TO ASSESS THE EXPORT POTENTIAL OF ALCOHOLIC BEVERAGES

EXECUTIVE SUMMARY
The Liquor Industry Occupies place of prominence in the Indian economy. Particularly keeping in view the revenue earned by the government from this sector. The state

government map up as much as Rs. from e#cise duty on liquor.

!"!!! crores every year has a considerable

India

domestic market for liquor. The liquor penetration in the country is round $ %. The Indian & made foreign liquor 'I()L* industry stands at around Rs. +!!! crore. )or the year ended cases. -owever" quite contrastly the e#port scenario of the Indian Liquor is really grim. The e#port market of I()L in not very good since I()L is molasses.based and not grain based. -ad India produced whisky according to the taste and !!!" the total market was around ,+ million

preferences of the consumers of the rest of the world rather than producing it from cheap" abundant molasses" India would have been in better position then it is now. It is not even given the status of whisky" rather it is called /Indian spirit0. 1ot surprisingly" the rest of the world refuses to call this stuff whisky" let alone drink it. Indian beer is in a comparatively advantageous position than Indian whiskies. 2o for increasing the e#port of alcoholic beverage India has several hurdles to overcome. 3s far as the world market for liquor industry is concerned" 4uropean 5nion is one of the market which has very strong

potential. 6ith the emergence of the single market" it has the largest consumer base of around 78! million. If we consider the 4uropean 5nion beer market as a whole" it brews appro#imately one.quarter of the world9s beer. :ermany is the largest brewer in 45 with a staggering figure of $$$.+ million hectolitre. 3s far as the per.head

consumption is concerned 3ustria is the leader with $$!; litres followed by :ermany" Ireland" <enmark and 5=. 2o Indian e#porters can tap this potential provided they can market their products at par with the 3merican or >anadian products. In this pro?ect I have tried to analy@e the alcoholic beverage market of ma?or 45 countries like :ermany" 5=" )rance A <enmark and find out the potential of these markets for the Indian e#porters.

INDIAN SCENARIO OF LIQUOR MARKET

Overview Liquor made in India is generally categori@ed as beer"

country liquor and Indian (ade )oreign Liquor 'I()L*. >ountry liquor is made from a variety of raw materials and is known by different names in different parts of the country. I()L production primarily comprises wine" Bodka" 6hiskey" :in" Rum" Crandy etc. Pre.mi#ed drinks are being introduced in India now" e.g." :in and Lime and Rum and >ola. <raught beer is another recent introduction and has done well where introduced. >anned beer has also been introduced. >urrently there are 7, breweries with a total licensed

capacity of $,! million litres per annum. >urrent production is estimated at over 7!! million litres. India has D distilleries with an installed capacity of ; +

million litres per annum. -owever" there are only $ + units" which produce I()L" and ,; units which produce country liquor. 3lcohol produced by the balance units is either sold as industrial alcohol or sold in bulk as potable alcohol to other distilleries" for bottling or for use in making bottled alcohol was estimated at $!!! million litres. Raw materials like (olasses" barley" mai@e" potatoes"

grapes" yeast and hops

for Ceer

and 3lcoholic Products

industry is abundantly available in India. This gives India a strong base for the alcoholic beverage industry. the Indian liquor arising Indian and beer a industries similar share common characteristics >ountry beer are liquor" state

from made

policy liquor

framework. 'I()L* and

foreign

sub?ects with each state controlling the duty structure and distribution the incidence of import and e#port duties result in high cost for inter state movement. This has resulted in each state having the attributes of a separate market. The

country liquor segment" at more their $+! million cases '$ bottles of 8+! ml* p.a." has distinct characteristics of its own and form the largest component alcoholic through of this is industry. produced This by

unbranded" distilleries

highly &

potent sold

drink

though

separate

distribution

channels. There also e#ist a thriving market for illicitly made country liquor. 3 ma?or portion of state revenues from this industry accrue for the country liquor segment. Cut with the lifting of ER92 on 3pril $ s t " !!$ in keeping with

