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Things have never looked better for the Indian liquor industry

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Things have never looked better for the Indian liquor industry - April 18th, 2006

Things have never looked better for the Indian liquor industry, thanks to the new, happening consumer

At the Grand Intercontinental Hotel in Goa, sommelier Magandeep Singh conducts a wine appreciation workshop for a major IT company. There are about 40 people in the room, mostly senior management and clients. They listen attentively as Singh explains the difference between Cabernet and Chardonnay. He charges around Rs 1,200 per head. Not cheap, but you get six hours of wine-talk and some 12 wines to taste.
In Mumbai, bar consultant Shatbhi Basu demonstrates a Mojito cocktail. The workshop, called the Smirnoff Bartending Masterclass, teaches how to make different types of cocktails and is attended by people aged 25 to 50 years. This isn't for a corporate client, but is something Basu does regularly.
The key word here is 'regularly'. Both Singh and Basu do at least four to five workshops a month, a far cry from even 2004 when they did around three in six months.
What's going on? Well, meet the thirsty Indian. He is young, sociable and experimentative. And you won't catch him with a Bloody Mary. You see, the Indian consumer has undergone a sea change in taste and willingness to spend on better, higher-priced liquor.

This has expectedly had a ripple effect on the industry. Among the few growing liquor markets globally, India's IMFL (Indian-made foreign liquor; liquor manufactured in India that is not native, like gin, brandy, whisky or rum) market is growing at around 9.7 per cent CAGR, up from about 6.7 per cent in 2002-05. Importantly, this growth has been at the cost of country liquor, which is down from 7.2 per cent in 2002-05 to 6.5 per cent, according to SSKI.
Consumers' changing preferences have also forced liquor companies to shore up innovative strategies and come out with better, more targeted products, but more on that later.
The Changing Consumer
Even 3-4 years ago, the variety of liquor sold at the best shops could make you weep in frustration. And if you wanted imported stuff, you'd probably have to buy a smuggled, stratospherically-priced version from your friendly neighbourhood bootlegger. But not anymore.
Import duties went down from 210 per cent in 2001 to 150 per cent in 2004-05. Distribution regulations also began to be eased. Markets such as UP, Haryana and Rajasthan moved from auction to licensing system of distribution. And in Chandigarh, branded retail outlets were permitted in 2006-07.
So, choice has increased, with even imported liquor now easily available. In Delhi, for instance, five years ago, consumers would go to wine and beer shops with black polythene bags and just take the best option available. Today, you can walk into a swanky air-conditioned, ISO-9001:2000-certified Delhi State Industrial Development Corporation (DSIDC) outlet in Masjid Moth and buy a bottle of Absolut Kurant.
The increase in choice has created a more knowledgeable consumer. Today, he is unlikely to be seen asking for red or white wine, but for Satori Merlot or Chenin Blanc. "It's more about making a style statement," says Basu. Adds Singh: "People ask me, I am taking a client out for dinner. What wine do I order? Or, what are the right words to use?"
Two, good GDP growth and rising incomes are allowing consumers to upgrade not just from country liquor to IMFL, but also to better brands. "Consumers are moving from a saving mindset to a spending mindset," says Alok Gupta, executive vice-president (marketing), United Breweries (UB).
And three, women are drinking more. Think Carrie Bradshaw and her friends in the popular television series Sex and the City. "Women drinking, even sitting at bars by themselves is no longer taboo," says Rohini Abraham, vice-president and country head at Probe Qualitative Research, a division of Indian Market Research Bureau (IMRB). "Women today want a quicker high and, therefore, a strong drink."
All this has more or less erased the furtive looks you threw while entering a wine shop and dashed off with your liquor. Says the store manager of the DSIDC outlet in Delhi: "Today, an average customer takes anywhere between 5-20 minutes in the shop to decide."
The Changing Company
With liquor advertisements banned, companies are targeting the consumer at the point of consumption in more innovative ways. Says an industry observer: "The tough part is not about getting the customer to say yes, but getting him to try out your brand." Adds Santosh Kanekar, vice-president (marketing), Diageo India, "The era of brands is over. It's all about the experience now."
To do that, companies are creating points of association with the consumer. Cocktail workshops, parties and holidays have acquired greater levels of sophistication, and product extensions like calendars have become common.
Companies are also promoting new concoctions, especially vodka-based mixed drinks aimed largely at women or first-time users.
Diageo launched three variants of its Smirnoff Vodka, Twist, Raspberry and Orange, in August 2004. Then, Kanekar admits that at Rs 1,000 a bottle, his Black & White whisky can get intimidating. So, the company did two things. One, sell miniature bottles of Black & White (equal to one large peg) for Rs 100. And two, "sell it discreetly" by mixing it with Coke. By making a cocktail, Diageo managed to get consumers to try it. Jack Daniels with Coke is a hot cocktail today.
So, instead of just launching new products, companies are looking at variants. After launching Diet Mate, a diet whisky, in February 2006, UB is coming out with a chocolate-flavoured vodka in April! "How else do you provide consumers with a new experience?" asks Gupta.
