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 Porters 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 Rs 6150 Crore

Country Liquor Rs 2350 Crore

Brown Spirits Whisky

White Spirits Vodka

Licensed

Illicit

Brandy
Rum

Gin

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

Major Competitors
Manufacturer United Breweries (UB) Group( Bangalore) Brands King Fisher, Kalyani Black Label, Signature, Blue Riband Haywards Aristocrat Golden Eagle London Pilsner, Smirnoff, Gilbeys Green Label, Malibu, Archers Peach Schnapps

Shaw Wallace (Calcutta) Jagajit Industries (Kapurthala, Punjab) Mohan Meakins (Solan, Himachal Pradesh) Associated Breweries & Distilleries (Mumbai)

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 %

www.crisil.com

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

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
McDowells malt whisky Radico Khaitans 8 pm whisky

Surrogate advertisements
McDowells Soda/water Radico Khaitans water

Haywards 5000 Beer Derby Special

Bacardi Liquor Bagpiper liquor Kingfisher Beer Royal Challenger whisky White Mischief Liquor

Haywards 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 Vodka

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/201009-

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 its higher price. It is an interesting fact that Companies use High Price as one of its 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.

www.crisil.com

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 SABMillers possible future acquisitions .