ME PROJECT REPORT | |
ON
INDIAN LIQUOR INDUSTRY

Table of Contents

1. INTRODUCTION…………………………………………………………………….4 2. INDUSTRY OVERVIEW…………………………………………………………..5 3. EVOLUTION OF MARKET STRUCTURE…………………………………..8 4. MARKET PLAYERS AND STRATEGIES…………………………………….10 5. NATURE OF COMPETITION……………………………………………………16 6. ENTRY BARRIERS FOR POTENTIAL ENTRANTS…………………….19 7. CONCLUSION………………………………………………………………………… 21

LIQUOR INDUSTRY IN INDIA
INTRODUCTION
The Indian alcoholic beverages market is gradually opening up as quantitative restrictions are being lifted, import duties are being lowered and domestic regulations are being simplified. These developments are attracting the attention of foreign players, who are faced with a slowdown in developed markets. According to some recent reports, by 2005, the total supply of liquor in the world will be close to 282 hl but consumption will be only about 198 hl. In such a scenario, India would be an attractive market for international players.
An estimated 10 million people consume alcohol in India, out of a population of about 1.2 billion. The liquor industry in India is highly government regulated in terms of constraints on manufacturing, storage as well as distribution. The industry faces threat of prohibition in several states, high taxes, restrictions on advertising, restrictions on inter-state movement, etc. However, the deep-rooted social conditioning against alcohol consumption is gradually starting to change. Consumer attitudes are relaxing as people are exposed to the Western lifestyle through the media and overseas travel. The per capita consumption of liquor in India averages 0.2 liters per annum. It has remained constant throughout the 1990s, while the consumption of beer has risen steadily since 1988 to about 0.8 litres per person per annum.
There are two major market segments for spirits in India – branded and unbranded. Total branded sales are about 70 million cases (one case of 12 bottles of 750 ml each), while ‘country liquor’ (unbranded, low-priced alcohol) sales are about 200 cases. The branded segment has grown at around 6% annually for the past three years.

INDUSTRY OVERVIEW

| * Indian Made Foreign Liquor (IMFL) | * Negative perceptions about alcoholic beverages widely prevalent * This is a ‘regulated’ industry - movement, prices of intermediate goods (molasses, alcohol) tightly controlled - state governments exert considerable influence * Yet, this is a well developed - Rs 8,200 crores (US $ 1907 million) - industry in India * Major players in the alcoholic beverages market - United Breweries (UB) Group( Bangalore), Shaw Wallace (Calcutta), Jagatjit Industries (Kapurthala, Punjab), Globus Spirits Ltd (Haryana) * Per capita beer consumption in India - 0.5 liters; as against 20 liters in China, 100 liters each in USA & Germany, annually |
Investment Rationale
Inherent Potential, Deregulation, western cultural influence and high entry barriers has helped the industry in notching up higher sales growth. Alcohol sale is driven by the high GDP growth and more people entering the drinking club with newly obtained prosperity or from up trading from the existing brand.

Inherent Potential
Since liberalization, the economy has been growing at steady pace with per capita income rising to INR 23,222 in 2005 from INR 6,012 in 1991.
Shift from country liquor to IMFL is expected with rising per capita income and limiting the sale of country liquor by states due to hygiene factor.
Industry has one of the lowest per capita consumption of both Liquor and Beer and also since the margins are amongst the lowest. BEER : MARKET Market Size * A 70 million cases market * Market growing at 10-12 % per annum * South and west zones account for bulk (> 75 %) of this market * Major beer consuming centers - Maharashtra (Mumbai) * Karnataka (Bangalore); Tamil Nadu (Chennai) | Industry Structure * Around 40 units in organized sector, mostly regional players * 4 large breweries have 84% of the market * Major beer brands (manufacturers) - King Fisher, Kalyani Black Label (UB Group), Golden Eagle (Mohan Meakins), Haywards (Shaw Wallace), London Pilsner (Associated Breweries and Distilleries) * Foreign brands - Stroh’s, Fosters * Licensing required except for smaller units employing under 50 persons or not using powerDuties * Import duty on beer - 100 % basic; 10 % surcharge; SAD : 4 % * Sales taxes - 45%, 5% cess (State subject). | |
BEER MARKET: FEATURES

Market Characteristics * Beer packed in 650,750 & 1000 ml glass bottles; usage of (330 ml) cans minimal * Preference in the Indian market for strong beer * Promotions and sponsorships (sports, musical events) to promote brands | Trade * States’ prohibition policies govern trade sales for beer * Multi layer trade channel structure * Beer sold through the same outlets as IMFL * Institutional sales of beer to star hotels, large restaurants, bars/ pubs. | |
Regulations
* Subject to licensing under Industrial (Development and Regulation) Act, 1956 * Cap on licensed capacity; special license for expansion * Beer policy; announced in 1994 to augment industry growth * Plethora of duties and taxes from bottling to sales stage; varying from state to state.

