Liquior Industry

* Content • Introduction • Performance of the industry • List of major players of the sector. • Legal environment • Social environment • Economic environment • Porter? s 5 forces model * 3. 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 * 4. Industry Structure Alcoholic beverages (8500 Crore) IMFL Country Liquor Rs 6150 Crore Rs 2350 CroreBrown Spirits White Spirits Licensed Illicit Whisky Vodka Brandy Gin Rum http://www. livemint. com/articles/2011/11/23210054/ Boom-time-for-country-liquor. html

* 5. Major Competitors Manufacturer Brands United Breweries (UB) Group( Bangalore) King Fisher, Kalyani Black Label, Signature, Blue Riband Shaw Wallace (Calcutta) Haywards Jagajit Industries (Kapurthala, Punjab) Aristocrat Mohan Meakins (Solan, Himachal Pradesh) Golden Eagle Associated Breweries & Distilleries (Mumbai) London Pilsner, Smirnoff, Gilbeys Green Label, Malibu, Archer? s Peach Schnapps * 6. Macro Economic Environment • Legal • Social • Economic * 7. 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. * 8. 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 * 9. Social Environment • Increase in disposable income • Changing lifestyles of middle class • Western culture influence • Changing Trends – Youngsters, Parties and Celebrations • Hard liquor – from 21 to 25 • In India 40-50 % of all males and 1% of all females Beer – from 18 to 21 Minimum age consumed alcohol last yr. • 62% drinkers classified as light, 29% as moderate drinkers and 9% as hard drinker. http://www. livemint. com/articles *

10. 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. *

11.Legitimate business & their surrogate advertisements Brands Surrogate advertisements McDowell’s malt whisky McDowell’s Soda/water Radico Khaitan’s 8 pm whisky Radico Khaitan’s water Hayward’s 5000 Beer Hayward’s water/soda Derby Special Derby special soda Bacardi Liquor Bacardi Blast CDs & Cassettes Bagpiper liquor Bagpipers soda and cassettes Kingfisher Beer Kingfisher bottled drinking water Royal Challenger whisky Royal Challenger golf accessories & mineral water & cricket team White Mischief Liquor White Mischief holidays Smirnoff Vodka Smirnoff cassettes & CDs *

12.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/2010- 09- * 13. Porters 5 forces model * 14. Threat of New Entrants•There are huge complexities and high regulations to get entry in thisindustry. •The new players need to satisfy the licensing and need to get approvalsby the states and central government.

•For international players, the key is find the right partners and links whounderstand the Indian market and legislations. * 15. 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- * 16. 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 * 17. • 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. * 18. 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 it? s higher price. • It is an interesting fact that Companies use “High Price” as one of it? s promotional strategy to attract the consumers. http://articles. economictimes. indiatimes. com/2010-09- * 19. 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 * 20. 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 * 21. 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 * 22. 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 * 23. 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 SABMiller? s possible future acquisitions . * Alcohol has a variety of uses; from industry to motor fuel and liquor making. There are about 100 distilleries in the country with annual installed capacity of 5. 5 lakh kilolitres of power alcohol.

Besides there are 70 sugar mills with distillery units producing power and industrial alcohol. * Uttar Pradesh has more than 50 per cent of total installed capacity of alcohol in the country. It has 20 sugar mills with alcohol distilleries. Among other important producers mention may be made of Maharashtra (10%), Andhra Pradesh (10%), Bihar (5 per cent), Karnataka, Punjab, and West Bengal. * India has a well developed liquor industry starting in the last part of the 19th century. It includes different brands of wine, whisky, brandy, rum, gin and beer.

The total production of liquor was 40,159 kilolitres in 1994-95 which increased to 71,528 kilolitres in 1997-98 exhibiting an increase of 78 per cent during the 3 years. * This is due to the lifting of ban on the manufacture and sale of liquor in many states of the country. About 56 per cent of the total production of liquor is in the form of country liquor. Besides molasses, grapes, apple, cashew, mahua, coconut, date palm, rice and barley are other raw materials used in liquor making. * At present, there are 33 units manufacturing beer having an estimated annual output of 4.

