Category Archives: popular-posts

When to bottle craft beer?

Craft beer which is available mostly in kegs is now moving to the retail shelf. A look at some of the compelling reasons.

As the craft beer demand continues to grow, the more successful craft beer produces have a happy dilemma when growing organically, is moving on from the first phase when the start-up microbrewery only kegs the beer to bottling beers. The margins created by retailing your beer instead of selling it wholesale have sustained the growth of microbreweries. This successful approach has succeeded in generating phenomenal growth in the industry.

Wholesaling only has downsides, mainly for those micro breweries that do not have their own direct chain of distribution. Those without direct distribution have struggled in the past and are the micro breweries most likely to disappear. Microbreweries without their own direct outlets are those that have tended to fail first over the years. The need to have a substantial distribution network was recognised immediately for example by BrewDog in Scotland, and Whitewater Brewery in Northern Ireland.

The important initial capital outlay required to open a microbrewery needs a rapid growth of sales and margins to sustain the business. You have to have a guaranteed high margin from your own distribution from the very start, or you will need deep pockets to sustain the start up from zero. Many of your clients will also want to enjoy their favourite beer at home or on a picnic. And you need to serve them, or they will buy their tipple from the competition. Therefore you need to satisfy this type of consumption by offering bottled beer, pretty soon after starting your brewery. Initially the quantities to be bottled are relatively modest – maybe only 500 or 1000 bottles at a time for each of your various recipes. Initially, therefore, the easy way, although an expensive way, is to contract bottle outside the premises. This seems the way to go. Contract bottling has many disadvantages and could eat into your margins because of extra logistics cost and scheduling. In-house bottling could be the solution. Bottling in-house requires generally more money than anticipated.

More and more fancy craft beer is also showing up in aluminum cans. Five years ago, just a few dozen craft brewers in the U.S. were canning, while today there are more than 500. The beer in a can cools faster. The can protects from beer-degrading light. Beer cans are portable and take up less space, advantages both for retailers and for consumers who want to take them camping, hiking or fishing. There’s also more space on a can for wraparound design and decoration.

While glass bottles take longer to cool down, they also stay cold longer once they come out of the cooler. Plus, glass producers and plenty of brewers will tell you translucent amber glass has been working fine to protect beer from light and air. The biggest selling point for the bottle, though, is flavour. There’s at least a perception that cans impart a metallic taste, whereas liquid stored in a bottle comes out tasting pure. The metal touching your lips is still a factor in terms of flavour, but most craft brewers suggest pouring out beer into a glass before sipping, whatever package it comes in. It may be coolness, or it may be convenience, but the bottom line is, cans are getting cheaper. Bottling in-house remains a simpler, cheaper process. The Brewers Association estimates just 3% of craft beer on the shelves is in a can. Sixty percent still goes out in bottles, and the rest is sold in kegs. Glass has been a very reliable package and tradition will prove itself well that glass is not going anywhere.

In India quite a few microbreweries plan to launch bottled beer brands to cash in on rising demand for India’s craft beer. So far, India has seen just a few craft beer brands such as Bira, White Owl and Simba, sold off shelves despite nearly 170 microbreweries that opened over the past decade. Karnataka government does not allow brewpubs to distribute in-house beer and are permitted to produce a maximum of just 1000 litres a day. Windmills Craftworks will start producing cans of craft beer from their newly-acquired 2000-litre production brewery in Goa. India’s craft beer industry accounts for 2-3% of the country’s beer market which is largely skewed towards the stronger version. The surge of interest in craft beer has been driven by millennials, many particularly interested in this form of beer that is more authentic, premium and has a complex flavour compared to regular lager sold by MNCs.

But making and selling craft beer at a larger scale isn’t easy. Besides licenses and distribution, brewpubs have to wrestle with cold chain supply infrastructure, short shelf-life of craft beer and smaller budgets compared to United Breweries, Ab InBev and and Carlsberg that together control 90% of the market. As a result, many are planning to roll out variants such as hefeweizen, stout and light golden ale – that can survive better in these tough conditions. And some are opting for pricier cans to package their products instead of glass bottles. Cans are lighter, unbreakable, carry more branding information, have little oxygen uptake and do not allow light to enter easily, unlike bottles. International craft beer brands can collaborate and set up bottling plants in India to retail now. Big commercial beer brands are also waiting, and will hop on the craft brewery segment in the next two-three years. Perhaps herein lies the opportunity for Praj, Krones, Alfa Laval and KHS.

Australian Wine Exports Continue To Grow in Value

With premiumisation on the rise value of exports is going up.
The total value of Australian wine exports increased by 5% to $2.78 billion in the 12 months to March 2019, with the average value per litre climbing to $3.41, the highest level since 2009. Wine Australia Chief Executive Officer Andreas Clark said that the continued growth in the value of exports was an extremely positive trend for the sector.

Mr Clark said that while the volume of exports had declined slightly by 3% to 814 million litres (90 million 9-litre case equivalents), the increasing value overall and on average was overwhelmingly positive. “What we are seeing is a drop in volumes in the lower value categories and this places Australia well as the global consumer premiumises and drinks less but more expensive wines,” Mr Clark said. In the China market we have grown our value again and we are outperforming competitors, with the Global Trade Atlas figures showing that in the year ended February 2019, Australia had a 29% share of the imported wine market – up from 26% a year ago

“We are also seeing positive trends in the USA off-trade market where sales of Australian wine grew 3% in value to US$521 million in the year ended December 2018. Even more encouraging is that Australian wine priced above US$15 per bottle has also grown by 3% according to market monitor IRI Worldwide.” Mr Clark said Australian wine supplies would remain tight in the short term with much of the 2018 vintage yet to hit the market and the expectation that 2019 vintage would be below the long-term average. In the year ended March 2019, there was robust growth in most price segments (see Figure 1) with exports in higher priced categories recording the most significant growth, reflecting global premiumisation trends. In the 12 months to March 2019, the value of wine exported in glass bottles increased 3% to $2.22 billion and decreased in volume 5% to 355 million litres (39 million 9-litre case equivalents). The combination of the increased value and lower volume means that the average value of bottled wine increased 9% to $6.24 per litre FOB, a near-record.

Other packaging formats include soft pack, which increased 12% in value to $15 million and 9 per cent in volume to 7.7 million litres, and other alternative packaging, which decreased by 2% in value to $6.2 million and 10% in volume to 964 thousand litres. Shipments of unpackaged wine increased in value by 11% to $541 million and decreased in volume by 2% to 450 million litres (50 9-litre case equivalents). The average value of unpackaged wine exports increased by 14% to $1.20 per litre FOB. Nearly all destinations imported more Australian wine in the year ended March 2019 than the previous period. North America is still the exception, with excellent growth in exports to Canada unable to outweigh the decline in exports to the United States of America (USA). The regions in growth are: • Northeast Asia, up 8% to $1.2 billion, • Europe, up 3% to $612 million, • Southeast Asia, up 7% to $170 million, • Oceania, up 15% to $107 million, and the Middle East, up 16% to $32 million.

Australian wine exports to China (including Hong Kong and Macau) increased by 7% in value to $1.11 billion and decreased by 14% in volume to 154 million litres (17 million 9-litre case equivalents) in the year ended March 2019.

The volume decline in the China market is confined almost exclusively to exports in the below $2.50 per litre value segment, reflecting both a tightening of Australian supply in this segment and also the increased supply availability from competitors such as Chile. There were 2603 active exporters in the period, a 16% increase from the previous year. During the year, 1786 companies either started exporting or increased the value of their exports, contributing $374 million to the growth in overall value. This growth was partially offset by 1328 exporters whose export value decreased or they ceased shipment altogether; their exports declined by $246 million.