6TO agreements may be euphoric for the consumer as he looks forward to be able to purchase a wide variety of wines from all corners of the world. 6hile it is all good news on one side" there is a certain amount of uneasiness amongst the local producers. India9s liquor industry is worried" especially the

comparatively nascent wine producers" and for good reason. 3t the cru# of the issue are India9s comple# laws dealing

with production" distribution and sales of liquor. 6ill it be a level playing field for allF 6ill the authorities change or reframe the rules to ensure that a fair game is played by both sides" or will it be a repeat of the automotive scenario with perhaps only one or two dedicated wine makers fighting for survival with their backs to the wall against well

ensconced new entrants ?umping into the fray. 3n almost virgin market like India9s would be temptation for cheap wines to be imported in bulk and /dumped0 at rock bottom prices on our consumers. the Indians of have most always foreign

subconsciously

accepted

superiority

goods over their domestic counterparts. 6hile in the case of imported wines there are certainly very many greatly

superior products" but there also e#ist the mundane less. than.average ones waiting to be imported in cheap bulk" finding a ready market for the /foren0 cra@y unknowing local consumer. It would be a pity to see these pioneering efforts slain by the onslaught of cheap" low.quality wines imported in bulk. -igh on my wish list is the hope that these pioneers are encouraged by level playing conditions" emulating the indigenous development efforts of the lone automotive Pune. based pioneer in pitching their products against the

onslaught of imported designs. Indians long for the day when at least a do@en Indian 6hiskey find their way onto the shelves of wine stores in 6estern cities. It is to be seen whether the government recogni@es this issue and acts on the same. One method may be to enforce a

graded duty structure" with the ma#imum bound import duty of $+! per cent on cheaper imported wines of up to Rs. 7!! per bottle >I) value" being reduced to as little as +! per cent on the more e#pensive ones in a three.tiered structure. The matter though is far more comple# than this. 6hile this structure would level the speed breakers for domestic

producers at the centre" how does one regulate the states with e#cise related levies differing from state to state. The 6TO agreement has been signed by the centre and not the states. 6ould international agreements signed by the centre be binding on the states" especially when our constitution empowers the constituent states to decide individually on liquor issues. The centre9s willingness or capability to impose 6TO guidelines on the states. The centre9s willingness or capability to impose 6TO guidelines on the states in this matter is a tricky issue and what emerges in being keenly watched by the entire liquor lobby.be it wine" beer or

distilled spirits. 'for list of ma?or Indian 3nne#ure *

e#porters refer

PRODUCTION OF ALCOHOLIC BEVERAGES

3lcoholic beverages are produced through the process of fermentation by which yeast9s break down fermentable

sugars to ethanol and carbon dio#ide and many Gsecondary9 products that give the finished product particular aromatic characteristics. In beer brewing" fermentation is preceded

by the malting process. 1o higher alcohol content than $+% can be achieved by fermentation alone. <istillation is needed to produce beverages with a higher alcohol content liqueurs*. Case materials for production of 'spirits" alcoholic

beverages vary widely from grapes barley

'wine" brandy* and

'beer" whisky* to rice 'sake" raki*" neutral alcohol

'used for gin and vodka production*" cereals 'bourbon*" leaves 'tequila*" various fruits 'krisch" maraschino"

slivovit@*" sugar cane 'rum*" milk 'kefir* and apples 'cider" calvados*. HOW WHISKY IS MADE Pot Still Whisky The essential ingredient in traditional 2cotch malt and Irish whiskies is barley. This grain possesses a special property namely" it can convert its own starch into sugar. )irst" the barley is moistened and spread on a warm floor. 3s the seed begins to grow" it becomes malt" or germinated grain. <uring this stage" en@yme activity begins breaking down the starch.

6hen the germinating shoots are almost an inch long" they are dried over peat fires at high temperatures. This stage in the production is crucial" as it is here that the malt acquires a ma?or part of its character. Peat is a mi#ture of decaying vegetation 'mosses and grass* and soil its way to becoming coal. )or centuries" 2cots used this /fuel0 as a way of heating their homes and lighting their cooking fires. Today" peat is used primarily in the production of scotch. The burning peat contributes a smoky" pungent" pine flavor and aroma to the whisky. Cecause peat has a distinctive soil composition in the various regions of 2cotland" each distillery usually has its own peat bog" thus guaranteeing the typical character of its malts. The ne#t stage in production is the mashing. This stage completes the conversion of starch into sugar. The dried malt is ground then mi#ed with hot water. 6hen the water has absorbed al the /goodness0 of the grain" it is known as wort 'pronounced /wurt0*. 3t this point" yeast is added to begin the fermentation process. The fermented wort 'known as /wash0 in 2cotland" /beer0 in the 5.2.* goes into the pot still for its first distillation. It is then re.distilled into spirit in another pot still. Irish whiskies are re.distilled yet a time to give them their characteristic smoothness. (ost of the world9s whiskies are made using continuos still. These whiskies are usually based on a mi#ture of grains such as corn" rye" wheat and barley. The e#act proportions of each grain in the mash are well &guarded company secrets" giving each brand a characteristic taste.

