Spirited Growth of India's Booze Bazaar

🔍Insights

Nadeesh Kareemdathil, Apoorva Bajj

Dec 28, 2023 — 5 min read

Spirited Growth of India's Alcohol Market

The estimated value of the alcohol market in India is projected to reach approximately US$ 54,740.0 million in 2023, with an anticipated increase to US$ 111,238.9 million by 2033. During the forecast period, a noteworthy Compound Annual Growth Rate (CAGR) of 7.0% is expected in alcohol sales.

The growth of the alcohol market in India has been remarkable, driven by evolving lifestyles, urbanization, and the expanding middle class. The country's rich cultural diversity has historically associated alcohol consumption with social gatherings, celebrations, and religious festivals.

The Indian alcohol market encompasses various segments, including spirits, beer, and wine, and benefits from a substantial consumer base exceeding 1.3 billion people. Consumption patterns vary across regions and demographics, traditionally favoring spirits such as whisky, rum, and vodka. However, there is a discernible shift towards premium and craft spirits, as well as an increased demand for wine and craft beer, particularly among urban millennials and the emerging middle class.

India's drinking culture has evolved to a sophisticated level, deviating from global trends where developed markets have experienced a decline in alcohol consumption. Factors contributing to this shift include health concerns, changing lifestyles, and generational differences in alcohol consumption.

The Indian market stands out as one of the fastest-growing for various alcoholic beverage categories, in contrast to global trends where developed markets are witnessing a decline in alcohol consumption. The resilient Indian economy, marked by rising consumer incomes and post-pandemic recovery, plays a significant role in shaping alcohol consumption patterns. According to IWSR 2022, India has become the global leader in whisky, rum, and brandy consumption.

The global alcoholic beverage market is projected to grow at a CAGR of 1%-2% by volume and value, while the Indian market is expected to experience a higher growth rate of 6.8%, especially in premium segments like whisky, with an impressive 61% growth. The influx of new drinkers, projected to be around 100 million in the next five years, is attributed to the maturing young population in India.

The International Spirits and Wines Association of India (ISWAI) forecasts that the Indian alcoholic beverage industry will reach $64 billion over the next five years. This growth is fueled by rising incomes, urbanization, increased accessibility, premiumization, and a younger consumer demographic. The industry already contributes to employment for over 80 lakh people, both directly and indirectly, accounting for 1.5% of the total manpower in the country, according to ISWAI. The ICRIER report for 2021 states that the alcohol industry currently supports approximately 15 lakh jobs nationally.

Challenges in the Industry
The Industry Forecast

Challenges in the Industry

Despite the optimistic revenue projections, the sector confronts obstacles related to operating profit margins (OPM). In the fiscal year 2024, it is anticipated that OPM will contract by approximately 90-140 basis points, following a significant decline of 300 basis points in FY2023. The primary cause behind this margin reduction is the escalating prices of key inputs during the current fiscal year. Taxation and pricing policies wield a significant influence on consumer behavior and brand profitability. Navigating the intricate tax landscape necessitates a strategic approach to maintain competitiveness.

Notably, the costs of non-basmati rice and other grains, such as maize, utilized in the production of extra-neutral alcohol (ENA), a crucial component for manufacturing spirits, have experienced a substantial increase. The impact of sub-optimal monsoon conditions and El Nino, along with government interventions affecting grain prices, plays a pivotal role in shaping the industry's cost structure.

The costs of packaging materials, especially glass, have also exerted pressure on margins due to a surge in soda ash prices. On a positive note, barley prices, a crucial raw material for beer production, have undergone corrections in recent quarters and are expected to remain stable in the near to medium term. Nevertheless, the diversion of grains toward ethanol production, driven by government blending norms, poses an additional challenge that industry stakeholders need to closely monitor.

Moreover, the alcohol and beverage industry in India is subject to stringent regulations, making operations challenging and expensive. Most states have policies that diverge from practical realities, making the ease of doing business a mere term, particularly for the alcohol industry, except in a few states. Remaining compliant with evolving regulations stands as a top priority for alcoholic beverage brands. Navigating the legal intricacies of the region requires a proactive approach and a commitment to ethical business practices. To address these issues, additional costs are incurred in each state to establish local teams for follow-ups and to facilitate necessary procedures.

As health consciousness rises, consumers are becoming more selective about their alcohol choices. Brands that prioritize transparency and provide clear nutritional information are likely to align with this evolving mindset.

The Industry Forecast

Nevertheless, as the year approaches its conclusion, the sales of alcoholic beverages in the nation appear to have experienced a downturn in 2023. The Confederation of Indian Alcoholic Beverage Companies (CIABC) estimates that the sales of alcoholic beverages have decelerated from a robust 14% growth in 2022 to approximately 7%-8% in 2023. However, a notable aspect contributing to this growth is the demand for products priced above ₹500 per bottle. Looking ahead to 2024, the sector aims to maintain a similar growth trajectory as observed in 2023.

Revenue of the Alcoholic Drinks Market Worldwide From 2017 to 2027

Vinod Giri, Director General of the Confederation of Indian Alcoholic Beverage Companies (CIABC), stated, "The previous year was exceptionally positive for the industry, with a growth rate of about 14% over the preceding year. Therefore, a slowdown in growth was anticipated this year, as sustaining such high levels is challenging. On the demand side, we did not encounter significant issues this year. Challenges were more prevalent on the supply side, especially with the elections in five states disrupting supply chains. Karnataka faced issues due to a steep price increase after the new government took office. Despite these challenges, growth remained relatively consistent across markets. Our estimate is around 7 to 8% growth, contingent on the outcome of the ongoing festive season."

Giri also highlighted, "In addition to volume considerations, the market's value has been on the rise. We anticipate a 2% increase in premiumization, referring to products priced above ₹500 per bottle. This segment is expected to contribute positively to the market value."

Furthermore, the industry is experiencing remarkable growth in Indian single malts, indicating a healthy trend. Giri emphasized, "This underscores the exceptional quality of products originating from India, gaining acceptance globally. It reflects that we are not merely a large-volume consuming country but are also evolving into a production and export hub for alcoholic beverages."

The Confederation of Indian Alcoholic Beverage Companies (CIABC) expresses confidence that the industry will be able to sustain growth levels of 7-8% in the coming year.