The volatility of the Indian whisky market

Indian whiskies notwithstanding, India is still the sixth biggest global destination for Scotch whisky. The Indian influence on the whisky market is not waning either, with the IWSR reporting double digit growth last year.

India’s performance last year was mildly amplified by the boost that the regularisation of the Uttar Pradesh market gave sales, but the 11% volume rise has still highlighted the opportunities that continue to exist for whisky in India. Demand is being fuelled by a rising consumer base of young consumers who are becoming more affluent in a country where the global reach of some of the smaller cities is becoming more significant, diluting the historical whisky sales bias towards the big three cities of Mumbai, Delhi Gurgaon and Bangalore.

According to IWSR figures, 93% of all whisky traded in India falls into the ‘value’ segment, and that leaves plenty of scope to develop the higher end segments.

These new affluent consumers prefer premium products, and the value of the whisky market in India increased by 17% last year. This is a long-term trend, with the average price of whisky in India nearly doubling in ten years to US$7.18 for a litre. The appeal of the Indian whisky market is not just that all price bands are thriving, but just how early in the premiumisation cycle the market is in; according to IWSR figures, 93% of all whisky traded in India falls into the ‘value’ segment, and that leaves plenty of scope to develop the higher end segments.

Selling alcohol in India is challenging because the local governments are intrinsically anti-alcohol, something that is partly driven by philosophical reasons, but also because a hard-line attitude to alcohol is a political vote winner. In India, each of the twenty-nine states govern their own alcohol policy and regulations. There is no legitimate cross-border trade allowed, and state governments control taxation, production, the route-to-market, regulation and pricing. If a company wanted to have national reach in India, they would need to have an operation in each state – a process that is both bureaucratic and expensive.

To further complicate matters, marketing alcoholic drinks brands in India requires considerable ingenuity: India is ‘dark market’ where advertising and promoting alcohol is prohibited; as such, companies marketing and launching new brands do so prudently with good liquid, good packaging and good distribution.

Allied Blenders & Distillers (ABD) demonstrated this last year with the fabulous success of their new premium range of whisky, Sterling. Sterling was a good, well presented product and with ABD’s distribution channels, they were able to persuade retailers to put the whisky on their shelves at the cost of sacrificing the shelf space of another of their brands.

There may be ways of improvising, but India remains a difficult trading environment for drinks companies. These conditions are compounded by the fact that the law makers do not legislate with the commercial sensitivities of drinks companies in mind: regulations, tax rises and rule changes can be introduced at damagingly short notice.

The market was blighted in 2017 by unexpected monetary reform as well as a Supreme Court ruling imposing a ban on liquor vends (retail outlets) within 500m distance of any national or state highway. Rules were later clarified to permit bars in hotels to sell alcohol, and the industry deployed their initiative to overcome the ruling. National Highways were quietly exempted by changing them to City Highways, while one resourceful vendor, sited 50m from a liable highway, is said to have created a 501m path that wound its way to his store so that he would still be eligible to continue to trade. Despite this resilience, it is estimated that 6-8% of outlets closed and the vibrant Indian whisky market flattened.

Conversely, India’s 2018 results were helped by no new regulatory or tax interference and the market progressed accordingly. The premiumisation process resumed, with the top end of the ‘Bottled in India’ market (selling for around a ₹1000 a bottle) flourishing. This has prompted the emergence of some pioneering and cult Indian whiskies: companies like John Distillers and Amrut Distillers are raising the bar for Indian whisky.

Attempts are also being made to create a buzz around the use of whisky in cocktails, which will make the category more relevant not just to a younger drinker but also to the female market.

Many of these new ‘young brands’ are helping to contemporise the category and broaden the appeal away from the 35-year-old plus core users to the rapidly expanding younger age segments. Attempts are also being made to create a buzz around the use of whisky in cocktails, which will make the category more relevant not just to a younger drinker but also to the female market. There is already evidence that in the higher echelons of Indian society, women are developing a taste for top end whiskies.

The innovation in the category is helping Indian Whisky to carve out its own identity, and in the longer term this will enhance its reputation among whisky connoisseurs from further afield. To date, Indian whisky exports have tended to follow the path of the large Indian expat communities, particularly in the Gulf. They have also attracted a following in some African markets, serving as entry level brands for those consumers wanting to upgrade from the illicit spirits market. The next generation of high-end Indian made malts are already showing that they are of a sufficient standard to capture an audience in Western markets.

The next generation of high-end Indian made malts are already showing that they are of a sufficient standard to capture an audience in Western markets.

However, stakeholders in the market are aware of the constant threat of legislative intervention: recently, Goods and Services Tax (GST) had initially excluded alcohol but could be updated to include it. Pramod Krishna, former Director General of the Confederation of Indian Alcoholic Beverage Companies (CIABC), believes that the alcohol will be not be included in GST because that will require a new bill to be passed by both houses of parliament; the real threat to alcoholic drinks companies is whether extra-neutral alcohol (ENA) used during the manufacture of alcoholic liquor is subject to GST, since no input credit will be available to manufacturers.

Krishna believes that this danger is genuine because during the election the tax slab/rate on some goods was lowered to win votes, and this has caused a shortfall in the monthly revenue targets for the GST. The taxing of ‘ENA’ in the highest bracket of 18% would go some way to making up the deficit. The decision will be made by the GST council, made up of the finance minister of central government and finance ministers of all states. For the tax to be implemented, at least two thirds must agree to it.

The proposal to levy GST on extra-neutral alcohol was on the agenda at the last meeting of the council, but time ran out and the item could not come up for discussion. Krishna thinks it is a question of ‘waiting and watching’ to see whether it will reappear on the agenda of the next meeting of the council in a few months’ time; if it does, then it is likely to be passed, and with every 9-litre case requiring around 4 litres of ENA that would have significant implications for the price of spirits. In this event, the market can be expected to incur significant losses.

Currently, the Indian Whisky category is strong: its innovation is bringing new consumers into the category and is building its profile among whisky purists, both internally and externally. Whether this trend will continue with the ever-present threat of Federal or State disruption remains to be seen; the category is prone to taking one step forward and two steps back following government regulation or tax changes.

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