Volume and value growth rates by exporter size illustrate largely positive performances (see Figure 3). While volume decreased by 4% for the largest exporters (those exporting more than 100,000 9-litre case equivalents), all other exporter segments showed healthy growth rates in both volume and value, with the smallest exporters exhibiting the strongest growth.

Scotch Whisky makes strong Economic Impact

With the Brexit debate dominating British politics, the fate of Scotch, the money spinner for Scotland will be closely watched.

The Scotch Whisky industry is strategically important to the economies of Scotland and the United Kingdom. This report – building on work by the Centre for Economics and Business Research (CEBR) – explores Scotch Whisky’s direct contribution to GVA, international trade, employment, supply chain and revenue through excise duty. The contribution of the Scotch Whisky industry to the UK economy has grown by 10% since 2016 to £5.5bn.

A new report by the Scotch Whisky Association, building on research carried out by the Centre for Economic and Business Research (CEBR), also reveals Scotland’s national drink generates two-thirds of all spirits Gross Value Added (GVA) in the UK. The industry has been buoyed in recent years by record exports, reaching £4.7bn in 2018, and several new distilleries beginning production and opening their doors to tourists.

This success comes despite the industry continuing to pay the fourth highest duty rates in the EU, and one of the highest of spirit producing nations globally. Recent freezes to UK duty have helped the industry to reinforce its vital importance to the UK economy. Karen Betts, Chief Executive of the SWA, said:“This research shows the huge contribution that our industry plays to both the Scottish and UK economies.

“Significantly, the research shows that our industry’s GVA increased by 10% to £5.5bn between 2016 and 2018, as a result of Scotch Whisky companies’ continued export success and the industry’s consistent investment – over £500 million in the last 5 years – in production, distribution, marketing and tourism.

“Despite the challenges of Brexit, this is investment that continues to flow, with more projects planned and more distilleries set to open – a sign that the Scotch Whisky industry remains confident about the future. This is great news for our many employees, our investors, supply chain and, of course, for our consumers all over the world, who love Scotch. “This report also highlights the high rate of domestic tax that Scotch Whisky faces in the UK. In the US, Scotch and other whiskies are taxed at just 27% of the rate that HM Treasury taxes us here at home. We will continue to press the Chancellor for fairer treatment of Scotch Whisky in our domestic market, which reflects the vital economic contribution the thousands of people who work in whisky make to the UK economy every day.”

Scotch Whisky provides £3.8bn in direct in GVA to Scotland – helped by regulations in place that requires all Scotch Whisky to be distilled and matured for at least three years in Scotland. This means Scotch Whisky contributes more than double than life sciences (£1.5bn) to the Scottish economy, supporting more than 42,000 jobs across the UK, including 10,500 people directly in Scotland, and 7,000 in rural communities.

The sector was found to perform a crucial role in driving productivity across Scotland. The manufacturer of beverages in Scotland – dominated by Scotch – produces £210,505 GVA per employee. Comparatively, the industry is more productive than the energy sector (including renewables) at £173,511 per head, life sciences at £93,735 per head, and creative industries at £60,712 per head.

Exchequer Secretary to the Treasury Robert Jenrick MP said: “I’m delighted to see how this important sector is thriving. “We are supporting the Scotch whisky success story by freezing duty on spirits again this year. “Our record of reductions and freezes to alcohol duties have provided more than £4bn of support to the drinks sector here in the UK.” Rural Economy Secretary Fergus Ewing MSP said: “I welcome the contribution that the Scotch Whisky industry makes to the Scottish Economy. “The industry’s performance is testament to the hard work of those who work in this important sector, making Scotch Whisky one of Scotland’s greatest global exports.”

France’s buoyant US Spirits Business Tops 200 Million Bottles

France has been known for its luxury spirits brands and the US is one of the biggest markets in the world for premium spirits. Naturally French exports are directed to this market.

French spirits exports to the US have doubled in ten years and now account for more than 200 million bottles a year, says Christophe Macra MW, spirits expert and one of France’s Masters of Wine.

He said that interest in spirits was growing worldwide due to better distillation quality, innovation and new spirit-producing regions entering the market. Spirits consumption would continue to grow in both economically prosperous and developing regions.

At a spirits Master Class and review of market trends at Vinexpo 2019, Macra traced four trends in spirits development. He also predicted which five spirits categories would dominate global spirits in five years time. M Macra illustrated his review of international trends with a tasting of Calvados Armagnac, Gin and a Gentian aperitif and cocktail ingredient from France, Vodka from Ireland, Mezcal from Mexico, Whiskies from Sweden and Taiwan. The diversity of spirits and their origins showed that “The world wants spirits and people want to drink them”. A growing spirits distribution sector worldwide – especially in France where there were now between 20 and 30 national distributors compared with three or so 29 years ago – was further evidence of trade and consumer demand. Trends pushing spirits expansion are: revivals of traditional spirits such as Calvados and Armagnac where there was growing interest in Asia; rediscovery of locally-produced spirits, eg Irish Whisky, Gin and Vodka; global interest in little-known spirits such as Mezcal; new exotic spirits such as agricultural rum from Tahiti, “where no spirits at all were made 10 years ago”.

Similarly, in Sweden 12 whisky distillers operate using locally grown malt and wood casks. Taiwanese whisky was now a huge market characterised by accelerated maturation in a warm climate and excellent cask selection. M. Macra was asked to forecast the five spirits likely to dominate world growth in the next three to five years. He nominated: World Whisky – “still very strong and growing”; Rum – “mostly spirit made from molasses, but a growing contribution from rhum agricole; Brandy – “high quality brandies of all kinds”; Tequila and Mezcal – “growing interest worldwide” and Local craft spirits – “small distillers of high quality –hence the trend to ‘drink local’”

The Way Forward For India And The Alcobev Industry

While captains of industry welcome the new government and are hopeful of industry friendly policies, they are also looking at sustainable growth for the future. The alcobev industry has sputtered along in spurts and jerks. With a new government in place, the industry is hopeful of new impetus for growth.
“A stable government is indeed welcome for the nation and economy. We hope that the new government will reinforce its progressive policies towards the industry, and usher in the next phase of reforms to promote ease of doing business and ‘Making in India’. We also look towards the Federal government to encourage states to urgently bring comprehensive regulatory reform into key state- GDP contributing sectors such as alcoholic beverages,” says, Anand Kripalu, Managing Director and CEO, Diageo India.
The beer industry has its fair share of challenges. And with the competition heating up and input prices rising it is becoming difficult to invest in growth. “With a strong mandate that the government has received, we look forward to sustained reforms that will spur further growth in the economy. We also look forward to continued emphasis on ease of doing business,” says Shekhar Ramamurthy, Managing Director, United Breweries Ltd.
ABD in its new avatar, has discovered growth in volumes and is now translating it in to value by creating millionaire brands of its premium brands. The elections and the policies will be closely watched. Will Bihar lift prohibition under the new government? That is perhaps the question on the lips of all marketers.
“It is indeed a blessing that India has elected a strong and stable Goverment and I look forward to more structural reforms so that India can continue on a strong growth trajectory with gainful employment for all its citizens. I also expect the federal goverment to build consensus amongst all states to include potable alcohol in GST,” said Deepak Roy, ABD Vice Chairman.
Plagued by high taxes, both Central and State, the Indian alcobev industry is struggling to find the way forward. Some years ago it was the number game and companies like USL managed to cross the 100 million cases mark and brands like Officer’s Choice crossed the 30 million cases mark. But those numbers did not translate into profits and only companies like Pernod Ricard consistently remained in the black. But now companies are scaling down their volumes where the margins are thinner, introducing premium brands and focussing on profits. Diageo is working to get consumers to ‘premiumise’. The company is working to taking a long term view and creating business value. The history associated with Diageo’s iconic brands, too, bears testimony to such far-sightedness.