LIQUOR: MARKET Market Size * Market : 58 million cases * Past growth 15 % CAGR per annum * Brown spirits - particularly whisky, rum & brandy account for over 75 % of this market * South and North share 60% of market | Industry Structure * Industry in the organized sector - an industrial license is required to start manufacturing * Major brands (manufacturers) : Signature, Blue Riband (UB Group), Aristocrat (Jagatjit Industries), Smirnoff, Gilbeys Green Label, Malibu, Archer’s Peach Schnapps(International Distilleries India), Passport (Seagrams), VAT 69, Black & White, Black Dog (United Distillers India) |
LIQUOR MARKET: FEATURES

Market
Characteristics | * Preference for brown spirits (molasses flavor) in Indian market * Liquor packed in 180, 375, 500, 750 and 1000 ML bottles - glass and plastic bottles. 180 ML and 750 ML are fast moving * Guala caps on bottles to prevent bootlegging * Brand building very important * Yet avenues limited - advertising of liquor banned in most media * Promotions, sponsorships, surrogate advertising (sometimes) done to build brands | Trade | * Open market : Maharashtra, J&K, Goa, Orissa * Auction market : Uttar Pradesh, Rajasthan, Madhya Pradesh, Bihar, Punjab, Chandigarh * Government Controlled : Tamil Nadu, Karnataka, Delhi, Kerala * Prohibition States : Gujarat, Manipur, Mizoram, Nagaland * There are over 22000 liquor retail outlets spread across the country | Regulations | * Movement of IMFL products regulated across states * Entire process of manufacturing to distribution and sales attracts taxes a plenty. | Duties & Taxes | Sales tax (ad valorem), Bottling Fee, Liter Fee, Vend Fee, Gallonage Fee, Privilege Fee, Import/ export Pass duty etc. are some of them. |
EVOULUTION OF MARKET STRUCTURE
UB Group: Rise to monopoly
The UB Group was founded by a Scotsman, Thomas Leishman in 1857. The Group took its initial lessons in manufacturing beer from South Indian based British breweries. At the age of 29, Vittal Mallya was elected as the company's first Indian director in 1947. After a year, he replaced R G N Price as the chairman of the company.
In 1951, United Breweries Limited added liquor to its product cabinet when McDowells became its first subsidiary. Under the dynamic guidance of Vittal Mallya, the Company became the first to manufacture Indian substitutes of foreign liquor. This gave rise to a new term – IMFL (Indian Made Foreign Liquor). McDowell has since then been the undisputed market leader and one of the largest and fastest moving consumer goods companies in the country. Vittal Mallya continued to pursue opportunities in the Alcoholic Beverages business.
It was evident that UB group was a monopoly power in the Indian liquor industry. Radico Khaitan and Mohan Meakin (Beer Market) were the only competitors striving to fight the monopoly that UB group enjoyed in the market. United Breweries made its initial impact by manufacturing bulk beer for the British troops, which was transported in huge barrels or "Hogsheads". Kingfisher, the Group's most visible and profitable brand, made a modest entry in the sixties. During the 1950's and 60's, the company expanded greatly by acquiring other breweries. First was the addition of McDowell as one of the Group subsidiaries, a move which helped United Breweries to extend its portfolio to wines and spirits business.
Sales of the United Spirits Ltd. exceeded 60 million cases during the fiscal year making the Group the third largest manufacturer of Spirits products in the world. In addition, USL is one of only three in the world to own seven millionaire brands and at least five brands rated by Drinks International, UK, to be amongst the ten fastest growing brands in the world in their respective categories. The market share of the Spirits Division in India is currently 60% and exports to the Middle East, Africa and Asian countries are growing rapidly.

