The startups spicing up India's drink-at-home culture

So, what if there was one company or six that put together everything from assertive flavours of lemons and limes, cane sugar and spiced them up with cinnamon and bitters to a make whiskey sour premix that can be nursed perfectly when mixed with bourbon.

Recently, there have been over half a dozen businesses in the country that are changing or at least trying to change the way people drink. Ankur Bhatia was starting to do just that but then found himself in the middle of a perplexing issue just six months after the launch of his new business: a pandemic.

But little did he know that by the second half of 2020, his company, Jimmy’s Cocktails, would not just be selling well, but be able to secure a funding based on those sales. Since the pandemic forced many to start muddling their own drinks at home, Bhatia who had been working off the assumption that selling his cocktail mixers would primarily be through bars and restaurants, would now need to shift gears. The business would have to skip several steps and reach the consumer directly.

As soon as the lockdown was lifted, sales for Jimmy’s and its competitors started to pick up steadily and by the end of the first year of business, Gurugram-based Radiohead Brands Pvt. Ltd that runs Jimmy’s had clocked a revenue of over $1 million selling premixes for popular favourites such as whiskey sour, sex on the beach, cosmopolitan and mango chilli mojito, among others.

Tonics and ginger ales were another category that became popular during the pandemic. A wave of independent beverage brands such as Sepoy & Co. that makes tonic waters; Svami that does those and other similar beverages; Bengal Bay Drinks, Peer Drinks and Jade Forest started going after a similar home drinking market. The founders of some of these businesses like to call themselves ‘alternative’ or ‘progressive’ beverage brands.

“A third of every glass of alcohol can be filled with something. We operate in that space. Alcohol brands, too, know that people are mixing their drinks with these products," Ankur Bhatia of Jimmy’s Cocktails said.

This entire space, nevertheless, is a minnow compared to market leaders in carbonated drinks. India’s beverages market is dominated by large beverage companies including Coca-Cola India Private Ltd Co., Parle Agro Pvt. Ltd, Dabur India Ltd, ITC Ltd, and PepsiCo that sell flavoured fizzy drinks and fruit-based beverages across pack-sizes. PepsiCo and Coca-Cola have a combined market share of over 80% in India’s non-alcoholic beverages industry.

Then, there are strong regional players that sell everything from dairy-based drinks and fizzy beverages. Improving retail penetration across semi-urban and rural markets has prompted several of these companies to experiment with a range of beverages over the years. Many companies have found favour among consumers by selling more differentiated products. This includes brands such as Paper Boat, sold by Hector Beverages Pvt. Ltd, that leveraged the traditional drinks plank to sell more ethnic beverages. But large companies have largely stayed away from niche categories as volumes are still small.

So how niche is the mixer market? According to one estimate, sodas, tonics and cocktail mixers, all together, total about ₹200 crore today. A super charged growth from here on may take it to ₹7,000 crore by 2030. Many see mainstream brands emerging with this sort of a growth but also advise caution on being overly optimistic.

Dipanjan Basu, partner and chief financial officer, Fireside Ventures, a multi-stage venture fund that has invested in new-age packaged foods and beverages brands, pointed to the entry barriers for startups in the beverage market category. Beverage is a large offline market and will eventually become omni-channel. “While, the carbonated (beverage) is the belly of the market and is dominated by Coca-Cola and PepsiCo, the opportunity lies on the non-carbonated side. The entry barriers for new brands will still be large, but we are also seeing traction in new formats of beverages like mixers and online coffee brands," he said.

Samir Kuckreja, who runs food consultancy Tasanaya Hospitality Pvt. Ltd, said the trend of mixers and tonics has been around for the last couple of years. However, there are many more brands now, post the pandemic. They are all targeting customers willing to pay a premium for specialty tonics and sodas. Some of these new businesses, overtime, can possibly disrupt the market for traditional brands, going ahead.

Meanwhile, the country’s mid-premium beverage market is set to grow much faster than mass market beverage sector with increased purchasing power and inclination towards better lifestyle, said Pankaj Aswani, founder of non-alcoholic beer brand Coolberg. Started in 2017, the brand positions itself as a “lifestyle drink". A large chunk of its consumers is aged 15 to 35 years. That’s a demographic with growing disposable income.

High at home

In 2017, Gurugram-based Rakesh Sheth started &Stirred Cocktail Mix after having spent over two decades working across large alcohol and other beverage companies such as Coca-Cola, Pernod Ricard and Diageo Plc. in India.

Sheth said the market in India has always lacked mixers that service the needs of consumers drinking premium alcohol at home. That’s because irrespective of the alcohol consumed, consumers will still use small polyethylene terephthalate or PET bottles of Sprite or Coke, or store-bought orange juice or sodas to make drinks.

“I realized that in spite of a ₹500 Smirnoff or a ₹5,000 Grey Goose, typical choices as a mixer for Indians are either a ₹10 Sprite or a ₹20 Tetra Pak juice—90% of the times no matter which alcohol you consume," Sheth said.