However, despite all the challenges in the Indian alcobev industry, Radico has managed to do well, particularly after the opening of the UP market. They have also successfully launched 8 PM Premium Black followed by a big media blitz. Even Magic Moments is maintaining its leadership position backed by heavy advertising on TV channels.
While congratulating on the grand come back of PM Narendra Modi, Dr. Lalit Khaitan, Chairman of Radico Khaitan Ltd. says, “The voters have endorsed Modi’s decisive leadership, his ability to take the country from red tape to red carpet, his government’s multiple schemes to pull out millions from abject poverty and provide them essential services like electricity, cooking gas, bank accounts and free health services.”
Whereas down South KALS Group has been growing very fast particularly after acquiring Imperial and introducing more products like Sparta and so on. It is aspiring to expand to other markets beyond South and has chalked out long term plans.
KALS CMD Mr.S Vasudevan says on the historic victory of the NDA government, “I wish our Honourable Prime Minister Mr. Modi for his impeccable victory. This is a well-deserved victory for transforming our nation in terms of controls, governance, and GDP growth. I personally look forward to having reforms in the IMFL Industry as well that contributes significant revenue to the respective states. I wish the new government all the very best and I’m confident under the leadership of our Honourable PM, India will get into the strides of excellence.”
In India Diageo is taking a long term view well emphasised by the purchase of USL for over US$ 3 billion which could create tremendous opportunities for the next 20 to 30 years.

USL added about 5,000 employees to Diageo’s global workforce, and it wasn’t just about gaining access to a strategically important market. The company’s Indian talent pool and its investments in IT and service centres in India serve not just the Indian market, but the group globally. And having overcome the legacy issues associated with the USL acquisition, Diageo claims to have set itself the ambitious target of “changing the alcohol industry in India”. Much of that effort revolves around a campaign to inculcate the spirit of ‘responsible drinking’, which translates into reinforcing moderation, and in promoting road safety in collaboration with State governments.

And the way Diageo hopes to make the transformation in India is to “premiumise” the business by inducing consumers not to “drink more”, but to “drink better”, by moving to up-scale brands. That has also seen it franchise out some of the lower-end brands it acquired along with USL, and renovate its brands.

Companies like Pernod Ricard has had a sound strategy in place as well. Not only most of its brands are millionaire brands but they enjoy good margins and the company has consistently delivered profits over the years.

But the company too has suffered from disruptions and would like more business friendly policies. Says Guillaume Girard-Reydet, Managing Director, Pernod Ricard India, “The people of India have exhibited with full clarity, their confidence in stability and progress in current reforms. I encourage this government to continue the momentum on reforms in the economy, to increase ease of doing business and comprehensive regulations enabling best growth for India.”
Pernod Ricard launched recently its 2030 ‘Sustainability & Responsibility’ roadmap as part of the Group’s strategic plan to ‘Transform & Accelerate’. This roadmap sets out 8 ambitious and concrete 2030 targets supporting the United Nations Sustainable Development Goals (SDGs) which was unveiled at the Martell Cognac distillery in France. The Group is taking bold next steps in addressing both environmental topics, to preserve the terroirs its products come from, and social responsibility, in particular by accelerating the fight against alcohol misuse.

Scotch Whisky Association is also looking at a long term boost to its business value. It has drawn up plans till 2050.

Mumbaikars appear to be more discerning about their alcohol now than they were seven years ago. Consumption of hard, and, at times, spurious, country liquor has barely increased, but the tribe of wine-drinkers has risen by over 67% in the seven-year period.

Consumption of country liquor (CL) increased only 5.7% in this period, prompting experts to say that people with lower income who opt for it have controlled their drinking habit. However, those preferring the costlier IMFLs have increased by almost 30%, show the seven-year data. The consumption of the ‘safe’ option – beer – has only increased by 6% in this period. Beer and wine have less chemical spirit (up to 17%) content than IMFL and CL (which have up to 44%).
“People go for IMFL and CL or may be a mix for a better and quicker kick. But since the chemical spirit is higher in both of them, there are chances of them adversely affecting a patron’s health. It’s hence a worrying sign that Mumbaikars are increasingly drinking more IMFL than beer,” said an expert who works for the de-addiction campaign.
Excise duty on beer has made prices similar to that of IMFL. This, experts say, comes as a major discouragement for those who want to switch over to liquors with lesser pure spirits. On the contrary, countries in the West and a few in Asia like China encourage beer to ensure minimal damage to the health of regular drinkers, by offering cheaper pricing.

Between 2010 and 2017, alcohol consumption in India increased by 38% from 4.3 to 5.9 litre per adult per year, said the researchers. In the same time, consumption in the US (9.3-9.8 litres) and in China (7.1-7.4 litres) increased marginally.

This summer, it must be Beer

After a prolonged winter which benefitted IMFL sales it is now time for beer sales to perk up.

The beer market in India has been growing steadily over the years. is currently in its growth stage. The market is evolving from manufacturing usual beer products such as strong- lager beers to craft beers, Mead and Apple Ciders adopting trends and technologies from markets such as America and Europe. Today, there is presence of more than 140 beer brands in Indian beer market, which could address the palate of each customer segment. The per capita beer consumption in India is still very low compared to other countries in Asia Pacific region and therefore the market could witness huge growth in the coming years owing to factors such as shift from hard liquor to beer consumption by consumers in India, increase in disposable income, change in societal perspective and others.

The beer market in India is at its growth stage with major companies in the market looking for further market expansion with introduction of new products and by strengthening their distribution network. The market has been growing majorly due to increase in number of youth population, higher disposable income, rising preference of consumers for low alcohol beverages and others. Drinking in bars is fast becoming a social phenomenon in cities such as Delhi, Mumbai and Bangalore and with emergence of craft beers, the growth in beer consumption increased rapidly. Besides the rising number of pubs and bars, another factor which increased beer consumption was increase in premium modern trade and on-premise outlets in metropolitan cities which increased the range of product availability and improved the retail environment. Some state governments, for instance Maharashtra, Uttar Pradesh and Kerala, offered separate licenses for beer sale further boosting growth prospects for the industry. 

Beer sales in India grew 4.6% in 2018, helped by the diminishing impact of a highway ban, demonetisation, but companies expect sales to taper off this year due to an increase in taxation and liquor curbs during the general election.

Growth last year was still slower than in the previous years, when it ranged from 5.2% to 18% between 2009 and 2016, according to Global-Data Plc, a UK-based research agency.

The beer industry has seen various merger and acquisition in India which has concentrated market competition, further and further during the last five years. For instance, acquisitions such as US-based Molson Coors Brewing Company acquiring Mount Shivalik Breweries (Thunderbolt beer manufacturer) in 2015, AB In Bev acquisition of SAB Miller in 2016 and so forth.


It is observed that Indian beer market is facing multiple obstacles which have influenced its growth potential, such as licensing restrictions, high taxes and advertising bans and these could be reasons for low beer consumption per capita in the country as compared to other regions in Asia Pacific region.

The Southern and western regions in India were witnessed to dominate the country’s beer market in FY’2018 in terms of sales volume. One of the main reasons for their dominance was that, majority of the states in these regions do not have winter season and has either humid or summer season prevailing for most of the months in an year, which acts as another factor for increased beer consumption in these states.. On the other hand, north and east side states grabbed the remaining market during FY’2018.