The UB Group’s Brewing Enity - called United Breweries Limited (UBL) - has also assumed undisputed market leadership with a national market share in excess of 50%. Through a process of aggressive acquisition and market penetration, The UB Group today controls 60% of the total manufacturing capacity for Beer in India. The flagship brand, Kingfisher is now sold in over 52 countries worldwide having received many accolades for its quality.

With plans to becoming a global player United Spirits Ltd. (USL),the flagship of the UB group, purchased the Scottish distiller Whyte & Mackay for £595 million (Rs. 4,800 crore)[1]. This would bring the brands of W&M like The Dalmore, Isle of Jura, Glayva, Fettercairn, Vladivar vodka and Whyte & Mackay scotch under its portfolio.

The reasons for the monopoly power that UB group had were

* Since it was the first company to produce IMFL (Indian Made Foreign Liquor), it had a major advantage over other potential players * It also had its control over the suppliers from outside because of its foreign origin. * The company was also able to fix its prices in the market because of its clout both in the consumer market and the supplier market * UB group, because of its cash rich nature, could also acquire many companies over the years thus strengthening its power in the market. * It also enjoys its control over major part of liquor distribution in the country. * Due to government regulations, other players find it very difficult to enter the market. * Restrictions in advertising are also another issue that competitors face.
Radico Khaitan: Fighting to Lead
Radico Khaitan is one of India's oldest and largest liquor manufacturers, formerly known as Rampur Distillery which was established in 1943. Radico Khaitan has brands that straddle almost every market segment - whisky, rum, brandy, vodka & gin - and price category. Although it was one of the oldest distilleries to be setup in the country, UB group, due to its undisputed power in IMFL brands continued to be the leader in the market over the years. Diageo: Radico JV | Diageo, the world's leading premium Drinks Company with iconic brands such as Johnnie Walker and Smirnoff in its portfolio, and Radico Khaitan Ltd, the second largest drinks company in India have reached an agreement to form a 50:50 joint venture to exploit the large and developing Indian made foreign liquor (IMFL) segment. |
Radico Khaitan Ltd today has four millionaire brands in its portfolio. Radico's flagship brand, 8 PM Whisky, launched in 1999, was a runaway success. In the first year alone, it sold one million cases - a record for any Indian or foreign brand operating in India. This also made it the first brand in the liquor industry to make it to the Limca Book of Records. The other millionaire brands are Contessa rum, Old Admiral brandy and Magic Moments Vodka. Magic Moments Vodka has again been the proud recipient of Gold Medal at Monde Selection 2010. Today Radico Khaitan has brands that straddle every market segment and price category. Our fine blends, distinctive packaging, consistent quality, and superior value have resonated with customers.
Present State of the Industry
Presently, with the rise of players like Jagatjit, Globus, Tilak nagar industries and thousands of other players, the market is moving towards monopolistic competition. But, the majority of the market share (60%) is still captured by the UB group giving it a monopolistic power in the market.

MARKET PLAYERS AND STRATEGIES

MAJOR PLAYERS:
United Spirits Limited (Part of UB Group)
United Spirits Limited (USL) began its story in the year 1999 as McDowell Sprits Limited. It is the company engaging in manufacturing of beverages. The Company operates primarily in the Indian Made Foreign Liquor (IMFL) space with clearly chalked out plans for the Wine and Bottled In Origin (BIO) sectors. USL is to manufacture, purchase and sell Indian made foreign liquor including brand franchise.
The Group's products include beer, wine, country liquor, Indian made foreign liquor and spirits. Its plants are located at Kerala, Andhra Pradesh, Goa, Bihar, Karnataka, Uttar Pradesh, Rajasthan, West Bengal, Madhya Pradesh, Maharashtra and Pondicherry. Some of the brand names include Romanov, Signature, Bagpiper, Red Riband Vodka, Blue Riband Gin, Black Dog Whisky, Single Malt Whisky, Caesar Brandy, Old Cask Rum, Celebration XXX Rum and Bosca Wine. Its wide range of products that it offers is the biggest advantage it has over other players in leading the competition.

