“The demand environment has remained subdued – people are still experimenting,” United Spirits managing director Hina Nagarajan said on an investor call recently. “They are drinking more out of home and out-of-home prices are higher than sort of buying from off-trade and drinking at home. So, there is a little bit of impact on volume there.”
United Spirits expects the environment to persist over the next few quarters. “I think the real pressure on the wallet is on the lower side, where we do see upgrades are not happening from country liquor to popular or popular to the lower end of prestige,” she had said.
The country’s spirits market saw sales volume of 409 million cases in the January-December period last year compared with 392 million cases in 2022. The overall spirits industry, after 12-15% growth in the post-Covid years, has normalised to a steady state, experts said. However, premiumisation has continued across categories, driving value growth even as there is pressure on volume. For instance, scotch has crossed the annual 9 million case sales mark and is expected to double in 2024 if the current pace continues.
Liquor mimicked the overall consumer discretionary segment, where sales of products such as apparel, footwear and beauty slowed in India in 2023 after two years of pandemic-induced runway growth. The spirits segment had also seen a record surge in the prices of raw materials such as extra neutral alcohol, glass and packaging material a year ago, which have softened now. Grain prices, however, have surged over the past two quarters, squeezing margins.
Also, Karnataka, the biggest spirits-consuming state, increased additional excise duty (AED) on Indian-made liquor (IML) by 20% from August, impacting volume.In states that account for over 65% of the overall market, the state government controls retail, wholesale and pricing, making it difficult for companies to raise prices quickly.”The states which have given the price increases are weighted average bases in the range of 180-basis points to 185-basis point,” Radico Khaitan chief financial officer Dilip Banthiya told investors recently, implying that these didn’t cover the rise in input costs. “The states include Telangana, Haryana, Assam, Maharashtra, Rajasthan, Delhi, Karnataka, Uttar Pradesh – all these big states.”
Pricier Product Launches
While India has nearly 1.4 billion people, the drinking population is estimated at 300 million and nearly half of them can only afford cheap unbranded liquor. The rapidly growing middle-class segment that can afford premium-and-above is about 150 million. To earn higher margins, most companies, including homegrown players, have launched products in the pricier segments. For instance, Allied Blenders launched several brands, including Iconiq White Whisky, Srishti Premium Whisky and X&O Premium World grain whisky, while Tilaknagar Industries launched premium flavoured brandy Mansion House Flandy and Chambers.
In December, Pernod Ricard, the maker of Chivas Regal, Glenlivet and Absolut, said it expects India to outpace the US to become its largest market globally, without giving any specific time frame.
“The macroeconomics in India is extremely solid,” Pernod Ricard India managing director Jean Touboul told ET. “We are growing faster than many other affiliates in the group and hopefully because we do a good job, but I don’t want to undermine my colleagues’ jobs in other countries. It’s a market where the gross potential is much higher.”
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