment industry is used extensively to promote alcohol products. Earlier, only the bad
guys in the movies were shown drinking. But now, it is the hero or the protagonist who is
promoting alcohol brands.

Attractive packaging and labeling of alcohol products:

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Another very important strategy that alcohol industry uses to market its products is making the
products look attractive through eye-catching packaging and labeling of their bottles and cans.

Newer promotion channels:

Telemarketing through mobile networks by sending bulk promotional messages is now common
in India.
11. STATE EXCISE POLICY:
Ban on sale and consumption of alcohol in public places:
All the Indian states and UTs have implemented this ban, with penalties for violation varying
from Rs. 200 to Rs. 50,000.

Licensing of days and hours of sale:

All states/UTs have provisions for closure of liquor shops generally on national holidays,
election days, particular day(s) in week/month, and other occasions calling for special
consideration - days of national solemnity, Public Order, homage to national figures, fairs,
festivals, frenzied situations, or periods of tension.
Minimum sale price:
17 states and UTs have fixed minimum sale price to ensure uniformity and quality, and to
prevent illegal sale.
Restriction of outlet density:
No license if the premises is located near an educational institution, place of worship, main bus
stand, crematorium, burial ground, socio-economically backward colony, labor colony, market
place, or established habitat. This guideline is observed by 14 states.
Quota for retail sale/personnel limit:
Provisions for quotas vary based on the type of product - and also from state to state. Most states
observe this policy measure that up to 2 lit of alcohol can be brought by a person into India from
a foreign country per visit. Defense personnel up to the rank of Brigadier (or equivalent) are
allowed up to 10 bottles of liquor every month and a larger amount of beer stock too.

Minimum legal drinking age (MLDA):

Different states in India have different MLDA prescribed for purchase and consumption of
alcohol, varying from 18-25 years. Maharashtra, Punjab, Chandigarh, Haryana and Delhi have
the maximum MLDA.
Health warnings on alcohol containers/bottles and security holograms for quality control:
Observed by 14 states. Some have warnings only on IMFL liquor.
Ban on advertising, promotion and sponsorship (including POS advertising):
Complete ban in nine states, with Delhi offering an exception to the foreign print media. POS
advertising ban observed by 10 states. Moreover, heavy taxes and non-uniformity of policies at
federal state-level have turned liquor businesses into the biggest cash cow for government. It is
estimated that the combined earning of the states and union territories (excise) from alcohol
beverages in 2011 fiscal year is estimated to be around 4.67 billion USD, accounting for about

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16 per cent of their own tax revenues (Dhanuraj and Kumar, Centre for Public Policy Research,
2014).
Distribution structure in the industry:
Based on the distribution channels of alcohol in each state, the markets are broadly divided into.
Government – controlled market (or Government Corporation):
In this market, the State Government undertakes the pricing and distribution under its territory.
In this model, a representative body of the state Government purchases alcohol from the
manufacturer and distributes it through retail network.
Auction market:
Under this system, the State Government auctions licenses for the sale of alcohol in a Particular
geographical territory. The highest bidder (contractor) then becomes the sole distributor of
alcohol for a specified period in that territory and distributes the product through its retail
network.
Open market:
Under this system, the Government sells licenses to applicants for a fee which entitles them to
sell alcohol in the market. The system is beneficial for both the alcohol companies and the end
consumers as the pricing is market determined.

12. SWOT ANALYSIS OF ALCOHOL INDUSTRY:

Strengths:
–High entry barriers
–Licensed industry
–Strong brand loyalty
–Challenging distribution set up
–Downside protection in demand.

Weaknesses:
–High incidence of taxes
–Fragmented manufacturing capabilities
–Difficulty in creating brands.

Opportunities:
–Increase in disposable income and urbanization
–Favorable demographic dividend

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–Low per capita consumption
–Potential for shift from country liquor to IMFL segment.

Threats:
–Subject to agricultural prices
–Regulatory oversight which could impede growth.

13. CONCLUSION:
India is a diverse country and so it has diverse drinking patterns. It is generally considered a dry
country, but the trends are changing now. Different parts of the country have different drinking
practices. As alcohol is a state subject, every state has different legal provisions that govern
alcohol and the alcohol industry, leading to non-uniformity of law. A multi-pronged strategy is
thus needed to tackle the growing burden of alcohol use in India. There is no uniform drinking
pattern. The state governments receive a large part of their cash flow from this industry. Also,
the demand in some markets is so high that banning alcohol may lead to an increase in spurious
illicit liquor, which can prove fatal. Therefore, the best way forward is to combine best practices
into a multi-component strategy and enact a national level legislation to regulate production,
sale, distribution, and licensing of alcohol. The state governments should be allowed to make
state-specific rules, which should be in conformity with the national legislation.

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