The first steps 'germinating and grinding of the grain* in the continuous . still method are similar to that used in traditional pot.still production. The ground cereal grains are then mi#ed with hot water and pressure &cooked. >ooking released the starches from their tough outer seed coats. 3t the fermentation stage" the cooked cereals are rapidly cooled then mi#ed with ground malted barley" which acts on the other cereals to convert their starches to sugars. >ultured yeast is added" and fermentation occurs. The wash goes into the continuous still for distillation. <epending on the type of whisky" proof will vary from 8!% to ;!% alcohol at this stage. Agei g The pure colorless spirit is transferred to old" used wooden casks for maturation. This allows the wood to give the spirit colour and flavour. 1ormally" used barrels 'those that previously held other types of spirits" e.g. sherry or bourbon* are employed to avoid too strong a wood flavour in the finished spirit. (ost whiskies seem to reach perfection when aged between ten and $+ years. -owever" the ideal length of time the whisky spends maturing depends onH '$* the type of whiskyI ' * the amount of blending that will be doneI '7* the congeners which are left in the whisky after distillationI 'J* the laws governing its productionI and '+* the palate of the potential drinker.

B!e "i g # " Fi i$%i g The aim of blending 'or vatting* is to smooth out the rough edges of individual whiskies and produce something that will appeal to a broad taste range. Less than % of all e#ported 2cotches are sold as single malts. The

rest are blended with grain whisky to achieve a smoother" lighter character. ':rain whisky is made from a mash of primarily corn and unmalted barleyI as such" it does not have the full.bodied flavour of malted whiskies*. 3bout half of all 52.distilled whiskies are sold as straight" or unblended" spirits. The rest are mi#ed with other whiskies before they are put in casks for aging. 3ll >anadian whiskies are blended" as are many of the other world whiskies. Clenders are highly skilled craftspeople who make their selection from up to several do@en different blends. They may include grain whiskies" grain neutral spirits or high proof spirits known as light whiskies. 3ll distillers add pure water t their whiskies to reduce the strength" either before aging or before bottling. Local waters lend uniqueness to individual whiskies. 2ome of the tawny colour of a whiskey comes from aging in wooden wooden casks although the distiller usually deepens the colour by adding a small amount of caramel.

MARKET OVERVIEW 6ith a population of ; million" :ermany is the largest

country in the 4uropean 5nion '45* and has the third largest economy in the world. <espite a widely dispersed population" the highly efficient distribution system makes market access relatively simple. 3lthough wages" raw materials and distribution costs have increased in recent years" beer prices have remained

relatively stable. This reflects the high degree of competition among :ermanyKs regional and national large.scale beer

producers. The :erman alcoholic drinks market is dominated by beer sales. Ceer accounts for over ,!% of all alcoholic drink sales" while wine and spirits each comprise roughly the total market. 3lthough :ermans are the second.largest beer consumers in the world" per capita consumption has steadily declined. Over the last ! years" per capita consumption decreased !% of

from $+! litres in $D8;" to $7! litres in $DD;. To a large e#tent" this decrease is attributable to heightened health awareness and the subsequent demand for products such as bottled water" ?uices" and soft drinks. :erman consumers have demonstrated loyalty to either local or recogni@able" brand name products. -owever" there has also been a strong demand in recent years for new" unusual"

or innovative beers available from microbreweries. Potential e#porters need to consider these trends" as well as factors such as price" advertising" and sales strategies. The :erman beer market is dominated by sales of pilsner beers. In fact" pilsner beers accounted for around 8!% of sales in $DD8 whereas other categories such as e#port" light" and non.alcoholic beers all held between +.;% of the total market. Low and alcohol.free beers have e#perienced declining sales in recent years. <uring the $D;!Ks" these beers e#perienced a significant growth in consumption spurred by increasingly healthy lifestyles and heightened public awareness of

drinking and driving issues. -owever" low and alcohol.free beers accounted for +% of the total market $DD8" down from appro#imately 8% in $DDJ. 6ithin this category" low.alcohol beers accounted for less than 7!% of sales" indicating that consumers tend to either drink full strength beers or refrain from drinking alcohol altogether.