Competition stage in the country’s beer segment was witnessed to be concentrated major 3 players in terms of sales volume in FY’2018. Companies compete on the basis of product variants product quality and distribution network, brand value and promotion strategies. Some of the major players operating within this segment include UB Group, Carlsberg and Anheuser-Busch InBev and other players include Molson Coors, Mohan Meakin, White Rhino, B9 Beverages Pvt Ltd, Arbor Brewing Company India, Gateway Brewing Company and others. Pricing, brand value as well as marketing strategies adopted by a particular company are considered as of high importance in order to reach a wider target audience in the country.

Over the forecasted period, India beer market will witness various acquisitions, entry of new players and brands, and tie-ups which will drive this market further towards growth. It is expected that the demand for premium beer will rise in the future with an increase in personal disposable income and higher living standards. It is also expected that most of the state governments will start to delink beer taxation from IMFL soon on the basis of alcohol content paving the way for rational growth in the market. Both in terms of revenues and sales volume, the market is expected to attain high growth over the forecast period FY’2018-FY’2023.

Revenue in the Beer segment amounts to US$12,393m in 2019. The market is expected to grow annually by 8.0% (CAGR 2019-2023).

In global comparison, most revenue is generated in United States (US$77,029m in 2019).

In relation to total population figures, per person revenues of US$9.05 are generated in 2019.

The average per capita consumption stands at 3.6 L in 2019.

Market leader Heineken-controlled United Breweries grew in double digits last year, ahead of the overall market. Both beer and Indian-made foreign liquor (IMFL) declined 3% in 2017. While India’s IMFL market recovered and grew 10% last year, the most since 2012, the beer category hasn’t seen a similar surge. A key reason was lower demand in two crucial states.

A year ago, West Bengal increased duty on beer to 45.5% from 30% in January and then reduced it to 42.7% in March after initial supply disruptions, leading to tipplers shifting from beer to lower-priced spirits. In Maharashtra, excise duty on beer was increased by 17% and the revised pricing structure was obtained only after mid-December 2017, leading to a shortage of beer as manufacturers cut back on supplies.

As India is a strong beer market with over 80% sales of strong beer, international players see a a huge opportunity for states to adapt taxation policies that are based on alcohol content and not absolute volume. India is not among the top 10 beer markets in the world, but is the second-largest consumer base globally.”

In India, the liquor market is regulated, with high levels of taxation. In many parts, the state government controls wholesale or retail distribution.Over the past two years, West Bengal, Chhattisgarh and Jharkhand have changed policies to allow liquor sales only through government owned corporations, similar to states such as Delhi, Rajasthan, Kerala and Tamil Nadu.

Heineken, owner of United Breweries, Anheuser-Busch InBev and Carlsberg, the world’s top three brewers that together control about 90% of India’s beer market, have been betting on premium brands to drive sales in the warm, tropical country with promising demographics and increasing affluence.

Mead – From bee to bottle

Mead is the new beer or wine for millenials. A look at the history, its production process and its growing importance.

Mead or honey wine is made by fermenting honey with water. Like beer, mead is sometimes flavored with fruits, spices, grains or hops. But it’s generally higher in alcohol than beer and more in line with grape wine – typically between eight and 20% ABV. Also like wine, mead is produced in a variety of sweetness levels, from bone dry to lusciously sweet and can be still or sparkling.

Within the world of mead, there are sub-group. For example, if mead is mixed with beer or brewed with hops and malt, it becomes a hybrid style closer in taste to beer known as braggot. This beverage, unlike its purely mead-made counterparts, can be produced in breweries. Mead with added fruit is known as melomel, while hydromel is a watered-down version consumed in Spain and France. Great Mead is mead that’s meant to age.

Honey wine occupies a somewhat precarious position between beer and wine. Legally, mead is produced in “wineries” and bottles are usually sold in wine shops. But, thanks to the presence of hops, which some brewers choose to add as a natural preservative, mead is often clumped into the craft beer category. But, the reality is that mead is in a category of its own much like cider or sake. A ubiquitous alcoholic beverage, everyone – ancient Greeks, Africans, and Chinese – all drank mead as far back as 3000 BCE. Mead holds particular importance in Norse mythology, especially in the legend of a fabled beverage with magical powers known as “Poetic Mead”. As the story goes, mythological gods created a man named Norseman Kvasir who was so wise he could answer any question. When he was eventually killed, his blood was mixed with honey, and whoever drank this honey-blood mead took on Kvasir’s power of intelligence. And it’s likely this myth that inspired Danish craft mead producer Dansk Mjod to make its Viking Blod Mead, which is flavoured and coloured red from hibiscus. Mead is frequently consumed in Eastern Europe and Russia. Pretty much any country that produced honey has a history of mead production and appreciation.

Outside of Europe, Mead has been and continues to be popular in Ethiopia, where it’s referred to as tej. Customarily a home-brewed beverage, tej is usually flavoured with powdered leaves of the gesho plant, an African shrub which imparts a slightly bitter flavor and preserves the drink, like hops do for beer.

While Ethiopians typically drink tej out of a bulbous glass container called a berele, nowadays in the US mead is usually served in wine glasses. Though sometimes the drink will come in an Old World drinking vessel like a mazer cup from Germany, which is also the name for the world’s largest mead competition. And, for serious history buffs, there’s always a mead horn. Mead is an ancient drink, thought by many to be the first fermented beverage. Mead is diluted honey that has been fermented. The earliest meads were likely accidental fermentations with wild yeasts, but this eventually developed into organised, intentional meadmaking.

But with the rise of beer and spirits, mead started falling out of fashion in the 1700s and never really made a worldwide comeback. The traditional wine industry has largely ignored the shift to tastes for sweeter beverages and/or more direct use of fruit, spice and other flavours. The craft beer industry on the other hand has embraced these changes. Meads with more alcohol, more body/viscosity and more sugar/acidity definitely have a lot more going on, and a glass of complex wine like a late harvest Riesling or Vidal Ice Wine.

There are almost as many kinds of mead as there are meadmakers. There are several general categories that meadmakers use to classify their products. Traditional meads are made from water, honey and yeast. They range from dry to semisweet. The driest are lacking in the characteristic honey sweetness, but they capture the true “essence” of the honey. The sweeter versions retain some of the sweetness of the honey without being syrupy or cloying. Bochets are made from caramelised honey which adds a layer of complexity, especially to sweet meads.

Sack meads are very sweet traditional meads, often aged for extended periods. They can have the character and complexity of a port or sherry, or the sweetness and fruitiness of a late harvest grape varietal. Melomels are meads made with fruit. Depending on the process and fruits used, these can be very fruity, aromatic and sweet, or dry with just a hint of fruit essence (or anywhere in between).

Metheglins are meads made with herbs and spices. Our word “medicine” likely descended from this term. The varieties in this category are almost limitless. Frequent spices used are clove, cinnamon, ginger, and other “wintery” spices. Juniper is another common additive, as are many herbs in the mint and sage group such as mint, lavender, rosemary, sage, etc. Pyment is a fermented blend of honey and grape juice – probably an ancestor of our grape wines. Pyment can be as diverse as the grapes and honeys used to produce it.

Hippocras is a spiced pyment, usually sweet.It is believed to have been popular among early Mediterranean peoples.

Cyser is mead made with apples, and can be as varied as the myriad apple varieties and the numerous British, French, and American interpretations of cider. The addition of honey allows more variation in sweetness, alcohol content, and shelf life.

Hydromel is a newer category used to classify any mead that is less than 10% alcohol (unless you speak French – then it’s just mead). Our Bee Brews are hydromels. These meads can be as varied as the other categories listed above, if not as common.