Major Strategies and Developments * Acquisitions: During the year 2002, the McDowell Alcobev becomes the wholly owned subsidiary of the company. In the same period, the company made alliances with US, Australia and French Cos. for bulk wine import. * Acquisitions: Phipson Distilley becomes a wholly owned subsidiary of the company and also * Acquisitions:The company acquired 85% equity stake in Truimph Distilleries & Vinters Pvt Ltd, subsequently, the Truimph Distilleries & Vinters becomes a subsidiary of USL during the year 2002 itself. * Acquisitions: The Company acquired the Indian and Middle East businesses of Gilbeys from UDV through its ultimate subsidiary Triumph Distillers & Vintners Private Limited in December of the year 2002. Gilbey's Green Label is a popular brand of whisky in the regular segment with sales of over 2 million cases. It was seen as a useful addition to your Company's portfolio brands as it enjoyed certain price advantages in the whisky category. * Acquisitions: During that year, McDowell International Brands Limited became a wholly owned subsidiary * Product Differentiation: USL had rolled out its new Whisky brand, 'Derby Special Whisky' in Andhra Pradesh Market in the period of 2003. Company has gone live with SAP R/3 at all locations in South India during the year 2003 along with the reorganization. * Expansion: The company forged alliance with New Zealand Company called Independent Liquor to pursue an aggressive growth strategy in the ready-to-drink segment. During the year 2003, McDowell Alcobev, a subsidiary of the company made open offer to acquire 25% stake in Intertia Industries. * Product Diffrentitiation : The Company unleashed new Vodka as part of its product portfolio. USL launched the Old Cask Rum, in the Karnataka market during the period of 2004. * Product Differentiation: In the same year of 2004, the company had unveils the Signature, a new and costly item in product line at Tamil Nadu market. * Acquisitions: Phipson Distillery Limited, United Spirits Limited, Herbertsons Limited, Triumph Distillers & Vintners Private Limited, Baramati Grape Industries Limited, United Distillers India Limited, McDowell International Brands Limited and Shaw Wallace Distilleries Limited were amalgamated with the Company in 2005

