Liquor Industry - Introduction
Indian liquor industry – Regulatory hangover to continue
The Indian liquor industry is a high-risk industry, primarily on account of the high taxes and innumerable regulations governing it. As a result, liquor companies suffer from low pricing flexibility and have inefficient capacities, which, in turn, have led to low margins and weak financial profiles. Moreover, even though the two large liquor groups in the country enjoy a majority market share, the price-sensitive nature of the industry has ensured a high degree of competition, which is exacerbated by the low export potential. Hence, while several strong brands have come up and the industry has exhibited healthy volume growth over the last few years (for instance, the Indian-made foreign liquor (IMFL) segment has registered a 8-10% compounded annual aggregate growth rate (CAGR) over the last three-four years), its high-risk profile continues to dog the industry. Like the international liquor industry, the Indian one too has seen players with strong brands, diversified portfolios and large operations achieve market leadership positions. Given the regulatory constrictions, however, an added key success factor for Indian players is the need to have operations across various states.
Both because of the inherent nature of liquor and because of the politically-sensitive issue of molasses, a key raw material for spirits1, the Indian liquor industry has been subjected to a high degree of governmental interference. To boot, it is a major revenue contributor to the state governments, most of which are cashstrapped today. Hence, it is unlikely that the level of taxes or control exerted by the various governments would reduce in the medium term. So the regulatory risk is expected to remain high.
Nor is the industry’s risk profile expected to change significantly with the entry of multinational players or the implementation of commitments made to the World Trade Organisation (WTO). In fact, courtesy the
The Indian liquor industry is a high-risk industry, primarily on account of the high taxes and innumerable regulations governing it. As a result, liquor companies suffer from low pricing flexibility and have inefficient capacities, which, in turn, have led to low margins and weak financial profiles. Moreover, even though the two large liquor groups in the country enjoy a majority market share, the price-sensitive nature of the industry has ensured a high degree of competition, which is exacerbated by the low export potential. Hence, while several strong brands have come up and the industry has exhibited healthy volume growth over the last few years (for instance, the Indian-made foreign liquor (IMFL) segment has registered a 8-10% compounded annual aggregate growth rate (CAGR) over the last three-four years), its high-risk profile continues to dog the industry. Like the international liquor industry, the Indian one too has seen players with strong brands, diversified portfolios and large operations achieve market leadership positions. Given the regulatory constrictions, however, an added key success factor for Indian players is the need to have operations across various states.
Both because of the inherent nature of liquor and because of the politically-sensitive issue of molasses, a key raw material for spirits1, the Indian liquor industry has been subjected to a high degree of governmental interference. To boot, it is a major revenue contributor to the state governments, most of which are cashstrapped today. Hence, it is unlikely that the level of taxes or control exerted by the various governments would reduce in the medium term. So the regulatory risk is expected to remain high.
Nor is the industry’s risk profile expected to change significantly with the entry of multinational players or the implementation of commitments made to the World Trade Organisation (WTO). In fact, courtesy the