Braggot is mead made from malted grains and honey, often with hops as well. It can be thought of as a beer/mead hybrid, and probably predates all-grain beers in origin. Modern interpretations vary from sweet “barleywine-style” braggots, to light, hoppy brews.
Mead is experiencing a renaissance, both among commercial producers and homebrewers.
That growing interest has Jeff Herbert, owner of Superstition Meadery, the first of its kind in Arizona, calling mead “the smallest, but fastest growing sector of the U.S. alcohol business.” He sees it firsthand. Superstition made 300 gallons/year when it opened in 2012, and it’s on track to produce 20,000 gallons in 2017. “That number will more than double in 2018, and in 2019, we plan to produce 100,000 gallons of mead and hard cider,” he says.

“Mead is growing because it is amazing,” he says. “Mead is delicious, and the range of style traverses from dry to sweet, still to sparkling, from quaffable to the most complex beverage that will ever pass your lips.” In India Rohan Rehani, co-founder of Moonshine Meadery, tasted mead, he hated it. It was December 2014 and Rehani and his friend Nitin Vishwas were visiting someone in the US. During the trip, Rehani was curious to taste this alcoholic beverage made with fermented honey that had become the new cool drink in America. But he went beyond just trying it out – one day, Rehani and his friends attempted to brew their own batch of mead. Moonshine’s mead is made from multi-flower honey locally sourced from Maharashtra. “The taste of the mead changes completely depending on what honey we are using,” said Rehani. “Just like all grapes aren’t the same, all honey is not the same. The flavour differs depending on the nectar source [flowers]. There is lychee honey, ajwain honey, eucalyptus honey, jamun honey and each one has a slightly different taste which has a huge impact on the final taste.”

United Spirits focus on profitability while maintaining growth

While premium brands provide profitability, the popular brands provide volumes. USL is

focusing on finding the right balance given the tough conditions prevailing in the market place.

The USL Diageo combine is the biggest alcobev company in India and they are making a strong emphasis to grow from strength to strength. While the popular brands continue to grow it is the premium brands that bring in the profits.

United Spirits Ltd (USL) will continue with the popular segment consisting of mass or value brands like Bagpiper, Director’s Special and Haywards whiskies using franchises for that business in some states to focus more on premium brands. Given the tough conditions in some states other companies too follow a similar strategy. Around 59% of volumes still come from the popular segment and franchising is a part of United Spirits’ strategy of selective participation.

Franchising helps extract the best value from popular brands and liberate the company’s management as much as possible so that they can focus on the bigger potential profit pools of the future, which

are in the prestige and above segment, Kripalu said.

USL’s popular segment consists of mass or value brands like Bagpiper, Director’s Special and Haywards whiskies.

Diageo is a global leader in beverage alcohol with an outstanding collection of brands across spirits and beer. These brands include Johnnie Walker, Crown Royal, J&B, Buchanan’s and Windsor whiskies, Smirnoff, Ketel One and Cîroc vodkas, Captain Morgan rum, Baileys liqueur, Don Julio tequila, Tanqueray gin and Guinness beer.

Two policy developments during the year – demonetisation and the judicial ban on the sale of alcohol along national and state highways – adding to the introduction of prohibition in the State of Bihar, created a volatile and tough environment for alcobev companies, including ours – but, I believe we have outperformed competition in this challenging environment, said Mahendra Kumar Sharma, Chairman, in a letter to shareholders. We have also performed favourably compared to most other fastmoving consumer goods (FMCG) peer companies. We will continue to build on this momentum.

For the year, while overall net sales grew by a modest 4%, the Company improved gross margins by 156 bps to 42.9% and profit after tax grew 39%, both aided by improved productivity and operational

efficiencies. The above, coupled with stringent corporate governance and compliance norms, the Company has adopted and adhered to, have led to a further upgradation of our long-term credit

rating to AA which will enable it to access more economical sources of debt. It will help to deleverage the balance sheet and reduce the level of overall debt, including through the disposal of noncore assets,

to further improve financial performance by optimising on total debt and financing costs.

In the last three years since Diageo took a controlling interest in United Spirits, the journey has been to transform the Company into a world-class organisation that is known and recognised for its performance, compliance culture, ethical values and transparency, thereby gaining the trust and respect of all stakeholders and society at large. We have made fair progress in the pursuit and achievement of

that vision leading to being accepted and acknowledged as a valuable and integral part of the Diageo group, says Sharma. On our part, over the last few years we have aligned and strengthened our business

strategy, brand portfolio and investments, compliance standards, governance and financial/operational control mechanisms, talent development, environmental footprint and sustainability efforts and much more, to those of Diageo’s standards globally, to pursue greater integration with the parent, in true spirit of interdependence. We now identify and adhere to the Diageo ethos more closely than ever before, even while we build on the positive aspects of our legacy, including our understanding of the Indian market, consumer franchise of our brands and wellestablished distribution network.

No stone has been left unturned, and no effort spared to examine every brand, every assumption, every process or control and much more, in our quest to become the best performing, most trusted and respected consumer products Company in India.

Said Anand Kripalu, Managing Director and CEO, I am very pleased with our performance delivery in the year gone by and how we’ve held up against what can be described as the single-most challenging

year from a regulatory perspective. Our results are commendable seeing as they come in the face of a very subdued economic environment and several regulatory changes. Beginning with the surprise announcement of total prohibition in Bihar, coping with the aftermath of demonetisation and culminating in the Supreme Court banning the sale of alcohol near national and state highways! Timely

interventions, out-of-the-bottle thinking and employees rallying together to mitigate these risks as quickly and effectively as possible have helped us survive and grow in this tumultuous year.

On the other hand, our industry fundamentals remain promising as demographic factors, increasing aspirations and changing attitudes to alcohol continue to fuel growth. We have significantly increased the quantum of investments behind our focus brands during the year, communicating more creatively with consumers, and at scale. Our strategy of premiumising offerings, refreshing and renovating brands as well as innovating with new consumption occasions, led to strong, ahead-of-industry, growth of our

Prestige and above segment, which grew net sales 14% during the year. Our renovated brands, McDowell’s No. 1 whisky net sales grew 8%, Royal Challenge grew 16% and Signature grew by 29% in this year, gaining market share as well. The Scotch category also grew net sales 32%, driven by Johnnie Walker, Black Dog, Black & White and VAT 69.

To stay focussed on the most profitable parts of our business viz. Prestige and above, we created a fit-for-purpose business model to selectively participate in the Popular segment in certain states. In others, we have begun franchising our MK Sharma Two policy developments during the year – demonetisation and the judicial ban on the sale of alcohol along national and state highways – adding to the ntroduction

of prohibition in the State of Bihar, created a volatile and tough environment for alcobev companies, including ours – but, I believe we have in this challenging environment, 6 AMBROSIA • July 2017

Popular brands to local partners to improve operational and cost efficiencies.

At Diageo, standards are everything. Our high-quality standards are manifest in every product in our portfolio and our state-of-the-art Technical Centre is the custodian of our valued portfolio. Our new

Packaging Centre at Kumbalgudu will more fully serve our innovation agenda, going forward, Kripalu added.

We only do business the right way. We strengthened our compliance and governance norms this year with the introduction of the Diageo Know Your Business Partner Programme, a more thorough due diligence of our business partners, he pointed out to shareholders.

We also restructured our organisation to fit our strategic objectives and ensure that we respond quickly to customer and consumer needs, making it leaner, flatter and more agile; roles and spans are bigger; decision making is faster; and accountability sharper. We firmly believe that when consumed responsibly, alcohol can be part of a balanced lifestyle and play a positive role in social occasions and

celebration, he continued.

On the company social responsiblility programme, Kripalu said, “We champion responsible drinking and support road safety programmes all over India. This year we extended our partnerships to other corporates such as Essar Oil to create awareness and drive behaviour change through their network of 3,200+ petrol pumps, many of which are situated along national highways. Over the last few years, we have transformed and aligned ourselves more closely to the Diageo value system which has begun to

underpin our entire business value chain, as well as our relationships with all our stakeholders, including our employees and the community at large.

