An overview of the beverages market in India, its current scenario, prospects, outlook for growth, and the challenges
The traditional beverages category comprising non-alcobevs contribute 8-9 per cent to the total food grocery market in India. Over the last few decades, the market has evolved and spawned many beverage products, which have found an immediate connect with Indian consumers. There has been an emergence of various brands in all segments of the category ranging from drinking water to traditional tea and coffee and processed drinks.
According to industry estimates, the non-alcobev market for beverages in India is close to Rs 195,000 crore and is growing at 20-23 per cent. This growth rate will take the category to three and a half times its present size by 2020. All constituent segments are growing in the healthy range of 20–25 per cent, which is the highest among all food groups.
The growth can be attributed to the fact that the beverages market is getting more segmented and niche than ever before. The expanding products range is majorly fueled by the food processing sector and with growth of the sector, the beverages category is bound to carry forward the acceleration.
Constituents & Size of Traditional Beverage Segments
The four broad segments of the category are tea and coffee, juices and flavored drinks, packaged drinking and flavoured water and other nonalcoholic drinks, including soft drinks, cocoa,
chocolate, etc. The lion’s share is taken up by tea and coffee, which confirms that the beverage category is still ruled by traditional drinks. India may be the country with strongholds of tea and coffee in specific areas but combined together they command the whole market.
Tea, by far, is the largest segment of beverages in India ruling over 79 per cent of the market. The market is growing at 20-23 per cent and by the same rate it will cross its present market size by more than three times by 2020. On an average, each person in India spends about Rs 106 on tea consumption every month. Although south India is usually perceived as a coffee market but the tea market is around nine times bigger in the region. Monthly per capita consumption of tea in the region is Rs 147, which is even higher than the all-India average.
Another traditional segment having a large share is juices along with other canned and bottled beverage options. Inspite of the financial muscle powers and an unparallel distribution advantage, the global beverage giants hold just 5 per cent share in the category.
The beverages market for non-alcoholic products is split 50:50 between rural and urban markets. But the individual contribution share of constituting segments in both the markets diff er. The largest segment of tea and coffee has a bigger share in the rural market than in urban. Rest of the constituent segments has larger shares in the total urban market.
Packaged drinking water or juices consumption or the culture of drinking soft drinks and having energy drinks are all urban trends and have limited penetration in rural areas. Consumers’ lifestyles and consumption habits are the differentiating factors for this variation in both the markets.
On an all-India basis, tea has a 45 per cent urban market. Th e west and south regions have almost the same market share in this market. Both the regions also share the same monthly per capita tea consumption figures, which is around Rs 177.
About 4 per cent of the total beverages market is juice market. The segment is growing at 20-25 per cent and is aiming to grow almost four times bigger in the next five years. Today Indians are spending an average of just Rs 6 per month on juices, which is less than what they spend on other beverages. The juice segment has been somewhat impacted by the emergence of other flavoured drinks, which have become an easy alternative to the consumption of juices.
However three-fourths of the juice market is urbanised. The high consumption of juices in these markets is the result of higher health awareness, availability of branded juices, urban lifestyle full of options, boom in modern retail and mall culture and the influence of globalisation in the F&B space.
People have realised the importance of healthy food and are demanding packaged juices, which can be easily carried with them at their home, workplaces, during their touring & traveling.
Wine continues to be a niche category with total volume consumption of about 22 million litres, with on-trade being the majority shareholder. According to Euromonitor, last year, the country’s wine production hit a record 17 million liters, with export sales rising 40 per cent year-on-year to reach US$4.4 million in the first seven months.
With a rapidly growing export sector, expanding domestic consumer market and increasing industry support in major wine-producing States, the Indian wine industry has potential to be a global market competitor. However, the consumption of alcohol in India continues to be dominated by beers and spirits.
But slowly and steadily, the wine-drinking culture is seeping in India. In particular, wine is finding favour with the youth, who are taking to it in a big way. This is demonstrated by the presence of wines in pubs, lounge bars and so on. Women also prefer wine over the other beverages due to the style quotient attached to it and the health benefits associated with it.