Opportunity for companies like his came with the pandemic; they started to grow on the back of increased in-home liquor consumption over the last 18 months.

“The consumption has definitely moved to home. The pressure that all of us felt to go out and party every Thursday or Friday night has reduced considerably. It is perfectly normal to stay at home and have a few drinks at home with friends. From that standpoint, mixers and tonic waters etc., have emerged—and have been successful," said Ankur Jain, founder of b9 Beverages Pvt. Ltd that owns the popular Bira 91 beer.

The pandemic push is now firing up bigger ambitions. Angad Soni, founder of three-year-old Sepoy Beverages Llp that runs Sepoy & Co., which makes premium botanical mixers, said the company is now looking to rapidly expand and raise about $1.5 million in 2022. The capital would help increase the product portfolio and expand geographically.

Foxtrot Beverages Pvt. Ltd that runs Svami is currently in the final stages of a fund raise of $3.5 million for a series A round. Co-founder Aneesh Bhasin said that between 2020 and 2021, the firm grew at 4x in its offline retail and 20x in online retail. Mint could not independently confirm this. Bhasin did not disclose the company’s current revenues but said it is targeting ₹95 crore over the next three years.

Less sweet, more spunk

For many years, market leaders such as Schweppes have been selling canned and bottled tonics laden with sugar. And as many upwardly mobile Indians move away from sugar and artificial flavouring, the scope for new drink companies has expanded.

In October this year, Svami launched a two-calorie cola. It also tied up with Moet Hennessy India Pvt. Ltd to create three flavours to be given away exclusively with their alcohol.

Punweet Singh, co-founder of Jade Forest, which makes flavoured tonic water, said many drinks on the bar menus are pumped with sugar. He co-founded the company, along with Shuchir Suri in 2019, with an ambition to create a healthier option. The idea was to service restaurants and bars with their back-end needs. Once the pandemic hit, 80% of the company’s sales dried up and they had little choice but to pivot towards retail and e-commerce channels.

“With home consumption on the rise, we realized that many people wanted to experience something similar to what they experience at the restaurants, but without sugar or aspartame," Singh said. “We are making products naturally low on sugar." For now, the brand relies on contract manufacturing.

Not all startups manufacture in India, though. Karan Jain’s Mumbai-based e-commerce business imports drinks and mixers from an iconic British brand, Franklin & Sons. Jain expects robust growth in the premium segment over the next 10-15 years. He first imported Franklin & Sons’ dual flavoured tonics in 2018 and today, on average, customers spend ₹4,500 per order on his website, Bevs.in.

“Globally, customers are moving away from mass market products to more innovative and cleaner ingredient-focused drinks. People want to know more than ever now what goes in the food and drinks they are consuming," Jain said. His company has earmarked ₹2.5 crore for expansion into new categories over the next 12 months. His business has grown 600%, albeit from a low base, from pre-covid levels.

The elitist tag

But do these drinks have much of an appeal beyond tier-1 cities? The answer is yet unknown. Cocktails are rather elitist.

Bhatia of Jimmy’s admits that. Cocktails are fun but an expensive drinking experience, limited only to top premium bars in urban metros and 5-star properties. He now wants to make it both accessible and affordable, without compromising on the flavours. Jimmy’s cocktails are available across 400 cities in India at the moment with a price tag of around ₹99 per bottle.

“It is an exciting time for beverage brands to innovate and stand out from the rest of the pack. There are many global trends that are yet to make their way into India and we feel there is a lot of potential for us to be on the forefront of the drinks innovation," added Singh of Jade Forest.

Everyone, however, agrees that the cocktail market will take time to develop since awareness-building takes time. “I can’t go in and distribute myself everywhere. Distribution will only take you to a certain level. But ultimately, there is a consumer who will need to start enjoying a cocktail at home," said Sheth of &Stirred.

Aditya Goel, co-founder at Love in Store, a retail marketing company, works with fast-moving consumer goods (FMCG) companies. He held that a lot of these startups are “lifestyle businesses" and fairly niche for now. The advantage: they are digital-first. “They have some brand recall online and use marketplaces such as BigBasket and Grofers to sell goods online. As a result, they evade traditional distribution channels—key for gaining scale in India. At most, they target large banner stores in cities and not those with a national presence," said Goel. Once successful on e-commerce sites, the startups could next target distribution in brick-and-mortar stores.

With a reach in over 150 stores, Coolberg, for instance, is present in 30,000 outlets in India. In contrast, beverage major Coca-Cola is distributed in over three million outlets.

Goel said that many of these brands wouldn’t be able to crack national trade and distribution unless they have the kind of money needed to spend on national digital media. “You’re essentially targeting a very niche set of consumers who are highly discerning," he said.

Gin maker Anand Virmani, who runs Greater Than, however, said that this category is doing a great job reinventing basic mixers and taking away market from the ‘Catch’ and ‘Schweppes’ of the world.

“Some of these brands could actually become mainstream," he hoped.