Liquor demand drops for the first time in 15 years

Bengaluru: For the first time since the start of the millennium, the volume of liquor sales in India declined in 2015 as rising taxes and a lack of new brand launches put off people from splurging on drinking.

Liquor sales volumes, which grew in the low single digits in the two previous financial years, are down 1-2% for the eight months to December, according to data gathered from executives at liquor companies.

Since the early 2000s, rising incomes led to consistent volume increases of 10-15% every year. However, over the past four years, liquor demand has been hit by ballooning state taxes and slowing economic expansion. Grabbing market share from rivals, rather than market expansion, has become the only way for liquor companies to grow.

“Demand in the market is still depressed,” said Santosh Kanekar, a former liquor marketer and promoter at investment advisory firm BeLive Corp. “Growth has came largely from brands stealing market share from one other. In 2016, we will see more activity as brands try to win back lost market share.”

United Spirits Ltd (USL), India’s largest liquor company, is again losing market share to rivals Pernod Ricard and Allied Blenders & Distillers Pvt. Ltd, partly as sales of two key brands, Bagpiper and McDowell’s whiskies, plummeted in 2015.

USL, which has reported declining volumes since 2013, again saw volumes fall 1% in the year to October, according to its latest quarterly report. On the other hand, Pernod Ricard and Allied Blenders registered volume increases of more than 10%, two people familiar with the matter said.

“Pernod and Allied are both killing it in the market and taking away market share in a scenario where growth has been modest,” said an analyst who did not wish to be named. That person tied the market share gains to consumers trading up to pricier whisky in metros, better distribution and trade marketing.

While a 10% rise in volume is impressive in a depressed market, volume growth at both Pernod Ricard and Allied Blenders has declined sharply compared with previous years, indicating the limitations of growth only from market-share increases.

Allied Blenders, home to Officer’s Choice whisky and Jolly Roger rum, plans to launch new brands and increase marketing spending to boost sales growth in 2016, an executive said.

United Spirits and Pernod Ricard—which owns brands such as Royal Stag and Blenders Pride—didn’t respond to emails seeking comment.

“We will work towards building consumer demand and we have to improve our spends on below-the-line marketing (more targeted marketing through trade shows, in-store events),” said Ahmed Rahimtoola, head of marketing at Allied Blenders.

At the lower end of the market, John Distilleries Pvt. Ltd is outperforming its peers. For the eight months to December, sales of John Distilleries’ Original Choice whisky rose more than 20%, according to two people familiar with the matter.

Three other large liquor firms, Radico Khaitan, Tilaknagar Industries and Jagatjit Industries, also reported a decline in sales volumes for the first half of 2015.