INDIA: A taste for Scotch

With volume sales greater than all the Western European countries combined, India is the biggest market for whisky globally. Euromonitor’s Catherine Mars sees clear potential in consumers trading up from domestic product to Scotch

Indian consumers have a clear affinity for whisky, with the sector accounting for 68% of total spirits volumes and 78% of total value sales in the country in 2007. Despite the popularity of whisky, blended Scotch remains an extremely niche category in India, accounting for less than 1% of total spirits volumes in 2007 due to stiff competition from domestically produced whisky. However, this is a somewhat controversial area: while the immense popularity of made-in-India whisky cannot be denied, some in the industry do not acknowledge Indian-produced whiskies as they are not produced in the conventional way and, derived from sugar cane, are more similar to rum.

Competitive advantage
The dominance of made-in-India whisky is partly due to the complicated duty system which makes imported Scotch, Irish and bourbon products unaffordable to the vast majority of the consumer base. As a result, made-in-India whisky is substantially cheaper than imported spirits. Additionally, sales of imported spirits are hampered by restricted distribution. For example, blended Scotch whisky is mainly available through high-end on-trade outlets and a few specialists. However, sales of blended Scotch whisky are on the rise as disposable incomes, global exposure and awareness increase among the urban population. Nevertheless, domestic whisky is the only type of spirit purchased by the vast majority of consumers, with interest in other spirits being largely limited to cosmopolitan urban consumers.

Unlike in other countries, where whisky has more of a premium positioning, in India the whisky category is almost entirely made up of low-priced domestic brands such as UB Group’s Bagpiper, McDowell’s No 1 and Director’s Special, which are targeted at the mainstream consumer. Packaging also plays a role in the economy positioning of made-in-India whisky, with the above-mentioned brands all available in brick liquid cartons, a development unique to the Indian market and which would seem incongruous in other major whisky consuming countries where spirits sold in liquid cartons are perceived to be of inferior quality.

Semi-premium entry brands
However, as purchasing power rises and urbanisation leads to the expansion of a relatively affluent middle class with increasingly “Western” tastes, so demand for more premium products is increasing. Recognising the untapped potential of this hitherto non-existent category, multinationals have launched domestically produced brands which fit Indian tastes and wallets and cater for the aspirations of young consumers who desire premium products with affordable pricing. Both Masterstroke (Diageo) and DYC whisky (Fortune Brands) were launched in 2007, positioned as semi-premium with pricing close to standard products. Euromonitor International expects these products to become more commonplace as other multinational players use semi-premium, domestically produced brands to enter the Indian market.

Trading up to global brands
Although domestic brands dominate whisky sales in India, with imported brands being out of the reach of the masses due to high prices and restricted availability, imported brands are viewed as aspirational products and thus have huge growth potential. Once incomes rise to a suitable level, consumers are expected to trade up from semi-premium local whisky brands to international brands. This type of trading up is already evident in the on-trade where urban consumers are willing to spend more as an outward show of status. Thus, on-trade sales of premium brands such as single malt and blended Scotch whisky brands like Glenmorangie, Glenlivet, Chivas Regal and Johnnie Walker are picking up well.

UB Group is already eyeing this niche and is expected to produce international brands domestically in order to keep prices low, thus keeping multinational competitors at bay. Following the company’s acquisition of major Scotch whisky player Whyte & Mackay last year, it launched the Dalmore and Isle of Jura single malt Scotch brands and the Whyte & Mackay range of blended Scotch in New Delhi in early 2008. The company is now expected to launch a locally produced version of Whyte & Mackay whisky in India later this year (the made-in-India version will not have an age statement on it like the Scotch whiskies). The locally produced spirit will probably be priced much lower than imported brands, offering consumers an intermediate step between domestic economy brands and international brands. Furthermore, the company is looking to invest further in Scotch whisky and is reportedly eyeing a takeover of the Glen Moray distillery in Scotland, which was put on the market by LVMH.

Despite its size, the Indian market offers real potential for multinational players. Per capita consumption of whisky (0.7 litres in 2007) is less than half of other countries such as Spain, France, the US and the UK, and India is set to outperform the global whisky market between 2007 and 2012 (8% CAGR by total volume, compared to 3% CAGR for the global whisky market).

Additionally, although vodka is forecast to be the fastest growing spirits category in the country between 2007 and 2012, this is not expected to affect sales of whisky, taking share from brandy instead.

Additionally, tariff reforms, deregulation and improved infrastructure are all expected to improve the ease of doing business in India.

Euromonitor believes that as economic growth leads to higher discretionary income, consumers will become increasingly willing to spend on superior-quality, trendy products. For international players looking to benefit from the Indian opportunity the race is on to establish production facilities and/or distribution networks in order to gain competitive advantage over other entrants. Multinationals are expected to launch international brands in India in order to deepen their penetration of the Indian market. Of course, if multinationals can produce these international brands locally (Indian-made foreign liquor) this will be to their advantage. For example, in addition to launching the semi-premium local Masterstroke brand, Diageo is also putting more support behind its international brands in India, as indicated by the recent launch of Baileys and the re-launch of Johnnie Walker Gold Label blended Scotch.

Catherine Mars is an alcoholic drinks analyst at Euromonitor International

db © September 2008