Liquor consumption slows to 4% in 2023 amid higher taxes, finds excise data

The demand for spirits in various segments experienced a notable slowdown, reaching only 4 percent in 2023 in a sharp decline from the 12 percent growth witnessed in 2022 as per an Economic Times report. Increased taxes, a high baseline, and a reduction in alcohol consumption by consumers contributed to this decline, it added.

According to industry executives referring to the latest excise department data, whiskey, constituting two-thirds of the segment, saw a growth of 5.3 percent in volume. Brandy and rum followed with 2.7 percent and 1.1 percent growth, respectively. Notably, vodka and gin experienced more robust growth at 18.8 percent and 15.3 percent, respectively, albeit on a lower base.

Industry Insights

During an investor call, Hina Nagarajan, Managing Director of United Spirits, noted that the demand environment remained subdued, with people still exploring different options in their alcohol choices. She told the paper that the impact on volume stemmed from a preference for out-of-home drinking due to higher prices in such establishments compared to purchasing from off-trade and consuming at home.

United Spirits anticipates this subdued environment to persist in the coming quarters. While the overall spirits market saw an increase in sales volume from 392 million cases in 2022, to 409 million cases in the January-December period of 2023, the industry has normalized after the 12-15 percent growth observed in the post-Covid years.

Experts told the paper that despite volume pressure, premiumisation remains a driving force across categories. For example, scotch sales surpassed 9 million cases annually and are expected to double in 2024 if the current trend continues.

Factors Influencing the Market

The spirits segment's performance mirrored the overall consumer discretionary sector in India, where sales of products like apparel, footwear, and beauty slowed in 2023 after two years of pandemic-induced growth, as per the report. Record increases in raw material prices a year ago have softened, although grain prices have surged, impacting profit margins.

The state of Karnataka, the largest consumer of spirits, implemented a 20 percent increase in Additional Excise Duty (AED) on Indian-made liquor (IML) from August, affecting volume. In states accounting for over 65 percent of the market, government control over retail, wholesale, and pricing makes rapid price adjustments challenging for companies.

With an estimated drinking population of 300 million in India, nearly half can only afford cheap unbranded liquor, as per the report. To capitalise on the growing middle-class segment, companies have launched products in the premium-and-above category. For instance, Allied Blenders and Tilaknagar Industries introduced premium products, aiming to target the expanding consumer base.

In December, Pernod Ricard, the maker of renowned brands such as Chivas Regal and Absolut, expressed optimism about India becoming its largest global market, outpacing the US. While specific timelines were not provided, Pernod Ricard India's Managing Director, Jean Touboul, highlighted India's strong macroeconomics and rapid growth compared to other affiliates in the group.