Liquor Industry

Presented to:
Prof. V.P Mishra
&
PGDM -2
Content

• Introduction

• Performance of the industry

• List of major players of the sector.

• Legal environment

• Social environment

• Economic environment

• Porter‟s 5 forces model

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/B
oom-time-for-country-liquor.html
Industry Structure

Alcoholic beverages (8500 Crore)

IMFL Country Liquor

Rs 6150 Crore Rs 2350 Crore

Brown Spirits White Spirits

Licensed Illicit
Whisky Vodka
Brandy Gin
Rum

http://www.livemint.com/articles/2011/11/23210054/
Boom-time-for-country-liquor.html
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
Macro Economic Environment

• Legal

• Social

• Economic
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.
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 %

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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.

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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.
Legitimate business & their surrogate advertisements

Brands Surrogate advertisements

McDowell’s malt whisky
Radico Khaitan’s 8 pm whisky
Hayward’s 5000 Beer
Derby Special
Bacardi Liquor
Bagpiper liquor
Kingfisher Beer
Royal Challenger whisky
White Mischief Liquor
Smirnoff Vodka
McDowell’s Soda/water
Radico Khaitan’s water
Hayward’s water/soda
Derby special soda
Bacardi Blast CDs & Cassettes
Bagpipers soda and cassettes
Kingfisher bottled drinking water
Royal Challenger golf accessories &
mineral water & cricket team
White Mischief holidays
Smirnoff cassettes & CDs
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-
Porters 5 forces model
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.
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-
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
• 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.
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-
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.

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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
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
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
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 .