UB also plans to launch apple and apricot-flavoured vodkas and a coffee brandy. And a vodka with 'aphrodisiac properties' called White Mischief Kama. Diet Mate is already clocking sales of 7,000 cases a month in Mumbai and 1,000 in Goa. That's 4.4 per cent and 4.1 per cent of the total whisky market in Mumbai and Goa, respectively.
Even globally, liquor companies, hungry for new sources of growth in stagnating markets, are promoting new concoctions. US-based beer maker Anheuser-Busch is planning to roll out Peels, a line of fizzy, alcoholic fruit drinks. In the UK, the past two years have seen as many as 81 new versions of premixed bottled drinks such as Smirnoff Ice and Bacardi Breezers, even a diet Bacardi Breezer. These drinks, or 'alcopops', sold worth $22.7 billion last year, up 6 per cent from 2004, as per research agency Euromonitor.
Companies are also looking to introduce products by region. This is possible in a country like India where each state is a different market altogether. For instance, south India accounts for 47 per cent of India's beer consumption. "Segmentation is becoming more and more important," says UB's Gupta.
The Changing Industry
With consumers and companies changing colours, it's no wonder that the industry itself is going through a radical makeover. Things that were unheard of are beginning to happen — mergers and acquisitions for one, and private equity investments for another. And the boldest moves have been from home-grown companies — UB, Radico Khaitan and Champagne Indage.
The largest acquisition has been by the Rs 9,000-crore UB, India's largest liquor company. UB acquired the Chhabrias' Shaw Wallace & Company (SWC) in June 2005 for Rs 1,500 crore and Herbertson's for Rs 131 crore. In 2004, Radico acquired the Whytehall India brands for Rs 31 crore and Brihans brands in 2005. Says Abhishek Khaitan, managing director, Radico Khaitan: "The acquisitions have been strong growth drivers and have helped us enter more segments in the liquor industry."
Then, Champagne Indage, India's largest wine company, signed an MoU to acquire UK-based wholesale wine distributor McKinley Vintners in June 2005. Indage sells its products in the £8-billion UK market, "the most fashionable and dynamic wine market in the world", according to managing director Ranjit Chougule. The acquisition will give it greater access to the market as Vintners distributes to retail chains like Tesco, Sainsbury's and Aldo along with hotels, restaurants and wine shops. Next are the American, Far-Eastern and, then, European markets. The company will also launch a vodka this year.
Says Nikhil Vora, vice-president (research), SSKI Securities: "The benefits (of the M&A trend) would be greater pricing power and significant margin expansion over FY05-08." But Timmy Kandhari, executive director at PricewaterhouseCoopers, feels that there are few opportunities for M&As now, particularly after UB acquired Shaw Wallace.
Whether M&As continue or not, private equity interest appears to be here to stay. Singapore-based Arisaig Partners picked up a 10 per cent stake in Champagne Indage in October 2005. This was Indage's second equity dilution after Anil Ambani's Sonata Investments (then Reliance Energy Investments) picked up close to 9 per cent in the company in 2005 for Rs 8 crore. Grover Vineyards is looking to sell a 35 per cent stake, and Sula Vineyards has diluted a minority stake for Rs 15 crore to GEM India Advisors.
Even smaller wine companies like Renaissance, Rajdhir and Vinsura — who so far sell only in Maharashtra — harbour dreams of going national. "Once that happens, the big players will have serious competition," says Magandeep Singh, who plans to launch his own winery someday.
Wine is also attracting the biggies. UB plans to launch its range of wines by the end of the year. Seagram is setting up a winery in Nashik and hopes to produce 120,000 litres this year. Predictably, this is raising fears of a shakeout. Says Param Uberoi, managing director, Seagram India: "The attrition rate will be very high — around 80 per cent."
"Wine companies are trying to acquire each other," says Kanekar. Ponty Chadha, liquor distributor and managing director of the Chadha Group, is more scathing: "Companies that specialise in wine will find the going tough."
The next big battle, though, could be in beer. Around six new beer brands were launched in India in the last one year. Other players like Heineken, Scottish & Newcastle, Anheuser-Busch and Asia Pacific Breweries are believed to be firming up their India plans. So far, the biggies here are UB and SAB Miller. With Mohan Meakin's beer business up for sale, a third major player could emerge.
As for the consumer, some more good news may be round the corner. The Ministry of Food Processing has drafted a proposal urging the Union and state governments to declassify wine and beer from the alcoholic beverages category and sell them through the regular retail channel. Should that happen, the Indian consumer can look forward to getting his favourite wine in the friendly neighbourhood, um, mall. But it may not happen very soon.
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Re: Things have never looked better for the Indian liquor industry - January 20th, 2008

tku, this article was useful
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Re: Things have never looked better for the Indian liquor industry - January 4th, 2009

tht article was useful
m doing a project on marketing of italian wine in india
will post any query here if need arises
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Re: Things have never looked better for the Indian liquor industry - January 18th, 2009

Good article dude.Keep it up.M doing a project on kinfisher beer businees.
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Re: Things have never looked better for the Indian liquor industry - April 19th, 2009

hiii please help me find a project on a production and operations of a liquor industry or beer industry or SABMiller
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