RECOMMENDATIONS
:ermany being the largest country in the 4uropean 5nion and has the largest economy in the world. Indian liquor e#porters have great potential to tap the :erman market. The :erman purity law" which allows :erman brewers to use only water" hops" barley" and yeast to make their beers. Cut this purity law does not apply on any other countries" which is the positive signal for the Indian e#porters to access the market. It is analysed from the study that roughly $+% of 4ast :ermans drink beer on a daily basis compared to almost $!% in western :ermany. -owever" total beer consumption is significantly higher in 6est :ermany due to a larger population. Cetween Lanuary $" $DDD and the year !! " 4uropean

national currencies are forecast to be replaced by the 4uro currency throughout most the 4uropean 5nion. The 4uro will help consumers identify the lowest cost products and alleviate unfair pricing advantages from currency distortions. Participating in :erman trade fairs is a highly effective way of establishing business contacts. Trade fairs in :ermany are a common occurrence and tend to attract buyers from around the world" which may provide e#porters with other

sales leads. Three of the five largest fairgrounds in the world are located in :ermany" which play host to numerous shows including 315:3" the worldKs largest international food fair.

RECOMMENDATIONS

The implementation of the new 4uropean 5nion common currency" the M4uroM" should help e#porters to more easily analy@e factors such as local demand" tariff and duty costs" and transportation costs. The 4uro will be phased in over a three.year period beginning Lanuary $" $DDD. 3s of Lanuary $" !! " all transactions in national denominations will

cease" and the 4uro will be the only legal tender. >omparatively low alcohol ta#es in )rance have encouraged consumers from other countries to purchase beer in )rance and then take it back to their home country. >ircumventing higher ta#es has become so widespread that both )rench and Critish retailers have opened stores in )rench channel ports to benefit from to thus the opportunities the goods that e#ist. The 45 is

attempting countries" countries.

harmoni@e allowing

ta#ation to move

system freely

between between

3lthough the )rench market is quite modern and presents a great opportunity for e#porters" it is also highly

bureaucratic. 4#porters should note that in order to conduct business in )rance" they must have the patience to deal with the e#isting bureaucracy. There are ma?or cultural differences that affect virtually every aspect of business relationships. The )rench business community is one of conservative formality" and in order to establishes successful business relationships" e#porters to understand and adapt to )rench customs.

3ttention to detail is key to success in )rance. 4verything from speaking the language to knowledge of )rench history and culture can help an e#porter establish their products within in the market. Cureaucracy is a fact of almost all business conducted in )rance. The )rench have an e#orbitant interest in

technicalities and few business people will break with the established hierarchy in order to complete a deal. 4#porters will need patience and understanding in order to avoid

frustration.

RECOMMENDATIONS
3fter studying about <enmark9s market scenario" it is

revealed that during the period of $DDJ.$DD;" Indian liquor e#ports to <enmark were nil. The reasons behind this are the e#isting brands which are firmly entrenched in the market. Indian brands are finding it difficult to compete with the e#isting brands. The <enmark liquor market is mainly

dominated by the beer industry due to the preference of the consumers. The best solution" is by which can be with adopted well by Indian liquor

companies"

collaborating

known

companies like >arlsberg.

RECOMMENDATIONS

)rom the study" I have analy@ed that though most of the 4.5 countries offer a good scope" favorable conditions prevail largely in 5.=. Cut any e#porter will have to face competition from the domestic 4.5 companies as well as from those of 5.2.3" >anada" 2wit@erland and china. 3mong countries like :ermany" )rance" <enmark and 5.=" Indian e#ports of whiskey and beer has shown a steady growth in the 5.= market" which shows a positive demand for Indian products. I would thus the recommend RA< that Indian to companies meet the should future

strengthen

infrastructure

challenges. )or this two ways are possible" >ollaboration or Loint venture and License patenting i.e." getting a license from the foreign of liquor patent for holder of as manufacturing well as the and marketing domestic e#port

requirements. 3s far as e#ports to 4.5 is concerned the patent holder would himself like to market in that lucrative market" but it is worth giving a look for other markets. The main benefit of this strategy is that the acquirer would thus obtain the necessary technology to manufacture the product and thus can improve upon it. The best e#ample" which can be put for Indian e#porters" is 2cotland9s /2cotch whiskey0. In the end" the chapter say and that thus it is high up can be concluded with one thing to time with for high the developing of countries and

especially India to focus its attention on the e#ports to 4.5 come standards quality efficiency.

CONCLUSION

<espite Indian

declining liquor

trends

worldwide" is growing

the

Rs.

