Alcohol Industry in India
Alcohol industry looks after the manufacturing, distribution and sale of alcoholic drinks and
beverages. It is one of the most criticized industries in the world since 1990s because of the
harmful effects of the products manufactured by it and the policy of marketing deployed by it
by using pharmaceutical industry and personnel to emphasize upon the health benefits of
alcohol. The Indian alcohol industry is amongst the fastest growing industry in the world and
occupies the 3rd position in comparison to the same industry in other countries. This industry
has seen a major shift of consumption from the indigenous country liquor to Indian
Manufactured Foreign Liquor because of the rising per capita income of Indian people and a
change in their lifestyle.
2. Type of Market
The alcohol industry in India is a quintessential example of oligopoly market (refer Fig. 2.1)
witnessing presence of giant MNCs like Diageo, Pernord Ricard, Heineken, SAB Miller, et cetera.
The products manufactured can be divided into the following categories:
IMFL (Indian Manufactured foreign liquor)
Foreign liquor bottled in India (BII)
Foreign liquor bottled in Origin (BIO)
Country liquor which includes cheap and spiced indigenous liquor
Although Beer, Country liquor and IMFL occupies almost the same market share in volume but
due to high price of IMFL it occupies almost 65% of market share in terms of value.
Total market size of this industry in India is about $35 billion and is also showing a growth trend
of 8% per annum.
Another feature of oligopoly that is quite evident in Indian liquor industry is a unique form of
elasticity. IMFL and beer is showing an almost constant growth of around 8% CAGR per annum
but the growth isn’t divided uniformly over the products of different prices. For instance the
growth is considerably higher in cheap to medium category of IMFL but the growth of high end
products is comparatively negligible. The uniqueness in this type of elasticity lies in the fact that
if the prices are made higher, the demand doesn’t fall proportionately but the consumers shift
to cheaper products leading to a mass abandonment of the recently price hiked one.
This form of high elasticity results in the market giants locking horns with each other as each
one of them try continuously to drop their prices for retaining and increasing their market
Fig. 2.1 (Pictorial depiction of how the number of firms and influence of each firm vary
across different types of market structures)
Table 2.1 (Comparison between Perfect market structureand Indian Alcohol industry)
Indian Alcohol Industry
Buyers and Sellers
This type of market includes
Infinite number of buyers and
Entry and Exit barriers
In perfect markets there are
no entry or exit barriers.
Both the manufacturers and
buyers have full information
Although there are many
players in the market, yet
they are not infinite in any
sense and neither are buyers.
In Indian alcohol industry
there are many barriers to
both entry and exit of new
players ranging from
government policies to the
presence of giants in the
Although manufacturers do
have some of the information
regarding the manufacturing,
quality, pricing and utility of
Impact of a single player
quality, pricing and utility
even to the fullest but the
buyers are not that much
aware of the same.
The quality and other
The variation is quality and
characterstics of the products characterstics of the product
do not vary from one
is substantial between
manufacturer to the other.
different manufacturers and
even acts as the driving force
in luring customers to buy the
Buyers are completely
This holds true in this
rational in making decision as industry. The buyers are
what to buy based on the
rational and make almost the
information available to them. best decision in buying of the
In perfect competition a single In Indian alcohol industry, due
player cannot make any
to the presence of giant
substantial impact on the
players, even a single player is
market owing to the infinite
capable of making huge
number of the players
impact to the market
structure and even its size.
In India the presence of alcohol industry is having a characterstic of an organized market but
illicit activities are dominant especially in the case of country liquor. From the method of
production to the distribution and even pricing are majorly done outside the spectrum of
government laws and owing to its large market value of around Rs 2350 Crores it impacts the
economy substantially. Black marketing and hidden marketing is highly prevalent in this
industry because of the presence of several regional mafias in the distribution and
manufacturing of country liquor.
3. Government regulations
The Indian liquor industry is characterized by heavy government regulations, may they be legal
-This industry is a State affair and hence every manufacturer needs to get licenses in every state
they need to operate in and therefore there are few players which are literally national.
-Separate licenses are required for production, bottling and distribution of the product, making
it a herculean task for a not so well connected and impatient player.
-FDI in this industry is 100% and when the case arises in which the owner is a foreign company
but the investor is Indian, then the investment will require a prior approval of Foreign
Investment Promotion Board and it will be for a given licensed capacity. To increase the
investment, the investor will need a completely new approval
-The licensing is done under the Industrial (Development and Regulation) Act, 1956.
Excise duty, Sales tax, Value Added Tax and various other duties impacts the pricing of
the products to a great extent.
Retail and distribution is strictly controlled by the government. Even the marketing of
the products is banned, leading to surrogate marketing. Table 3.1 below shows the
surrogate marketing tactics used by different liquor producers.
