India emerges as a key volume driver for beverage alcohol, whilst China's growth softens

With its vast population, rapidly rising incomes and increasingly global outlook, India is set to be an area of huge opportunity for beverage alcohol brands in the years ahead.

A shift in the global growth axis

IWSR data shows that India, alongside Mexico and Brazil, will stand out as a key volume growth market for total beverage alcohol (TBA) over the next five years, taking over from the US and China. India alone accounted for a third of all global TBA volume growth, 2021-2022, driven by an almost complete recovery of the beer category as well as very buoyant spirits growth, with people continuing to trade up within the whisky category, as well as beginning to exhibit similar behaviours in domestic brandy, rum, vodka and gin.

Although TBA volumes are expected to stay relatively flat in China between 2022 and 2027, China, as well as the US, will remain a significant value driver for the global industry, with expected TBA growth in China of US$ 41.7 billion during this timeframe.

While India will see rapid growth, it will be some time before it can match China in terms of scale.

Premiumisation acquires a twin-track momentum

“There is strong consumption and growing premiumisation in India, helped by higher middle-class disposable incomes, the lifting of pandemic restrictions and improved quality, variety and availability in retail,” says Jason Holway, market analyst, IWSR.

“Momentum is trending positively across drinks categories, with brown spirits performing particularly well. Consumers are trading up, notably in sparkling wine, whisky and agave-based spirits. As more brands come into the growing Indian drinks market, consumers are enjoying trying new categories.”

Premiumisation is more evident in imported bottled Scotch than any other category in India. Since the turn of the century, sales volumes have multiplied by 20 times and volumes have very nearly doubled between 2020-2022. Single malt whisky sales have doubled since 2020, with the main thrust coming from premium and super-premium expressions.

IWSR consumer data, based on consumer surveys conducted in November & December 2022, further supports this trend: 37% of consumers in Kolkata say they are buying much more expensive bottles of Scotch than usual – and the phenomenon of trading up is not merely confined to whisky. About 28% of consumers in Mumbai are drinking more wine than they did a year ago, partly thanks to rising levels of at-home consumption.

Meanwhile, gin, rum and Tequila have all consolidated gains made during Covid-19, with about three in 10 Mumbai consumers saying they drink gin and/or rum once a week, and 24% drinking more Tequila than in other regions.

This demand is being boosted by the increasing sophistication of retail and the on-premise in major urban centres, with high-end cocktail bars – previously confined to Delhi and Mumbai – now spreading in other metro centres across India .

When asked in February 2023, two-thirds of Indian alcohol consumers said they expected to drink more or the same in the on-premise in the next four weeks, with 84% planning to eat in a restaurant and 60% prioritising “having the best of everything” over “watching spending to keep costs down”.

Abhishek Khaitan, managing director of Radico Khaitan, believes that consumers became accustomed to superior products when staying at home during the pandemic. “That’s become a habit,” he says. “Also in Covid, people got this idea of ‘live your moment’ – because you never know what will happen the next day. They’re looking for experiences and the finer things in life.”

While imported alcohol brands have an obvious cachet for Indian consumers, there are opportunities for domestic players as well. “In India, until quite recently, premium was only associated with imported goods,” says Holway.

“This is rapidly changing, and more local products are seen as premium while becoming affordable. There is now a real pride in Indian-made products, particularly among younger adult consumers, and recognition of their quality.”

At the same time, discounts and reduced excise rates have made imported brands more affordable too, Holway adds. “So premiumisation now has a twin-track momentum. As sales of imported spirit brands have doubled in the last two years, domestic IMFL whisky sales at standard-and-above price points – which are considered premium in India – have tripled.”

UK/India relations

A free trade agreement (FTA) between the UK and India could boost the market or demand for imports further, lowering tariffs for Scotch imports. However, the situation is complicated by a number of factors: the need to respect Australia’s Most Favoured Nation (MFN) status in the negotiations; variations in state-level taxes and tariffs; and the different types of imported Scotch, including bottled in Scotland (BIO), exported in bulk to be bottled as Scotch in India (BII), and exported in bulk as an input liquid for domestic blended whiskies.

The uncertainty over the precise implications of an FTA reflect an Indian marketplace that remains complex and under-developed in certain aspects (not least penetration), when compared to China. Where the latter has a millennia-old drinking culture, alcohol in India doesn’t have quite the same cultural resonance or centrality. Routes to market vary considerably from state to state, from tightly controlled to relatively open. China combines the freedom of a relatively less regulated market with an efficient and modern distribution chain, plus modern retail and ecommerce channels.

The scope for tariff and tax reductions in India is likely to be reduced by the fact that, barring GST (Goods and Service Tax), alcohol is often the largest revenue provider to the state. “Each state is run by a different political party,” adds Khaitan. “It’s hard to get them to give up that revenue. Operating in India is like operating in 28 different countries.”

Gains in China

In China, future gains for spirits could be hampered by a number of factors, including a renewed government crackdown on conspicuous consumption, less engagement from younger LDA drinkers, and softer expectations in terms of economic growth.

According to IWSR research director Shirley Zhu, premiumisation in China is evolving. Locally produced premium wine brands are gaining a growing audience thanks to increased recognition, while consumers who used to drink low-quality baijiu are upgrading to more expensive options as new minimum standards force low-end products out of the market.

Prospects for single malt whisky continue to be bright, but are tempered by greater price sensitivity and the cooling of the craze for high-age-statement Scotch and Japanese expressions – while beer is continuing to premiumise on the back of rising craft beer consumption.

“China is not experiencing a quick bounce back post Covid-19, as consumers are still building up confidence to spend again,” Zhu says. “When it does take place, it could help to counteract the impact of potential headwinds in the short term.

“In the meantime, premiumisation is still happening, with consumers drinking better, but it’s more nuanced now. Businesses need to familiarise themselves with this new environment, and with changes to consumer attitudes and behaviour, in the post-Covid world.

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