Road safety and anti-drink driving are central to our strategy to address alcohol harm and promote responsible consumption. Our signature ‘Diageo Road to Safety’ programme, now in its third year, is executed in partnership with state governments and reputed not-for-profit organisations. In February this year, we were proud recipients of the ‘National CSR Excellence Award 2017’ for this campaign.

The USL-DIAGEO – ROAD TO SAFETY programme, together with the Institute of Road Traffic Education (IRTE), covered new ground, reaching 50 new cities in 15 states and trained over 3,900

traffic officials in road safety capacitybuilding, along with 6,000 commercial vehicle drivers.

FY16 reached 2.8 million citizens through its network of Radio, TV and Digital. Till date, the campaign has garnered over 3 million pledges in support against drunken driving. Citizens were encouraged to always have a ‘Designated Driver’ and to ‘Never Drink & Drive’. Campaign ambassador and youth icon, Virat Kohli together with leading celebrities Chris Gayle, Karisma Kapoor and Gul Panag amplified the message of never drinking and driving.

DIAGEO-ESSAR OIL (EOL) – ROAD TO SAFETY PARTNERSHIP, a first-of-its kind CSR partnership was launched in February this year. This Road Safety campaign aimed at educating the

commercial vehicle drivers is being rolled out across 3,200 Essar Oil’s retail outlets on the state and national highways.

Moving forward, I see these values-led and value-creating relationships propelling our growth even more appreciably forward. We are part of something bigger, and we are certainly proud to have become an integral and valuable part of Diageo.

Strong market share gains achieved during the year as a result of renovation of key brands – McDowell No. 1 Whisky, core variant renovated in November 2015 grew by 8%. Signature has grown almost 29% and Royal Challenge net sales grew 16% post renovation.

Our brand portfolio took a major leap with pioneering innovations to power future growth. We launched Silk, another landmark in McDowell’s No. 1 brand building journey and the first Indian

whisky with honey flavour, and also introduced our premium Captain Morgan Original Rum to meet the evolving desires of rum connoisseurs.

Introduced gifting and personalisation at the point of purchase for some of our premium whisky brands for special occasions, whether it is weddings or festivals like Holi and Diwali. Consumers loved these

gift packs, as evident in the fact that they were happy to pay the premium for the beautiful packaging that they were proud to gift to friends, family and business associates alike.

Simi Bartender is a chatbot – a conversational interface that helps consumers with cocktail recipes. Launched during the year, this innovative digital experience offers bartending solutions, with over

2,000 DIY cocktail recipes, to enthusiastic consumers ready to play host at parties.

Posted strong 43.5% volume share in the categories in which we operate (including wine and flavoured spirits). P&A represents 41.13% in volume and 60% of the overall business (net sales).

We are now fully aligned to Diageo’s commercial capability standards with an overall ‘stable’ rating and best practice showcase in certain criteria. This is a significant improvement from the past year. These standards help benchmark selling capabilities across the world, including Customer Planning and Performance Management, Outlet Execution Standards, Rewards & Recognition and Commercial Scorecards.

Deployed a fit-for-purpose model to optimise our Popular brands business. In certain states such as Andhra Pradesh, Puducherry, Goa, Andaman and Nicobar and Kerala, we believe that other local parties are better advantaged to maximise value of our popular brands and have appointed franchisees for these brands through a fixed fee model.

This will enable us to focus on the biggest growth opportunities. Partnered with innovative start-up ‘HipBar’, a cloud-based app catering to drinks connoisseurs. Customers can use their smartphone to buy their favourite spirits bottle through the HipBar app, which can be redeemed

by portion in any partner restaurant or hotel across the country.

It is our constant endeavour to bring cost and operational efficiencies into the system through

sustainable initiatives across the value chain of our business. These include creation of an

integrated supply team to boost collaboration and faster decision-making, besides greater

focus on productivity and savings. These initiatives led to ` 200 crore in cost savings during

FY17 – the highest ever till date.

During the year under review, your Company has achieved a sales volume of over 90 million cases and this resulted in decline of 3.2% compared to prior period (previous year 93 million cases, excluding royalty / franchise markets). Net sales/income from operations of the Company’s brands grew 3.6% in the financial year ended March 31, 2017 and stood at ` 85,476 million net of duties and taxes (previous

year ` 82,482 million). Sales volume of the Company’s brands in the ‘Prestige and Above’ segment grew 7.7% in the financial year ended March 31, 2017 and stood at 37 million cases (previous year 34 million cases). Net sales of the ’Prestige and Above’ segment grew 13% and stood at ` 49,660 million net of duties and taxes (previous year ` 46,013 million). The ’Prestige and Above’ segment represents 41% of total sales volumes and 58% of total net sales with 4 basis points and 5 basis points improvement respectively compared to previous year.

After a lackluster out turn in 2016, economic activity is projected to pick up pace in 2017 and 2018,

especially in emerging market and developing economies. However, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications. The global economy remained on a subdued

growth path, estimated to growth at 3.1% in 2016 against 3.2% in 2015. With estimated growth of 6.3% in financial year (FY) 2016-17 (against 6.7% in the previous year), the emerging and developing Asian countries were the key contributors of the global growth, led by India and China.

Propelled by the central government’s demonetization reform, market interest rates and yields on

g-secs are expected to be lower in FY18 as compared to FY17, which is likely to provide a boost to the Indian economy. With fiscal gains resulting from demonetisation and implementation of GST also getting realized, India is likely to be the fastest growing major economy in the world during FY18. GDP is expected to grow to in the range of 6.75% to 7.50% against the

7.1% growth registered in FY17. (Source: Economic Survey 2016-17 dated Jan 17)

Driven by the rapid increase in the urban population,the Indian spirits is on a high. Further boosting the market growth is the increasing disposable income and growing preference for whiskies, coupled with changing demographics. With over half the country’s population (54%) above 25 years of age, and

the estimated median age of the country’s population pegged at 28 years, as of 2016, the growth metrics for the industry are quite favourable. A change in outlook towards social consumption of alcohol, improvement in life styles, increasing aspirations, growing prominence of ‘pub and cocktail culture’ in urban cities and emergence of novel Food & Beverage formats is further pushing demand for alcoholic beverages in the country. The per capita consumption of alcohol, however, was just above 2 litres of pure alcohol (lpa)/head in 2016. The Total Beverage Alcohol (TBA) market in India is pegged at ` 378347 millions, of this, Western style spirits accounts for over 52%,

The year gone by was challenging for the Alcobev industry. Industry growth was pulled down by several factors during the year under review, and as a result, liquor consumption remained by and large flat. Consumption of Whisky was estimated to grow at 1.15% for FY17 while Spirits remained flat. Bihar, the fourth largest state by population, went dry in April, impacting the overall growth for the year by ~1.5%. The supply in Punjab was disrupted for a month due to procedural technical issues. Significant rise in tax had put the burden of overall cost on states like Andhra Pradesh, Telangana, Karnataka and Maharashtra.

Demonetisation impacted businesses by knocking off about 15%-20% of sales in  November and December, impacting the overall year by another 1.5%. With many more police checks taking place, there has also been increased clampdown on drink-driving. The market has also been severely affected

by the Apex Court’s ruling banning liquor vendors within 500 metres of a state or national highway, which has caused  significant disruption as many license holders simply stopped buying stocks. Due to this, some believe that  up to 15% of retail outlets will be lost forever, although most expect

that over time this supply will be replaced by alternatives.