Table 3.1 (Different alcoholic beverages companies and the surrogate marketing done
(compiled by the author)
The Indian alcohol industry is an industry involving high risks.This risk originates from
high level of duties and taxation imposed on the industry by the government. This has a
major impact on price flexibility leading to not so strong financial profiles and below par
The key factor in making a liquor manufacturer a successful player in the market is the
ability to govern and control its operations in various states across the country when the
duties governing the liquor industry varies from state to state. Further, molasses, an
ingredient used to manufacture Indian spirits, is another highly sensitive issue in the
country and as state governments generate major revenues from this industry therefore
the taxes and duties imposed on alcohol manufactures are unlikely to reduce. Although
various commitments are made to the WTO recently and new multinational brands are
emerging in the market but thanks to the heavy duty and taxation, the market isn’t
flooded with inferior quality imports owing to its fears of high risks in the market.
Although as discussed above, there are a lot of hurdles if one wants to come out with
flying colors in Indian alcohol industry but certain key features are also there which
could help the players gaining an edge over each other:
A strong brand name doesn’t only help manufacturers to maintain their market
share but also allows them to charge premium rates. Their stronghold acts as a
barrier for new brands which could threaten them and is also a major factor in
their expansion and growth. The strength of their brand name is measured
according to the “millionaire brands” they own (it refers to the brands which
sells in the magnitude of a million cases every year) and the actual volume sold.
As this industry is marred by umpteen number of laws which varies from state to
state, so a player having market share and stronghold in many states holds
greater advantage. The advantage is that the change of the policy of a single
state doesn’t effects the company to a great extent. And moreover the sale of
products to the Canteen Stores Depot of the defense services adds up their
market share as CSDs are a major role player in increasing the market share of
The diversity of the products manufactured also plays a major role in defining a
company’s standpoint in the market. The presence of the company in various
alcoholic products gives the company an advantage of withstanding the change
of preference by customers, moreover the presence of the company owned
products in different price segments also helps the company in maintaining its
market share even when price hikes are in effect and further the company needs
to have a huge share in whiskey market as it is the fastest growing sector in
liquor industry and also holds the biggest market share.
5. International Impact
Indian alcohol industry attracts a lot of foreign attention. The demand of whiskey is
declining around the world while the demand of beer is increasing, but as seen in Fig.
5.1, the scenario in India is quite opposite, hence, India has become a cynosure for giant
manufacturers with strong whiskey brands. This factor of the rise in demand
experiences a synergistic effect by the large amount of disposable income in the
subcontinent. Further the sale of beer in India is expected to grow in the near future,
reason being the liberalization of beer products (de-linking with IMFL), which has
already been implemented in some Indian states like U.P., Himachal Pradesh and
Maharashtra. Wine industry is also looking forward to follow the lead of beer products
in the upcoming years.
Fig. 5.1 (The year wise growth in consumption of Whiskey in comparison to that of beer
Big multinational players like Diageo and Allied Domecq have already made a place in the Indian
market. They have also started to introduce their promising scotch brands by entering the
market as joint ventures following the BII route. However, their leading and elsewhere highly
successful brands are made available through the BOI route whose sales returns can only rise if
the duties and taxes imposed on them are reduced substantially.
Joint ventures with powerful parent MNCs have advantages in many areas:
-they have a big brand name to relate to
-advance technology for blending is easily accessible
-they have the potential of worldwide campaigning
-they enjoy top of the class managerial leadership
Regardless of all these advantages, however, foreign players haven’t been able to make a
substantial difference in the business of domestic players, reasons being:
Concentration on high end customers
Myopic focus on niche
Relatively recent arrival in the market
6. Consumer trends:
-The IMFL category is mostly dominated by whiskey. India is the largest market of
whiskey in the world and 6 out of 7 top selling brands worldwide (by volume) are Indian.
-In case of the beer category,strong beer is more preferred by the Indians,almost 80% of
beer sold belongs to the strong section.
-Indian alcohol industry has also shown a unique market feature, statistically it appears
that the market is attracted more towards better quality and high costs.This key feature
is termed as Premiumization, towards which major players are working indefatigably.
-White spirits have shown the fastest growth in the past few years, with vodka showing
a growth rate of more than 25% per annum.
-Wine is the slowest growing category in India with Maharashtra and Karnataka as the
leading manufacturer as well as consumer of the same owing to the taxation laws in
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Competition’ (online) (cited 2013).Available from <URL:
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September 2013). Available from <URL:
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consumption in India a costly affair’ (online) (cited 17 September 2013). Available from
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tipple of choice’ (online) (cited 9 June 2013).Available from
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from <URL: http://timesofindia.indiatimes.com/topic/alcoholic-beveragemarket/news/>