Indian whisky

The market for whisky in India is huge, but local brands have the lion’s share due to the exorbitant import tariffs. Christian Davis reports

SALES OF THE TOP SEVEN Indian whisky brands are equivalent to Diageo’s total annual sales of scotch whisky around the world. That comment comes from Dr Nick Morgan, Diageo’s head of whisky outreach.

India is one of, if not the, fastest growing alcoholic beverages markets in the world. United Spirits, the country’s largest drinks company, claims to be the world’s biggest liquor company by volume. It describes the Indian alco-bev sector “as galloping at an average of 10% per annum”. It says prestige and premium segments grew by 20% over 10 years and 23% in the last three years. United Spirits says volumes grew on an average 14%-16% year on year. The premium segment surged ahead in the past five to six years, growing at an average 25% year on year. Single malt whisky is a small segment, although it is the fastest growing category among India’s premium, high-end, spirits.

United Spirits claims Dalmore and Jura are the fastest growing brands both worldwide and in India. It has just launched Dalmore 15 Year Old in India. The Whyte & Mackay brand grew by 92% in India in the past year, according to the company.

United Spirits’ managing director and president Ashok Capoor, in his first interview after taking charge of Vijay Mallya’s spirits arm about 10 months ago, said in India’s The Economic Times that the company is shifting its focus to pushing high-margin premium brands and reducing costs by investing in back-end businesses. He is reported as saying: “Being a volume chaser is a thing of the past.” 

The size of India’s spirits market

It is hard to track reliable statistics for the size of the total spirits market in India. United Spirits estimates it at approximately 270 million cases, approximately 17 million cases of which is its Bagpiper brand. The Scotch Whisky Association (SWA) on the other hand estimates the Indian spirits market at 250m 9-litre cases, of which 140m are ‘whisky’. The inverted commas are present because much of Indian whisky is made from molasses rather than grain so, by recognised international definitions, it is not whisky (see fact file above).

The Economic Times report states that United Spirits’ profits fell 63% last quarter because of what Capoor calls “momentary disruptions” and an increase in the price of extra neutral alcohol (ENA), a key raw material, which was caused by rising oil prices.  The report says a key strategy for the company is to turn its Scottish subsidiary Whyte & Mackay’s focus from bulk spirits to packaged branded spirits. 

The report says United Spirits has bought three distilleries over the past year and plans to increase the share of spirits made at its own distilleries and in its bottled sales from around 34% to 40%-45% within three years. Capoor tells The Economic Times that he expects Whyte & Mackay to be more profitable in two to three years when its spirits mature into scotch. 

It says it has plans to launch four brands in the premium segment this year including value-price scotch John Barr as well as several “innovative spirits products”. The McDowell’s No 1 and Royal Challenge whisky maker has partnerships in emerging markets such as Myanmar (Burma), Vietnam and Nigeria, where it plans to begin operations in the next fiscal year.

Euromonitor, the international market research organisation released a report last November titled: ‘Spirits in India: How Can One Country Eclipse an Entire Region?’.

The report states: “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.”

A force to be reckoned with

India overtook western Europe’s spirits market in 2010 and is predicted to overtake eastern Europe by 2014. The report goes on to discuss Diageo’s new entrant, Rowson’s Reserve, described as a new brand of Indian grain whisky that is combined with scotch and aged locally in American oak barrels. It is described as “crafted for the expectations of the Indian palate”. The brand is aimed at India’s middle class.

What happens regarding India’s contentious import tariffs depends on negotiations, discussions between the EU and the Indian government. “Trade agreements could potentially facilitate these efforts immensely,” says Euromonitor. “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.”

Rosemary Gallagher communications manager for SWA tells Drinks International: “In terms of progress with the Free Trade Agreement (FTA) which will address the issue of the onerous 150% import tariff on scotch whisky in India, we’re still hopeful that a deal can be concluded.

“Improvements have been made since 2001 when the tariff stood at 750% but it is still too high and means scotch whisky is unaffordable for the vast majority of Indians. Only the very upper end of the middle class can consider buying scotch whisky. Many consumers are going through the grey market to buy whisky and too often this ends up being a bootleg of a premium brand of scotch,” she says.

“The tariff on imported spirits is much higher than in other emerging markets – for example, in China it’s now 10% and in Brazil it’s 20%. India, the largest whisky market in the world, has the potential to become one of the biggest markets for scotch,” adds Gallagher.

Euromonitor comments under ‘Potential barriers to growth’ in the November report: “Regardless of what happens on the legislative and taxation front, one thing is certain. With spirits volumes in India expected to witness a compound annual growth rate (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.”