India is one of the largest markets for spirits globally. Approximately 6% of the global alcohol beverage growth is driven by our country. Going ahead, almost 11% of the global spirits growth is expected to come from India. Despite being a country with a population of about 1.3 bn, of which about 58% lies in the age group of 25 years or above, India’s per-capita consumption of alcoholic beverages stands at approximately 4 litres per annum, which is quite low compared to various other developing countries where per capita consumption of alcohol exceeds 10 litre per annum.

Due to rising income levels, the pace of growth of consumption in Tier-2/3/4 cities as well as rural areas could outpace that in urban cities, going forward. Moreover, with the rise in disposable income, consumers would tend to upgrade their preferences, resulting in higher demand for prestige, premium

and luxury segments.

The Alcobev industry in India is witnessing significant changes influenced by western culture; thus a strong trend towards premiumisation is clearly visible. For the industry as a whole, the premium and above segment is expected to grow at a CAGR of 14% over 2016-2021, whereas the prestige segment is estimated to grow at 12% over the same period. Following the industry footprints, your Company

is also strategically focusing on Prestige and above brands. The Company is constantly working on renovation and innovation of its brands. To emphasize more on the same, the Company has chosen purpose-led marketing platforms and occasion driven special packs.

In India, the alcohol industry works in a highly regulated environment under both central and state governments. Additionally, national laws and regulatory bodies, such as the Food Safety and Standards Authority of India (FSSAI), also significantly impact the Alcobev industry. A spate of recent

regulations has further tightened the regulatory controls on the industry. Some of the recent regulatory changes in the industry include – 1) Reduction in distance limit for liquor vendors to 220

meters from 500 meters in areas with population up to 20,000; 2) Exemption to hill states of Sikkim and Meghalaya; and 3) Permission to liquor shops whose licenses had not expired

by April 1, 2017 to continue until their permits expire or until September 30, 2017.

As a result, nearly a third of liquor outlets will be impacted and migration of these could take time. The resultant disruption will impact the revenues of liquor firms. This ruling will lead to short-term disruptions as liquor vendors relocate, although it is unlikely to significantly impact medium to long term growth prospects for the industry.

Under the GST regime, liquor is excluded from the GST net. Undenatured ethyl alcohol, which is a key ingredient for the spirits industry, has been kept out of GST. GST rate on molasses has increased by 10% to 18%, whereas the rate on new packaging materials has increased by 6% to 18%. The general tax on services has increased by 3% to 18%. As a result of this new regime, the alcobev manufacturers will not get input credit on all input taxes in the supply chain. This is likely to have an unfavourable impact on margins. The Company will continue to work with the central government to mitigate this impact, and will approach the state governments for appropriate price increases.

Despite the rising cost of ethanol, one of the major raw materials used by the industry, aggressive productivity led initiatives enabled the Company to save ` 2000 million in material costs during the year. This compared quite favourably with the ` 1400 million savings secured during FY16. Integration with the Diageo supply chain is also creating some avenues for better pricing efficiencies in the system, which is also expected to gain from the Government of India’s efforts to source ethanol from lowcost

alternative sources such as bio-waste and feedstock (wheat, straw, corn straw, rice straw, etc). Realisation of these efforts would help improve availability of ethanol and stabilize prices.


The Company’s portfolio includes brands such as McDowell’s No.1, Royal Challenge, Signature, and Antiquity, among others. Your Company also imports Smirnoff and Ciroc in India.

The is a subsidiary of Diageo plc – a global leader in beverage alcohol with an outstanding portfolio of brands across spirits, beer and wine categories. Pursuant to its acquisitions in 2013 and 2014, Diageo plc has a 54.8% shareholding in your Company, making India one of its largest markets.

The Company has 18 brands in its portfolio which sell more than a million cases every year, of which 4 brands sell more than 10 million cases each annually. The Company exports to over 37 countries across the globe.

With its 60 manufacturing facilities spread across states and union territories in Indian and also its presence through franchisee partners in other parts of countries, the Company not only ensures faster turnaround of products but also minimizes risks related to local states’ policy changes.

Similarly, strong distribution ensures continuous supplies to all key markets, as well as reach to all of the 81,000 retail outlets.

The Company has set out a strategic road map which includes its five strategic pillars to steer its future growth trajectory. These are: 1. Strengthen and accelerate core brands. Transformation of its key brands to win greater market share is a major agenda for the Company. The main beneficiaries of this approach are Signature, McDowells, Royal Challenge, Black Dog among others. From renovating brands, diversification within the geographies and enhancing the customer reach, your Company has been

making significant strides in its journey of transformation. The Company has upgraded three of its key brands viz. (1) McDowell’s No. 1 whiskey, (2) Royal Challenge whiskey and (3) Signature whiskey and the Company’s innovation pipeline during the year has created new offering(s) in the segment with the launch of McDowell’s No.1 “Silk”, Royal Challenge “Bolt” and a new variant of Captain Morgan,

which will help attract new consumers and drive future growth. It has been the Company’s endeavour to strengthen and accelerate its core brands through continued investment, to win across each of the 3 India’s – Affluent, Middle and Aspiring. Renovation and rejuvenation of the existing brands is another key aspect of this strategy, which also involves innovation and introduction of new to market brands.

Evolve route to consumer; The Company’s focus in this area is on leveraging outlet as a media to build brand imagery in the luxury, premium core and prestige core categories, especially keeping in view

the prohibition on liquor advertising in India. Consumerwinning activations are used to create demand, with trade emerging as the ambassador for the Company’s business in these categories. In the popular category, the Company leverages scale to promote the route to consumer. The thrust on this front is on creation of a `sell-out’ culture, with 20% of the country’s alcobev stores being converted

into `Perfect Stores’.

3. Drive out costs to invest in growth: To mitigate pricing shortfall and improve margins,

the Company continues to strengthen its productivity programme, which was launched in

FY15. Procurement efficiencies are continuously boosted and network optimization is also enabled to

enhance productivity.

4. Corporate citizenship: As a responsible corporate citizen, the Company continues to influence public policy through innovative initiatives, along with programme activations to ensure road safety

and empower women.

5. Creating a future-ready organisation: To create a fit-for-purpose organization, the Company is

going in for right sizing, while bringing in new capabilities and creating a performance-led culture. Targeted improvement interventions to measure employee engagement are also undertaken on a regular basis. Having established a practice of following highest compliance and governance standards, the Company has also played leadership role in shaping the regulatory landscape in the industry. Your Company has added new capabilities in all business aspects, and has improved systems and key

processes thereby right sizing the Company for future growth.

Operating model changes through Franchising During the year under review, in line with the Company’s approach to selectively participate in the popular segment, the Company has entered into agreements to franchise selected, mainly Popular segment brands in Andhra Pradesh, Goa and has moved to a complete franchise agreement for all your Company brands in Kerala effective 1 January 2017.

The Company has entered into additional agreements to franchise popular segment brands in Union Territory of Puducherry, Union Territory of Andaman and Nicobar, Chandigarh and Rajasthan effective April 1, 2017, in Madhya Pradesh, Himachal Pradesh, Jammu and Kashmir and Delhi effective 1 May 2017 and in Sikkim and Uttar Pradesh effective from June 1, 2017.

The individual agreements are for between 3 to 5 years. The franchisees will be responsible for manufacturing and distribution of the franchised brands in their respective states on payment of an agreed royalty fee which will be accounted as part of net sales.

These changes will allow your Company to further improve it’s operating model and focus the business on the biggest profitable growth opportunities. Volume and net sales for these franchised brands accounted for 10.3 million cases and approximately ` 6,400 million net sales in the full year ended March 31, 2017.

