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FIRST, YOU MUST appreciate the scale of Indian whisky. At 174m 9-litre cases (Euromonitor International), India is the largest whisky market. It is home to the largest whisky brand, Allied Blenders & Distillers’ Officer’s Choice (32.9m cases), and the second largest (Diageo’s McDowell’s No.1), the third (Pernod Ricard’s Imperial Blue) and even the fourth (Royal Stag, also Pernod Ricard). Indeed, seven of the top 10 whisky brands globally are Indian. This is the land of the giants – what happens here determines the health of the whisky category globally. No sick notes are needed, Indian whisky has grown 22% in the past five years (Euromonitor International).

And India is really only getting started. When you consider where the country is heading economically, socially and culturally, this is still a green market ripe for development. India’s GDP growth rate is the highest of any country with a population of more than 100m, last year growing at 6.8%, which is about the average yearly gain this side of the millennium. By 2025 its middle classes will be more numerous than the population of Europe and its affluent, luxury-leaning consumer group will be double the size of Australia – 40m people.

Not only will more people have the money to spend, more people will be drinking, full stop. Currently only two-thirds of Indians drink – this, some 850m teetotallers, is one hell of an untapped market. Not for long. India is liberalising and with it religious and cultural stigmas around drinking are fading fast. Where once women didn’t drink, now – in metropolitan cities at least – they can and they do. Urbanisation, internet penetration, global travel, increased job opportunities and swelling salaries mean the population has far more independence than before, of mind and of pocket. The signs are these aspirational new drinkers know what they want to spend their disposable incomes on – and that’s brands.

YOUTHFUL CONSUMERS

Now consider that this is a country in which 65% of the population is 35 or under. It is the world’s largest collection of millennials. Once things swing their way, they won’t swing back quickly. At the heart of this youthful consumer group is a sense of freedom – unsaddled by the cultural baggage or memories of hardship of their forefathers. A fair few brand-driven industries are already seeing rapid growth thanks to these fertile market conditions and whisky, the national spirit (55% of all spirits consumed), seems likely to too.

Anand Kripalu, managing director and chief executive of Diageo subsidiary United Spirits – which owns nine of the 16 Indian whisky brands over 1m cases – is watching India’s transformation unfold. “Over the past few years, India’s economy has been the bright spot among the large emerging markets. Favourable economic and demographic factors, coupled with changing attitudes, are projected to support a long-term increase in consumer spending.”

It all sounds so simple, but in India nothing is simple – politics always plays a part. On the surface, prime minister Narendra Modi’s business-first thinking could have been seen as a boon to the alcohol industry, but there is dogma there too. This is a man who implemented prohibition in Gujarat when he was the state’s chief minister. He has done little to arrest Kerala’s slide into partial-prohibition, which has also stemmed from political posturing (Prohibition is a big vote-buyer among some of the state’s pious electorate) and last year Bihar became the second largest state in India to impose a total ban, with the backing of Modi. Other states could follow, but Bihar’s ban hurt producers – unlike Kerala, which favours brandy, the people of Bihar drink whisky. This state’s performance has had a bearing on many whisky producers, including Officer’s Choice, which saw its total sales dip 5%. The brand is widespread enough to weather state vagaries, but Prohibition is never off the agenda, something that United Spirits is all too aware of. “We are disappointed whenever prohibition is announced because it doesn’t address the real issues or irresponsible behaviour,” says Kripalu. “The only way is to foster real behaviour change by promoting responsible behaviour through awareness and education. Sooner or later, governments realise that too, which is why prohibition has most often been rolled back in nearly every state that has implemented it.”

India is a country of 24 states and 24 alcohol policies. So it is important for producers to either bank on safe states (John Distilleries’ Bangalore Malt, for instance, grew 82% in 2016 but only sells in Karnataka) or spread their wares across as many states as possible to mitigate exposure to risk. New on the scene, White & Blue has done just that. The Alcobrew brand was launched in 2012 and has already reached a million cases, with 20 of 24 states on its distribution list. Alcobrew’s head of marketing, Rakesh Sheth, explains the strategy: “The brand was launched in the states of Delhi and Haryana and it expanded across various geographies and in CSD (canteen store departments). Indeed, it was a tough task to take on the established players of this segment. The single most important factor while launching White & Black was that it had to over-deliver on the blend. This is what hijacked consumers from competition.”

White & Black falls within the deluxe category, which in India is under £4 a bottle. That’s not even the least inexpensive whisky in India – they start at £2-£3 for 70cl (see Indian whisky segment ladder) and it was these lower rungs of the ladder that were impacted by the most recent political shockwave.

BLACK MARKET CASH

Modi’s demonetisation policy was aimed at purging the country of black market cash and ushering in a new formal economy of accountable cash and tax-paying transactions (it’s estimated only 1% of Indians are tax payers). 500 (£6) and 1,000 (£12) rupee bank notes were removed from circulation, with individuals allowed only small deposits of unaccountable savings per day in Indian banks. The larger picture was a temporary slump in India’s first quarter of 2017, GDP dropping from a forecast 8% to 6%. Cash shortages and reduced spending took many industries into the red and the whisky business suffered. Alcobrew’s Sheth explains: “It resulted in a severe cash crunch across the country as all the impulsive product categories took a hit. People were forced to prioritise their cash spends. In the alcohol business, the adverse impact of this exercise was much more severe in regular and lower segments as the target consumer is cash dependent. In higher segments a large consumer base uses e-money for transactions and so the relative impact was much less.”

USL’s Kripalu shares the frustration of his home market: “While the fundamentals make India an attractive opportunity for our sector, what’s holding it back is a difficult and unpredictable regulatory environment. We have delivered a strong net sales growth of 6% (third quarter), despite the subdued economic environment in the third quarter due to demonetisation.”

But despite the blips, premiumisation is still the word on everyone’s lips, not least Kripalu’s: “There is a significant, ongoing trend of premiumisation within the Indian spirits market. We are seeing consumers trade up between categories and even within them, for example from regular IMFL (Indian made foreign liquor) whisky to prestige IMFL whisky, and onwards towards scotch. This trend is expected to drive double-digit growth in the prestige and above (P&A) segment. Our stated focus is on the P&A business, which is largely McDowell’s No.1 whisky and above, which remained robust and grew 12% net sales in the third quarter and 16% in the nine months’ period. This has been hugely enabled by our renovation and premiumisation strategy. The P&A business represents 41% of total volumes and 58% of total net sales, making it a much richer part of our total business.”

Alcobrew’s Sheth adds that India has a new consumer who looks beyond price. “The consumer is looking for value-added products. Apart from a good quality blend they also appreciate premium and disruptive packaging. Entry of new players (both domestic and international) has spoiled the consumer with choices. They don’t mind trying a new product offering instead of established brands.”

Ladders have to lead to somewhere, so one wonders what happens eventually if consumers continue to trade up and out. Diageo and Pernod Ricard are clearly well placed to hold Indian drinkers’ hands as they step off the local ladder into scotch, but for the Indian producers? “Local producers are reacting,” says Sheth. “We are tracking the trend and have noticed how Indian consumers are already spending more on Indian whisky. Indian single malts are the new and promising trend. There won’t be a surprise if a few local players flirt with flavoured whiskies such as cinnamon flavoured etc. Producers are innovating and you have to speak the same language. If you don’t, you will lose the whisky market to Scotch, Irish and Japanese whisky.”

That’s a long way off. For now, it is enough to get on board and let the premiumisation ship sail, navigating any swirls and currents as they try but likely fail to throw this titanic category off its course.