Globally, India has become the second largest market for the liquor major
Pernod Ricard India, the most profitable liquor company in the country, is banking on India’s changing demographics and rapid urbanisation to fuel its growth here.
India is expected to have 69 cities with a population of above one million by 2025 - from 52 in 2012. "Also, the composition of the middle class will change. This will lead to the rise of discretionary spend," Chief Financial Officer Rajesh Mishra, told Moneycontrol.
"India's per capita consumption of alcohol is among the lowest in the world. But now we are entering a phase where people are looking at liquor as an instrument to share experience, and it is becoming culturally acceptable," added Mishra.
The changing landscape suits the India unit of the French major, as it was the first in the local market to focus on the premium segment of the liquor industry. Till then, most of its peers including United Spirits had their eyes on volumes.
The strategy has helped it become the most profitable liquor maker in India, even though it sells less than United Spirits, the erstwhile Vijay Mallya-company now owned by Diageo.
Pernod Ricard India, which sells Royal Salute, Imperial Blue and Chivas Regal whisky, had a net profit of Rs 1,228 crore in the year ending March 2018. Though United Spirits revenue of Rs 26,555 crore was more than 50 percent higher than Pernod Ricard India, its net profit was lower at Rs 683 crore.
The performance has made the India unit the second largest for parent Pernod Ricard. The US is the biggest market for Pernod Ricard India pushed China to third place.
"India is the largest whisky market in the world, and now has the strongest potential for the growth of premium products. Every global player has to have an India strategy, and so do we," said Mishra.
The biggest change in spending is taking place in the Indian middle class.
"This is the way it is changing. The lower middle class will soon become half of this segment, and the higher middle class is also growing as fast and will become over 40 percent. This evolution is being mirrored in the liquor industry," says Mishra.
Ten years ago, while the 'cheap' segment was the biggest, it gave way to the regular pie. "Then the regular shrunk, and the value segment grew. Now the value segment is shrinking, and the growth is in the premium and the deluxe segments of the industry," said the senior official.
This is especially true for the whisky market. The deluxe and premium segments are growing in the 10- to 18 percent range. On the other hand, the regular segment is growing at a much slower 6.5 percent.
Pernod Ricard India dominates these segments. While in the single malts segment is has a 37 percent share, it has cornered 39 percent of the blended scotch whisky segment. The company controls 62.3 percent of the premium whisky market, and in the deluxe whiskey segment, the share is 63.4 percent.
While Mishra was tightlipped on details, he underlined that going forward, the company's launches will look to leverage its dominant presence in the whisky market.
The growing consumption of good quality liquor, says Sunil Duggal, Whole Time Director, Corporate Affairs, S&R and Corporate Communications, reflects its changing position in the Indian society.
"Earlier, it wouldn't be consumed in front of elders. Liquor was tucked somewhere in the wardrobe, where the kids and parents couldn't see. Now it's coming out much more in the open," said Duggal.
It has also mattered that 70 percent of the Indian market is now owned by multinational companies. "Earlier, the promoters didn't want to talk about their liquor business as they didn't want to attract the government's attention. But with the MNCs, who already have assets in developed markets, compliance has become better and there is more transparency in India," adds Duggal.
At the same time, challenges remain. Alcohol comes under the State List, and because of this same brand of liquor may be priced differently in each state.
Recently, after the Maharashtra government tweaked the pricing formula, the price of Chivas Regal, a super-premium whisky from Pernod Ricard India stable, costs almost twice what it does in Delhi.
Also, the industry is highly regulated and even the license to have bottle labels need to be renewed every year.
Taxes on liquor are among the biggest revenue generators for states and brought about Rs 1.2 lakh crore last year."While the industry still hasn't got its due, there is some change taking place in how the regulators perceive the industry," says Duggal.