The Company’s growth in the past few years has been encouraging and was supported by a strategic revenue mix, up gradation and strengthening of brands. With the Diageo brand portfolio integration, your Company is today a market leader by volume and value, and it also holds a place of pride

in the Indian alcobev industry, with an outstanding portfolio of reputed brands across key categories and multiple price points.

The Company has successfully improved both top line and operating profit in a highly regulated and competitive environment, while further strengthening its core brands to leadership position across all segments. The company’s performance in the popular segment reflects its prioritized geographical participation strategy, while its double digit net sales growth in the “Prestige and Above” segment clearly endorses the success of its premiumisation strategy.

During the year, the Company has achieved a sales volume of 90mn cases and net sales of ` 85,480 million in the financial year ended March 31, 2017. Overall volume declined 3% and net sales were up 4% impacted primarily by Bihar prohibition and one off impact of operating model changes. Excluding

the one-off impact volumes were up 1% with net sales up 8% despite a subdued economic environment mainly impacted by demonetisation and the run up to the highway ban.

The Prestige & Above segment represents 41% of total volumes and 58% of total net sales, up 4 ppts and 5 ppts respectively compared to last year. The Prestige and Above segment net sales were up 13% with 5ppts positive price/mix. Positive price/mix was driven by selective price increases in certain states and continued focus on premiumisation and brand renovation in the segment. Signature volume grew by 26% and grew net sales by 29% supported by successful renovation. McDowell’s No 1. whisky variants (excluding Platinum) volume grew by 7% and net sales grew by 8%.Royal Challenge volume grew by 15% and net sales grew by 16%. The scotch portfolio in the premium and luxury segment grew volume by 29% and net sales by 32% driven mainly by Johnnie Walker, Black Dog,

Black & White and VAT 69.

The Popular segment represents 59% of total volumes and 42% of total net sales, down 4ppts and 5ppts respectively compared to last year. The total Popular segment witnessed a decline of 10% in volumes and 9% in revenue during the year, impacted by Bihar prohibition and one off impact of

operating model changes. Excluding the Bihar prohibition and one off impact of the operating model changes, the popular segment declined volume 3% and net sales 2% in the full year. Priority states volume was flat and net sales grew 1% in the full year driven by Hayward’s, Bagpiper and Director’s


During the year the company utilized its cash from operations to repay its loans which has led to a reduction in net debt. This reduction in debt value together with renegotiation of borrowings and favourable mix of debt instruments reduced the total interest cost in the full year. Significant improvement in your Company’s overall financial flexibility, corporate governance and compliance framework has led to further improvement in our credit rating. During the year, ICRA Limited

upgraded the Long Term Rating from “A+” to “AA” with positive outlook, while the Short Term Rating was reaffirmed at “A1+” which is the highest rating. These improved ratings will enable the Company to access more economical sources of debt leading to lower interest cost and increased shareholder value.

The Company is the market leader in terms of value (with a market share of 44%) and the market dynamics are highly attractive, given the foray of global players in the Indian market, and a visible shift to premiumisation, as well as the shift to the franchisee model in some states. The Company enjoys a strong portfolio of brands (supported further by Diageo’s brands), and a focused strategy towards profitability by new management could lead to meaningful gains on the margin front from the current levels. Better pricing, strong cost optimization focus and a more rational competitive landscape (focus on profits vs volume) should lead to an overall higher industry profit pool. Strategic initiatives such as moving selectively to asset light/franchisee model and monetizing non-core assets would further help boost medium-term returns. GST-related concerns, however, will likely continue to weigh on the stock

performance over the short term. (Source: JP Morgan’s Report dated 03.04.17)

While Diageo has embarked on the right path to growth and profitability, an improved political and business environment, with a global recovery could see the company grow from strength to strength.

Total US Beverage Alcohol Consumption Drops by 3.8m Nine-Liter Cases in 2016

Beer, cider and mixed drinks drive decline, while wine and spirits post growth

Released today, the IWSR US Beverage Alcohol Review (US BAR) provides a complete picture of annual volume trends and underlying drivers in the US market. Results from 2016 data show a fast-evolving product marketplace where lower-priced brands struggle to capture consumer attention. The term ‘category blur’, which refers to consumers drinking products across all categories instead of just sticking to one type of product, has become more prevalent and made it difficult for marketers to predict – or rely on – a loyal customer.

Total beverage alcohol consumption in the US lost 3.5m nine-liter cases in 2016 to end the year with 3.39bn nine-liter cases. The segments in decline – beer, cider and mixed drinks (FABs, long drinks and pre-mixed cocktails) – posted a combined loss of 14m nine-liter cases, a total that was unable to be offset by the addition of 10.4m nine-liter cases from spirits and wine. In total, on-premise sales volumes decreased slightly last year, bringing share of beverage alcohol consumption down as more consumers chose to drink at home. Off-premise sales picked up last year, resulting in an increased share of the market overall.

Distilled spirits ended the year up by 2.6% at 220.8m nine-liter cases and, as a result, gained 0.2% share of total beverage alcohol. The wine industry increased for its 22nd consecutive year to end last year with a total of 358.3m nine-liter cases. The beer industry modestly decreased -0.2% to 241.3m hectoliters (hl) in 2016. The overall mixed drinks category decreased 3.2% in 2016 over the prior year, falling to 101.6m nine-liter cases. The cider category skyrocketed the past three years to reach an all-time high of 2.6m hl in 2015, only to fall by -15.1% last year to end 2016 with 2.2m hl.

Widely seen as the most accurate source of beverage alcohol consumption trends, the IWSR does however see a return to growth for total US beverage alcohol, with consumption forecasts to increase starting in 2018 and reaching a compound annual growth rate (CAGR) of 0.2% by 2021.

Key Category Insights

Whisky: Bourbon increased 6.4% last year to 15.9m nine-liter cases. Imported whisky grew 3.4% in 2016. Irish whiskey increased 17.6%, the highest rate in over a decade. Canadian whisky grew by 2.4%, driven by Crown Royal and Fireball. Scotch posted the lowest growth rate among all imported whisky categories with an increase of 0.5%.

Gin: The gin category finally made progress after consecutive years of decline, advancing by 1%. This was achieved from performance in the premium-and-above segments in addition to high-end imports.

Vodka: The vodka category grew 2.3% to 74.8m nine-liter cases, driven by domestic brands like Tito’s and New Amsterdam.

Rum: The rum category posted a decline of -1.2% as consumer interest has shifted to whisky and tequila.

Tequila: Tequila sales grew 7.4% in 2016, reaching an all-time high of 16.3m cases and achieving a 7.5% share of overall spirits.

Brandy/Cognac: The domestic brandy category (+4.1%) is being revitalized through high-quality offerings from small producers. Cognac increased 18.8% in 2016, with Hennessy standing out as the star performer.

Wine: Still wine increased 1.1% in 2016 on the strength of premium-and-above varietals such as pinot noir, rose, cabernet sauvignon, red blends and sauvignon blanc. Sparkling wine achieved one of its best performances in 2016 (+7.2%). Wines priced at or above $10.00 to experience the most growth in 2016 (+7.2%).

Beer: The current trend of premiumization and drinking less but better does not translate into volume gains for the beer category. The domestic beer category was down -1.5% in total. Removing craft volumes results in domestic beer down -2.8%. To put that loss into perspective, a decline of -2.7% in the domestic beer subcategory is equal to 4.9m hl. A volume loss of that magnitude is equivalent to one of the largest domestic craft brewers closing its doors. The imported beer segment increased by 6%, primarily led by Mexican imports.

Prepared Cocktails/Mixed Drinks: The mixed drinks category is predominately made up of malt-based FABs (flavored alcoholic beverages) which hold a 90.3% share of the category, with the remaining 9.7% attributed to pre-mixed cocktails and long drinks.