+"!!!

crore up

industry

rapidly

throwing

opportunities for the Indian e#porters. 6ith the opening of the Indian economy in $DD$" the Indian liquor industry has grow into a world.class industry in a span of nine years. 3 large number of e#port.oriented units have come up in the country. Liquor manufactures have also started producing Indian version of )rench Cordeau# and eight other world.class wines. 2i# Indian liquor brands are on the list of world9s $$! top. selling names. Their average sales growth rate has been an impressive J; per cent over the last three years even the highly conservative liquor.consuming segment in the united states" >anada" 3ustralia and some 4uropean countries have started sipping Indian.brewed wines. In )rance" demand for Indian wine has been rising steadily. some of the Indian varieties are even costlier than the widely.popular )rench wines. Indian brewers are now manufacturing non.traditional

varieties like martini" champagne" wines and cognacs. Till $DDJ.D+" these varieties were imported from 4urope for the large Indian up market. 6hile" canned beer has now flooded into the Indian market. One of the most important departments in any such industry is the sales and marketing in the team. The of right the kind of advertising" publicity campaigns and sales initiatives are e#tremely essential marketing product. Promotional events & from horse racing to fashion shows to

celebrity

hobnobs

to

sports

sponsorships"

are

often

the

backbone of this industry9s sales and marketing campaign. 4vent managers who are the organi@ers of these galas are some of the most sought after people in this field. The Indian market is known for its weakness for beverage like the whiskyN The potential market for whisky" which" accounts for about ,! per cent of the Indian (ade )oreign Liquor 'I()L* the followed by spirits like by run and vodka is attracting the (1>s to India. (ost Indian companies are meeting competition products" effectively processes restructuring and practices and to upgrading the

international standards. Liquor manufacturer" >hateau Indage 'India* Limited has recently started in developing collaboration viticulture with 'vine.growing group" in (aharashtra Taillan )rance"

6ente Bineyards" 52 and Peter (ertes" :ermany. >urrently" only one per cent of total grape production in India is used in making wines" while in 4urope about D! per cent of grapes produced are purchased by wine manufactures. The world liquor market e#tremely large. 1early !!

>ountries import liquor of different varieties. 2o the Indian brands have the opportunity to e#pand their e#port market.

LIMITATIONS
The embassies of various countries were quite hesitant to provide any information despite repeated persuasion. The entire pro?ect was confined to the study material obtained from various libraries. <etailed information regarding the liquor industry after the year $DD; could not be availed despite best efforts. Lournals and maga@ines of International repute on the liquor industry were not available. Time >onstraint

CONTENTS
T&'i( 4#ecutive 2ummary Indian scenario of liquor market Production of alcoholic beverage India9s total production OVERVIEW OF MA*OR MARKET " GERMANY (arket overview =ey factors shaping market growth Opportunities COMPETITIVE ENVIRONMENT local capabilities International competition Private sector customer MARKET LOGISTICS >hannels of distribution Import Regulations Trade in 3lcoholic Ceverage Production of beer made from malt India9s e#ports to :ermany The latest findings of the :erman market survey Recommendations $. 7 J. ; D D 7! 7$ 7 $; $D $D EU LIQUOR $J.$, $, $8 $.J +.$$ $ .$7 P#ge N&)

FRANCE (arket overview Types of alcoholic beverage >haracteristics required Imports Ta#ation >onsumption A 4#ternal trade Profile of the market >onsumer A points of 2ales Labeling 3dvertising of alcoholic Ceverage The beer market (arket overview =ey factors shaping market growth Opportunities >ompetitive environment local capabilities International >ompetition Private sector customers (arket logistics Import regulation 4#port credit risks" restrictions on letters of credit or >urrency control Trade in 3lcoholic beverages Production of Ceer made from malt 4#ports from India to )rance Recommendations 77 7+ 7, 78 7; 7; 7;.J$ J$ J J7.JJ J+ J,.J8 J8.JD JD +! +$ + +7.++ ++.+D +D ,! ,! ,$ , .,7

DENMARK (arket overview =ey factors shaping market growth Trade barriers" tariff" import ta# as >hannels of distribution Trade in 3lcohol beverages Production of beer made from malt Recommendations UK (arket overview =ey factors shaping market growth Pricing Labeling Trade barriers (arket logistics Trade in 3lcoholic beverage Production of beer made from malt India9s e#ports to 5= Recommendations 3nalysis and recommendations Liquor (arket CONCLUSION LIMITATIONS ANNEXURES on the 8 87 8J 8+ 8,.88 8; 8D 8D ;! ;$ ; .;D D!.D$ D ,J ,J.,, ,,.,D ,D 8! 8! 8$