The change towards wine drinking. Since 2007, supermarkets have started the retailing trend in wines. Today, in Mumbai, wine is retailed by Spencer’s, Hypercity, Nature’s Basket, Foodland, Shoprite Retail, and Haiko. In Bengaluru, it is available at Spencer’s, Food World, Monday to Sunday, Metro Cash & Carry. Wine lovers can now pick up their weekend stock from a shopping mall or a grocery store nearby.
At the same time, wine bars and lounges are popping up in and around the cities. There are wine clubs in Delhi, Mumbai, Bengaluru, and even Chandigarh. In the past year alone, India has seen close to 100 wine launches and tasting sessions.
Over the years, the market has become fragmented, international, multi-lingual, operating in many currencies, and information–intensive. The consumer is well knowledgeable of what he is having, and is asking for the specifics.
To encourage the wine culture, “wine should be treated as any other food product and should be governed by the laws and rules as applicable to the food processing industry,” says CEO, Vintage Wines Private Limited, Yatin Patil. Vintage Wines makes the Reveilo brand of wines in India.
Patil feels that more number of supermarkets/modern trade outlets should take to retailing wines. “There is a great opportunity to boost their profits by focusing on their wine departments,” says Patil.
But while modern trade outlets like Nature’s Basket, Haiko, etc, focus on their wine offerings through an exhaustive and varied wine list, many small retailers are yet to understand the potential of wines as a category.
“The retailers need to ensure they off er good quality wines to their customers so that they get repeat customers for wines. Another issue that needs to be tackled immediately is the storage condition at many retail outlets. Once these issues are taken care the retailers would be able to provide a better wine experience to customers,” feels Patil.
Overall, the wine industry growth is hampered by a complex system of excise taxes, licensing processes and distribution procedures, which serve to dramatically increase retail prices on imports and limit inter-state trade. In addition, the market is constrained by inadequate storage options and an enduring consumer preference for hard liquor. In the matter of consanguinity, beer is the closest beverage to wine and the two face very similar prospects and challenges.
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The beer industry in the country, which has 89 breweries, is currently valued at $4.13 billion. In terms of volumes, the beer market in India is approx. 24 million hectoliters and growing. India has around 10 leading beer manufacturers including, Carlsberg, Budweiser, United Breweries, SABMiller, Bar Malt India, Alfa Laval, Praj Industries and Briggs of Burton, among others.
Currently, the beer market in India is growing at around 6 per cent. Earlier, the industry was growing in the range of 10 to 12 per cent between 2002 to 2012. The growth has decreased due to restrictions like higher taxes and limited availability of beer. Th e growth could again climb up to double digits if taxation and other restrictions are eased by the Government, feel industry players.
The excise duty per litre of beer is highest in the world. The overall taxation ranges between 25 and 65 per cent, and on most brands it is charged at about 60 percent. According to Director Marketing, Carlsberg India, Mahesh Kanchanm, “It’s a highly taxed category and India is the only BRICS country where beer is more expensive than a Big Mac.”
“Apart from being a highly regulated product in India, there is also a lack of accessibility to the category. So, consumers don’t get it at an arm’s length unlike the carbonated drinks, which is widely available. Also, from the affordability point of view there is a fair bit of price premium because of the taxation it attracts. So, both from the point of view of accessibility and affordability, the category size of beer in India is restricted,” opines Kanchan.
However, the throughput per sq.ft. for the beer category is much higher than for the other regular FMCG categories. Also, the ticket size per ml. is higher in the beer category than any other value added beverages. So, the realisation that you get per sq.ft. and per ml. is much higher in the beer category versus any other beverage category.
“This is primarily because of the density of outlets selling beer is much less compared to outlets selling regular FMCG products,” explains Kanchan.
In India there is one outlet for every 18,000 people v/s China which has one outlet for every 300 people. As the density of outlets is low the volume per outlet is very high.
The higher throughput factor makes beer a very attractive beverage for retail in supermarkers. Unfortunately, very few supermarkets have the license to sell alcobev, but it is likely to grow because in supermarkets consumers can touch and feel the brands. It is channel that off ers a broader choice of brands where a consumer exercises his franchise.
“It is right now a very small channel compared to the traditional off -trade channel. However, it is a growing and emerging channel, though its pace of growth will depend on how many modern trade players actually go for the license,” says Kanchan.