33 lakh kiloliters in 1997-98; the output in 1994-95 being 2. 78 lakh kilolitres. Solan in Himachal Pradesh; Rampur, Nawabganj, Rose and Daurala in Uttar Pradesh; Kolhapur in Maharashtra; Bangalore in Karnataka; Chennai in Tamil Nadu; Bhadrakali and Kalyani in West Bengal; Udaipur in Rajasthan and Jagatjitnagar in Punjab are important centers producing liquor and beer in the country * India imports some good quality liquor from foreign countries mainly from Europe and America. It also exports Indian made liquor to neighbouring countries of Asia and Africa.

During 1995-96 India imported Rs. 40. 93 crore worth of beverages, spirits and vinegar against the total export of Rs. 45. 85 crores. The corresponding figures for the year 1988- * of foreign tourists was 2. 37 million whichuted a foreign exchange earnings of $ 3 billion, other countries in our neighbourhood like Thailand, Indonesia and Singapore had higher als and better earnings. * of foreign tourists was 2. 37 million whichuted a foreign exchange earnings of $ 3 billion, other countries in our neighbourhood like Thailand, Indonesia and Singapore had higher als and better earnings.

* Development * Table 23. X shows that there has been significant increase in the international tourism after Independence. While the total arrival of international tourists was only 16,380 contributing Rs. 7. 7 crores to the country’s economy in 1951, the arrivals increased to 2. 38 million providing $ 3 billion of foreign exchange to the country in 2002. During 1998 the number of international tourists * increased to 23,74,094 with foreign exchange earnings of $ 3 billion (in 2000 about 26. 4 lakh tourists). Similarly there has been considerable increase in domestic tourism.

According to the Ministry of Tourism, Govt, of India about 150 million people travelled from their place of residence to outside places for business, leisure or pilgrimage (in 1999 about 178 million people). * Amongst the countries contributing more than 50,000 tourists to India during 2000 Bangladesh tops the list (441,168), fol- lowedby United Kingdom (354,217), US A (309,309), Sri Lanka (128,444), Canada (98,259), Australia (90,456), France (89,565), Germany (84,889), Japan (79,167) Malaysia (57,927) and Italy (52,529).

* Gulmarg, Pahalgam, Srinagar, Jammu (Jammu and Kashmir); Shimla, Manali, Kullu, Dharmasala, Chamba (Himachal Pradesh); Dehradun, Nainital, Mussorie, Rishikesh, Badrinatli, Kedarnath, Ranikhet (Uttaranchal); Agra, Varanasi (Samath), Lucknow, Kushinagar, Mathura, Ayodhya, Allahabad (Uttar Pradesh); Patna, Nalanda, Gaya, Bodhgaya, Rajgir

(Bihar); Ranchi (Jharkhand); Kolkata, Santiniketan, Daijeeling (West Bengal); Guwahati, Kaziranga (Assam); Shillong (Meghalaya), Bhubaneshwar, Chilka Lake, Puri, Konark (Orissa); Tirupati, Udayagiri, Hyderabad, Amravati, Warangal, Vishakhapatnam (Andhra Pradesh); Chennai, Udagamandalam (Ooty), Kodaikanal, Rameswaram, Kanniyakumari, Madurai (Tamil Nadu); Pondicherry (Pondicherry); Kochi, Thiruvananthapuram (Kerala);

Mysore, Bangalore, Jog falls, Gulbarga(Kamataka); Mumbai, Elephanta, Ajanta, Ellora, Mahabaleshwar, Sevagram (Maharashtra); Gandhinagar, Dwarka, Somnath, Porbandar, Kachchh (Gujarat); Gwalior, Jabalpur, Panchmarhi, Amarkantak, Ujjain, Bhopal (Madhya Pradesh); Suratgarh, Jaisalmer, Jaipur, Udaipur, Jodhpur, Chittaurgarh, Bharatpur, Abu (Rajasthan), Kohima (Nagaland), Imphal (Manipur), Port Blair (Andaman Is. ), and Goa are important tourist centers of the country