An Overview of The Indian Liquor Industry

1. Liquor Industry Presented to: Prof. V.P Mishra & PGDM -2

2. Introduction Performance of the industry List of major players of the sector. Legal environment Social environment Economic environment Porter’s 5 forces model Content

3. Introduction Indian Liquor Industry is divided into 2 broad categories Indian Made Foreign Liquor (IMFL) Country Made Liquor Indian Liquor Industry with market value of INR 8500 Crore against INR 900 Crore in 1999 & is growing at 12-15% P.A over last 2 yrs. Shift from country liquor to IMFL because of rising per capita. http://www.livemint.com/articles/2011/11/23210054/Boom-time-for-country-liquor.html

4. Industry Structure Alcoholic beverages (8500 Crore ) IMFL Rs 6150 Crore Country Liquor Rs 2350 Crore Licensed Illicit Brown Spirits White Spirits Whisky Brandy Rum http://www.livemint.com/articles/2011/11/23210054/Boom-time-for-country-liquor.html Vodka Gin

5. Major Competitors Manufacturer Brands United Breweries (UB) Group( Bangalore) King Fisher, Kalyani Black Label, Signature, Blue Riband Shaw Wallace (Calcutta) Haywards   Jagajit Industries ( Kapurthala , Punjab) Aristocrat Mohan Meakins ( Solan , Himachal Pradesh) Golden Eagle  Associated Breweries &  Distilleries (Mumbai) London Pilsner,  Smirnoff, Gilbeys Green Label, Malibu, Archer’s Peach  Schnapps

6. Macro Economic Environment Legal Social Economic

7. Legal Environment Ban on direct advertising Excise regulations and Licenses ‘Regulated’ industry - movement, prices of intermediate goods (molasses, ethanol) tightly controlled - state governments exert considerable influence. Subject to licensing under Industrial  (Development and Regulation) Act, 1956 Cap on licensed capacity; special license  for expansion Plethora of duties and taxes from bottling to sales stage; varying from state to state. 

8. Custom & Duties Sales tax, Bottling Fee, Litre Fee, Vend Fee, Privilege Fee, Import/ export Pass duty Other taxes levied  are: Excise Duty : Liquor from spirits - Rs. 45/-  bulk litre; Premium Malt Whisky - Rs. 60/- bulk/ litre; Litre Fee - Rs. 20/- bulk litre; Sales tax : 60%;  cess 5%  Import duty on whisky, rum, gin & vodka, liqueur - 230 % www.crisil.com

9. Social Environment Increase in disposable income Changing lifestyles of middle class Western culture influence Changing Trends – Youngsters, Parties and Celebrations Minimum age Beer - from 18 to 21 Hard liquor - from 21 to 25 In India 40-50 % of all males and 1% of all females consumed alcohol last yr. 62% drinkers classified as light, 29% as moderate drinkers and 9% as hard drinker. http://www.livemint.com/articles

10. Prohibition in India Soon after independence, prohibition was imposed in the erstwhile state of Bombay. The first large-scale movement against alcohol began in the 1970s, when rural women in various parts of the country protested against the sale of liquor in their villages. Information and Broadcasting ministry of India banned the ads. Even after the ban, liquor companies continued to advertise their drinks in the form of surrogate advertisements. 

11. Legitimate business & their surrogate advertisements   Brands Surrogate advertisements McDowell’s malt whisky McDowell’s Soda/water Radico Khaitan’s 8 pm whisky    Radico Khaitan’s water  Hayward’s 5000 Beer  Hayward’s water/soda Derby Special  Derby special soda  Bacardi Liquor Bacardi Blast CDs & Cassettes Bagpiper liquor  Bagpipers soda and cassettes Kingfisher Beer  Kingfisher bottled drinking water  Royal Challenger whisky Royal Challenger golf accessories & mineral water & cricket team  White Mischief Liquor White Mischief holidays Smirnoff Vodka  Smirnoff cassettes & CDs

12. Economic Environment It is a well developed - Rs 8,200- 8500 Crores industry in India Past growth 12 % CAGR per annum Brown spirits - particularly whisky, rum & brandy account for over 75 % of this market South and North share 60% of market  Market size – 20 million cases in 1999 to 84 million cases in 2011 http://articles.economictimes.indiatimes.com/2010-09-

13. Porters 5 forces model

14. Threat of New Entrants There are huge complexities and high regulations to get entry in this industry . The new players need to satisfy the licensing and need to get approvals by the states and central government.  For international players, the key is find the right partners and links who understand the Indian market and legislations. 

