The Indian Beverage Market Story
The Indian beverage industry has come very far from the days when tea was the ‘holy’ beverage of the commoners, coffee was the ‘sophisticated’ beverage of the upper class, Cola was the ‘cool’ beverage of the youngsters and hard drinks were the ‘man’s’ thing. Today, right from whiskey, wine & cocktails to health drinks & powdered juices, the Indian beverage market is flooded with a plethora of options & variants for alcoholic as well as non-alcoholic lovers with all kinds of tastes & preferences.
Currently, the alcohol beverages market size is approximately Rs1500 billion, while the non-alcohol beverages market is close to Rs195,000 crore.
Let’s understand how the story of the beverage market is unfolding in India.
Alcohol Beverages Market
The alcohol market in India is divided into 3 broad categories – IMFL (Indian Manufactured Foreign Liquor which includes whiskey, rum, brandy, vodka & gin), Beer and Country Liquor (cheaper, spiced liquor). In terms of volume the market is nearly 250 million cases and is nearly equally split between the three segments almost, however, in terms of value IMFL comprises 70% of the market.
A global study revealed that alcohol consumption has risen by 55% over a period of 20 years in India. In fact, India is the 3rd largest and one of the fastest growing liquor markets in the world. The rise has been mainly owing to the growing influence of the pub culture, changing demographics (53% of the Indian population are above the age of 25 years), increase in disposable income and rapid urbanization.
However, the growth journey of the alcohol market has met with a roadblock after the recent ban on the liquor sales within 500m of state and national highways upheld by the Supreme Court in India. While the ban has been made in the ‘good spirit’ to curb high drunk driving deaths, it will not only affect the liquor producers and shops, but also the hospitality industry. The loss of state revenue is estimated at Rs50,000 crores, while high end hotels such as Taj, Oberoi, Hyatt and Accor may lose revenue to the tune of Rs65,000 crores collectively. Even the pubs and restaurants will lose up to Rs15, 000 crores. The ban will also cost 100,000 people their jobs.
While the retailers have already started de-stocking, the stakeholders in the liquor industry are trying to plead their case to the government, hoping to find a middle ground.
Non-alcoholic Beverages Market
According to a report, the beverage category contributes 8-9% of the Indian FMCG market. The market is growing at 20-23% and is expected become three times the current size by 2020. The recent liquor ban could turn the game in the favor of non-alcohol beverages and can fuel further growth than the estimated projection.
The non-alcohol market is divided into three main categories:
• Hot beverages
• Carbonated drinks
• Powdered drinks, health drinks and juices
• Mineral and flavored water
The coffee & tea industry is expected to reach Rs41,800 crores by the end of 2017 as the domestic consumption is rising swiftly. There is no denying the fact that the Indians love their tea and coffee when it comes to something garam. India is the largest tea producing and consuming country and still rules over coffee. However, the coffee has gradually evolved into a lifestyle beverage with the mushrooming of branded coffee outlets as a popular hangout with friends or colleagues.
Coca Cola introduced Indians to the taste of cola in 1970, before exiting the country in 1977 due to changes in the government policies. Parle which was facing stiff competition from Coca Cola then took over the reins by launching new carbonated drinks such as Thumbs Up, Gold Spot and Limca. However, Parle’s supremacy lasted only until 1990 when Coca Cola and Pepsi forayed into the Indian market. Today, Coca Cola and Pepsi together contribute to more than 60% of the carbonated drinks market. The rest is controlled by Parle, Dabur, Bisleri and other local brands.
However, over the past few years, non-cola aerated drinks, especially those with fruit content has gained traction. Hence, these brands are keen to explore this new market as well. For example,
• Parle has recently introduced Frooti Fizz, a fizzy version of its popular mango drink.
• Earlier this year, Bisleri International launched Bisleri Pop, an aerated fruit-based drink.
• Dabur has also launched a range of fruit juice based aerated drinks under the brand Real Volvo.
However, carbonated drinks are reeling under stagnation and sales have dipped as an increasing number of people are switching to juices and other health drinks. People around the world are becoming health-conscious and understand that carbonated beverages are high in sugar and lack nutritional content.
Powdered drinks, energy drinks and juices
Remember Rasna, the soft drink that every home served in the 80s? Rasna has evolved over the years, but has lost its market share to other non-alcoholic beverages and its only competitor Tang. There isn’t much product innovation in this category, so its growth potential is not very optimistic.
It is the juice market, which are flourishing extremely well in India. It is valued at Rs 1,100 crore ($200 million) and is projected to grow at a CAGR of 15 per cent over the next three years. The key drivers of growth of juice market are rise in the disposable income, people adopting Western culture, health awareness and import of fruits to India.
In fact, juice and juice based drinks are growing 2.5 times faster than aerated drinks. As per the sales figures of 2016, juices and juice drinks such as Real, Slice, Tropicana, Rooh Afza, and Tang toppled Pepsi and Coca-Cola out of the top 5 highest sold brands across modern retail chains.
The phenomenal success of Manpasand Beverages which from an Rs 400 million revenues in FY 2010 has grown to revenues of Rs550 crores in FY 2016 and has a market cap of greater than Rs3500 crores is strong testimony to the changing juices sector India. Sequoia invested in Paper Boat and recently in cold pressed juices, RAW. The market for juices and health drinks has tremendous potential and will continue to attract strong interest from the private equity and venture capital community.
Energy drinks are still an urban phenomenon and at nascent stage, but its opportunity is huge. The energy drinks market, which was estimated to be worth Rs120-130 crores in 2010, has grown in excess of 40% year on year during last 4-5 years.
The brands in this segment are mainly targeting school kids, college students, health freaks, sports professionals and young working adults who are looking for stamina boosting beverages. Red Bull is the market leader and continues to enjoy the first mover advantage, however, other the presence of others brands like Monster, Mountain Dew, Cloud 9, Cafe Cuba, Xtra Power and Burn indicates the potential of this segment.
Mineral and flavored water
This particular category has created its unique place in the beverage market because it is growing much faster than carbonated drinks.
This market is expected to grow at a CAGR of 22 percent, to reach Rs160 billion in 2018. Nearly 67 per cent market share of the sector is held by the top five players such as Bisleri, PepsiCo, Coca-Cola, Parle and Dhariwal. Mineral and packaged water bottles which were considered a luxury and that too, only during travelling are now commonly available at every nook and corner of the country. The rise in the consumption of mineral water has been mainly due to increasing awareness about health, increase in tourism and easy availability of bottled water.
There is a new variant called flavored water that has taken over the luxury tag from mineral water bottles. The target market is the people who prefer healthy lifestyle on the go and love to drink water infused with vitamins, natural flavors or nature identical flavoring substances such as basil, lemon, mint, orange, hibiscus, fruits, etc. O’cean, Blue and Qua are some brands in this category.
The Indian beverage market is witnessing an interesting transformation. On one hand, we have the liquor market, which is trying to pull itself out of the SC ban shock. On the other hand, we have non-alcoholic market, where the traditional tea & coffee still retains its unique position, while the earlier popular carbonated drinks are now giving way to juices, health drinks and flavoured water.
With so many players in the beverage market, it is definitely a war of the brands worth watching.