India's rising star has been casting an increasingly heavy shadow over the spirits category, gradually eclipsing established regional powerhouses in the process.
Beyond the still labyrinthine legislative environment and the minefield of the country's chaotic tax regime, the Indian spirits market has been expanding rapidly on the back of favourable demographic trends, aspirational consumers and the rapid growth of an indigenous middle-class.
According to Euromonitor International's latest research, the Indian spirits market overtook its increasingly tired looking Western European counterpart in 2010 and is on course to overtake Eastern Europe as early as 2014. It is within this context that the country's vast market potential, and plethora of potential pitfalls, must be understood and analysed.
Other whiskey opens the floodgates
The momentum driving the Indian spirits market is by no means new. Holding a key place among the ever bullish BRIC nations, interest in the country's notoriously spirits-oriented alcoholic drinks market has historically been high and – taking into account the stagnant nature of mature Western markets – continues to rise.
Diageo, the category's undisputed heavyweight, actually divested its local Indian whiskey Gilbey's Green Label back in 2002. In hindsight, this decision now appears somewhat misguided. This was implicitly acknowledged by the company itself through the recent launch of Rowson's Reserve, a new brand of Indian grain whiskey that is combined with Scotch and aged locally in American oak barrels.
This new brand is a way for the global spirits behemoth to tap into the increasingly lucrative consumer group that is India's middle-class, one which numbers millions and continues to enjoy rising disposable income. That said, many middle-class Indians still cannot afford high-end imported Diageo products such as Johnnie Walker, Talisker and VAT 69.
On top of its relative affordability, by claiming that its new offering's flavour is 'smooth, slightly sweet and crafted for the expectations of the Indian palate', Diageo's innovation team seem to have learnt their lesson and are tailoring the product for an Indian audience instead of expecting them to adapt to Western offerings. Given the stratospheric growth secured by the spirits category, they have had little choice but to pursue such a strategy.
According to Euromonitor International's latest research, the spirits category in India is set to post 12% total volume growth in 2011, essentially retaining the double-digit gains that have become the norm for the category over the past five years. While brandy, rum and, to a lesser extent, vodka are all set to see double-digit growth rates in 2011, it is other whiskey that is – not surprisingly - leading the way.
An affordable, entry-level stepping stone for aspiring middle-class urbanites, other whiskey in the country accounts for nearly 60% of overall spirit volume sales. As such, the category also holds the key to unlocking the floodgates for international players to reach out to the millions of young Indians reaching legal drinking age each year.
Potential barriers to growth
However, this is assuming that local legislation with regard to the legal drinking age does not become more stringent. The recent move from the government of Maharashtra, the Indian state which has Mumbai as its capital, to increase the legal drinking age (LDA) for spirits to 25 and for beer and wine from 18 to 21 caught many by surprise. Even more worryingly, this move follows on from an already unpopular tax hike that only seems to unfairly penalise the industry.
Regardless of the longevity and potential withdrawal of such largely unenforceable measures, this move is indicative of the wider problems faced by the spirits industry in the country. With taxation regimes and legislative environments varying from state to state, companies must be ready to navigate the resulting volatility on top of an already uphill battle to establish brand equity.
On the other hand, trade agreements could potentially facilitate these efforts immensely. In July 2011, India agreed to formally recognise 'Scotch whisky' as a product that can only be made in Scotland. This development could thus become a precursor to further bilateral agreements that would fundamentally change the operating environment for spirit sales in the country.
Regardless of what happens on the legislative and taxation front, one thing is certain. With spirits volumes in India expected to witness a CAGR of 10% over 2011-2016 while the performances of the industry's Western and Eastern European bastions will be lacklustre at best, India will remain one of the key players on the shifting global spirits stage.
Republished with permission from Euromonitor Market Research Blog, originally posted on 10 November 2011