The Pricier the Booze, the Faster It Sells As India’s Wealth Grows
(Bloomberg) -- One recent Saturday evening in Mumbai, men in bespoke jackets and women wearing summer dresses sampled artisanal gins, French brandy and Caribbean rum at an airy, modern bar built on the grounds of a colonial-era horse racing club. With a jazz bass thumping in the background, a small group of the curious gathered to hear a maroon-suited employee of French-distiller Pernod Ricard SA—flown in from the Scottish highlands—hold forth on the primacy of Scotch whisky.
The luxury spirits festival, the first organized by a local importer, is the latest manifestation of India’s growing mania for the top shelf (despite longstanding official measures to curb drinking). Pernod reported 24 percent growth in India last quarter, with its imported Scotch brands leading the way. Rival Diageo reported 12 percent revenue growth, largely driven by such prestige brands as Johnnie Walker whisky. India’s growing thirst for high end liquor goes well beyond the Mumbai glitterati. Diageo says even tipplers of the local moonshine are skipping mid-tier foreign alcohol and jumping right into premium spirits.
After years of muted growth, foreign distillers are seeing sales rebound as the industry recovers from 2017 ban on some liquor sales that has since eased and a currency ban in 2016 that aimed to crack down on the underground economy. Sale of Diageo’s “prestige brands” and premium labels rose 17 percent in the first half of the 2019 fiscal year compared with a 7 percent climb for fiscal 2017, according to the latest company data.
It’s a sign of how quickly high-end booze has spread as an important marker of the good life in traditionally teetotaling India, and a key driver in the 25 percent growth Euromonitor forecasts will take the country’s spirits market to 2.92 trillion rupees ($41 billion) by 2022.
“There are a lot of people interested in exploring the higher end,” says Anthony Wills, who was at the spirits festival to promote his artisanal single malt Kilchoman, distilled from barley grown on the family farm in Scotland. They’ve been exporting to India since 2013. “This sort of event never would have happened five years ago.”
Spirits have been a part of Indian culture since ancient times, notably in the form of an alcohol distilled from molasses, byproduct of the subcontinent’s abundant sugarcane, known locally as country liquor or desi daru. After India freed itself from colonial rule in 1947, however, drinking became something of a taboo as that generation and those born right after followed the example of Independence hero Mahatma Gandhi, who abstained from alcohol himself and decried it as a social evil. The state of Gujarat, where Gandhi was born, is a dry state to this day, along with two more. And in most other states alcohol is subject to taxation that can go as high as 200 percent for local versions of foreign liquor and 150 percent for imports. That’s partly why India has one of the world’s lowest per capita rates of alcohol consumption.
In recent years the taboo has weakened as more Indians travel abroad. Even those who can’t afford such trips are increasingly exposed to Western mores via the internet, particularly Gen Xers and millenials. Where in the 1980s only the villain drank in Bollywood movies, today an Amazon Prime show about four women navigating modern urban life is called “Four More Shots Please!” That speaks to another important change: the increasing acceptance of women drinking, which is helping to give white spirits like vodka and gin a boost in a country where whisky has ruled.
Meanwhile, more Indians have sufficient disposable income to splurge on a bottle of the good stuff. The number of households with annual earnings over $5,000 rose 73 percent in the last five years to number 138 million, while the number with earnings over $10,000 rose 112 percent to 36 million, according to a February report from Deloitte. In the same period, the sales growth of cachet imported brands surged 20 percent, outpacing sales of Indian-made liquor by almost three to one, according to consultancy Technopak Advisors.
At $10,000 a year, middle incomes are still considerably lower in India than in the West or even China. So distillers like Pernod and Diageo have broadened out the definition of what constitutes top shelf. Pernod’s top selling brand in India is Imperial Blue whisky, a blend of Indian grain spirits with some imported Scotch malts mixed in that carries a whiff of foreigness Indians are willing to pay a premium for.
“The smaller towns are wanting very quickly to catch up with the bigger towns,” says Kartik Mohindra, chief marketing officer of Pernod Ricard India. “In the smaller towns, they will start at maybe an Imperial Blue level.”
Diageo says people of modest means who typically drink country liquor may splash out for a lower level premium brand such as McDowell’s No. 1 to mark a special occasion. Once Indians start upgrading, Diageo’s data suggests they keep going as their incomes rise and palettes refine. The company says its “prestige and above” category grew 16 percent last quarter and now accounts for about 66 percent of its business in India. And when Diageo further divides that segment into products that are more and less premium, the growth picks up the more premium a product gets.
“Each of the sub-segments are growing at a higher rate than the one below,” says Abanti Sankaranarayanan, the company’s India chief strategy and corporate relations officer. “Essentially, high value spirits are growing faster than the lower value ones.”
For now products that generally qualify as top shelf in the West—single malt scotches, say, or Grey Goose vodka—are mostly the preserve of high earners in big cities like New Delhi or Mumbai. That means there are plenty of potential customers for Florence Castarede, who attended the Mumbai spirits festival to kick off exports of the Armagnac she produces at her family’s 187-year-old distillery in France.
“Armagnac and Indian food will be very interesting because the food is very spicy, so you need a strong spirit,” she says, pouring samples into tiny plastic tumblers. “I’m sure it would be a big market because I know Indian people love spirits.”
©2019 Bloomberg L.P.