15. Contd.. With liquor makers, both local and foreign, becoming active, competition is intense. UB-Carlsberg, South African Breweries and some others are awaiting clearance following government stalemate on account of the Supreme Court judgment, the judgment has created a confusion whether the proposals related to FDIs and the issuing of licenses for the liquor industry will be addressed by the Central or the State governments. A lot of mergers and acquisitions in the international arena have begun to impact the joint ventures. http://articles.economictimes.indiatimes.com/2010-09-

16. Threat of Substitutes Today with the advancements and up gradation in the standard of living, people are becoming more health conscious and a large chunk of the population has become aware of the fact that Liquor is harmful for health . For this a lot of people have shifted their demand from Liquor to juices & other health drinks . Major substitutes for Liquor are: Soft Drinks Non-alcoholic drinks Coke Pepsi Other Health drinks

17. There has been a decline in the sale of liquor in India by 2.5% in the year 2010 which clearly indicates the impact of substitutes and awareness amongst the consumers.

18. Bargaining Power of Customers The Liquor industry has witnessed the consumers always at a weaker end . There is not much bargaining power in the hands of the consumers in Indian liquor industry as the prices are set by the forces of demand & supply and the demand for liquor here is high as compared to the supply . Hence, the producers are at a beneficiary end and charge higher prices. In India, a liquor brand is identified and is appreciated only on the basis of it’s higher price. It is an interesting fact that Companies use “High Price” as one of it’s promotional strategy to attract the consumers. http://articles.economictimes.indiatimes.com/2010-09-

19. Bargaining Power of suppliers The key raw material for IMFL players is Molasses which is a by product of sugar. Molasses is distilled & processed to form rectified spirit called Ethanol . The players which have primary distillation facilities in their Plants directly consume molasses, rest all have to purchase Ethanol. As molasses demand arises only from ethanol demand, the demand supply scenario for ethanol determines the raw material prices for the IMFL Players . www.crisil.com

20. Continued.. Ethanol demand is expected to rise in future, when the commercial blending of ethanol with petrol (for producing Gasohol) will take off. In Long term -Molasses supply is going to increase as more sugar manufacturers are expected to set up primary distilling facilities and as new sugar factories are expected to come up in the form of integrated plants with cogeneration & distilling facilities The suppliers are able to play easily with the prices of these raw materials hence charging higher prices from the Liquor producers. www.crisil.com

21. Predictions regarding Raw Materials It is predicted by the analysts that after the commercial production of “Gasohol” the prices of Molasses is likely to increase. www.crisil.com

22. Rivalry within the industry & their Market Share The top five competitors in Liquor industry are: United Breweries (UB) Group( Bangalore) 48% Shaw Wallace (Calcutta) 36% Jagjit Industries ( Kapurthala , Punjab) 6 % Mohan Meakins ( Solan , Himachal Pradesh) 5.5% Associated Breweries &  Distilleries (Mumbai) 4.5% www.oppapers.com

23. Rivalry Major players create competition on the basis of: Looks of the liquor bottle Pricing the product much higher Innovative promotional campaign Beer sales in India are forecasted to grow at CAGR of 17.2 % by 2012 Future plans for the industry depicts strong growth for the Indian beer market as the major players like kingfisher have been quoted saying that they have significant expansion plans for the next few years. The industry is looking forward for merger of United Breweries and SABMiller’s possible future acquisitions .