United Breweries (Part of UB group)
The UB Group was rooted the flagship company, United Breweries Limited, (UBL) in 13th May of the year 1999 as UB Infrastructure Projects Limited and as a public limited company at Karnataka to carry out the business of infrastructure facilities and other allied activities. The erstwhile UBL was the holding company of the company and in terms of the Scheme of Arrangement, the brewing business carried on by erstwhile UBL in its various undertakings and/or units and administrative properties relating to or necessary for the aforesaid units are transferred to and now vest in the Company. UBL also referred to as the Beer Division of the UB Group.
The Beer business of the company has gone on to become the undisputed 'king' in the Indian beer market. UBL boasts an impressive spread of own and contract manufacturing facilities throughout the Country. Quality Management Systems laid out along the lines of ISO 9000 are strictly adhered to, controlling quality at every stage of production, from raw materials to the end product of the company. Millennium Alcobev Pvt Ltd., (MABL), is the Joint Venture Company in which UB along with its subsidiary and Scottish & Newcastle of the UK have equal stake of 50%. UBL's flagship brand 'Kingfisher' has achieved an international recognition consistently, and has won many awards in International Beer Festivals. Kingfisher Premium Lager beer is currently available in 52 countries outside India and leads the way amongst Indian beers in the International market.
Major Strategies and Developments * Promotion: During the year 2004, the company had joined Reebok to market souvenirs and memorabilia, signed bottling agreements in Thailand, Lanka and Pakistan. Also in the same year of 2004, UBL had inked a manufacturing and distribution pact with Independent Liquor of New Zealand to take its flagship beer Kingfisher Premium Lager Down Under. * Promotion: The Company won a number of awards at the Big Bang Awards at Bangalore and AAA of I Awards at Mumbai during the year 2004-05 and also in the same year entered into definitive agreement for acquisition of the demerged brewing entity of Karnataka Breweries & Distilleries Limited, which had augmented further control over capacities in Karnataka, one of the most Profitable markets in India. * Acquisition: The Company had acquired Chhabria's stake in Herbertsons during the year 2005 and also joined hands with Punjab Government. * Technology: During the same year UBL had also implemented 'NAVISION' an ERP package from Microsoft Business Solutions, which has also strengthened the internal control processes. The acquisition of brewery business of KBDL in Karnataka was completed, as a wholly owned subsidiary of the company and, which has now been amalgamated with company effective from 1st April of the year 2006. * Product Differentiation: In the year 2006-07, the company had launched its new range of offerings across the country. Kingfisher Strong 330ml Can was launched in Goa, Pondicherry, West Bengal and Rajasthan markets, and, Kingfisher Strong 330ml pint bottle was also launched in Goa. The 500ml King Can (Kingfisher Strong) was successfully launched in Mumbai, Maharashtra, Karnataka & Pondicherry. The Company also launched an exciting Multi Can pack to offer consumers a convenient take home pack. UBL had launched two new products in the year 2007-08, as Kingfisher Draught 500 ml can in the key markets of Maharashtra and Karnataka and Kingfisher - Non Alcoholic Beer in the alcohol prohibited markets. Innovative promotions continue in the Company's brand building effort, * Promotion: UBL had partnered with NDTV in the same period of 2007-08 to launch the NDTV Good times channel to reinforce the Lifestyle platform and leverage competitive advantage
Globus Spirits
Globus Spirits Ltd is one of the leading players in the Alcohol industry in North India. The company is engaged in the business of manufacture, marketing and sale of Industrial Alcohol comprising Rectified Spirit and Extra-Neutral Alcohol, Country Liquor, and Indian Made Foreign Liquor (IMFL). The company has two distilleries, one at Alwar in Rajasthan and the other at Panipat in Haryana. The Company has a brand portfolio of their own in the country liquor segment, such as Rana, Rajasthan No 1, Ghoomar, Samalkha No 1, Samalkha ki Saunfi; and in IMFL segment, such as White Lace Gin, White Lace Vodka, Samurai Gold Extra Rich Blend Whisky, Samurai Premium Whisky, 20-20 Premium Whisky, GR 8 Times Whisky and Hannibal Legendry Rum. They also cater to the Indian brands in the IMFL segment, such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No 1 Brandy and Officer's Choice XXX Rum. Major Strategies and Developments * Expansion: During the year 1994-95, the company purchased 18 acres of land at Alwar, in Rajasthan for setting up a Distillery unit for manufacturing 40,000 Bulk Litres of Rectified Spirit and 20,000 Bulk Litres of Extra Neutral Alcohol per day. * Expansion and Partnerships: During the year 1995-96, the company commissioned the second distillery unit at Alwar in Rajasthan. Also, they entered into an agreement with International Distilleries (India) Ltd, a subsidiary of International Distillers and Ventures, UK, to bottle IMFL products. * Expansion: During the year 1998-99, the company started production of IMFL at their Behror unit under the brand name of Rajputana. In August 1999, they commenced bottling of IMFL at Behror Unit and in December 1999, they commissioned Country Liquor at Samalkha Unit. * Product Diffrentiation: In 2002, the company entered into an agreement with Hi-Life Impex Pvt Ltd (Hi-Life) for use of Trademarks in respect of Ready to Drink Beverages (RTDB) and manufactures the same under technical know-how from Hi-Life and in September 2003, they started commercial production of Ready to Drink Beverages. In April 2005, they commenced their operations at Distillation Plant at Samalkha Unit. * Expansion: The company is in the process of installation of two Multi-Pressure Distillation Plants for the production of Extra Neutral Alcohol, at the rate of 35,000 liters per day from grains and molasses, one at Samalkha in Haryana and the other at Behror in Rajasthan. Also, they are in the process of expanding the capacity of Total Spirit-based Starch Liquefaction section from 60 kiloliters everyday to 75 kiloliters everyday. * Technological Developments: The company planned for modernization of existing facilities and intends to expand their capacities from 288 lakh bulk litres per annum to 498 lakh bulk litres per annum and to set up captive power plant for cost reductions.
Radico Khaitan
India's fastest growing liquor manufacturer, Radico Khaitan Limited (Radico) was incorporated on 21st July 1983 as Rampur Distillery. The Company is commited with manufacture and sale of liquors in India and internationally.
Radico Khaitan spans in the areas of whisky, rum, brandy, vodka and gin under the brands include 8PM Royale, 8PM Bermuda XXX, Contessa, Old Admiral VSOP, Black Cat and Whitefield. The Company's plants are located at Uttar Pradesh, Rajasthan Andhra Pradesh, Uttaranchal and Haryana. Major Strategies and Developments * Merger: The Company was merged with Abhishek Cement Ltd (ACL) with effective from 1st January of the year 1997. The merged company renamed as Radico Khaitan Ltd. * Product Diffrentiation: Radico's flagship brand, 8 PM Whisky was launched in the year 1999. In the first year alone, it sold one million cases - a record for any Indian or foreign brand operating in India. This also made it the first brand in the liquor industry to make it to the Limca Book of Records. * Product Diffrentiation: The Old Admiral VSOP, brandy was launched in the state of Kerala during the year 2002 and also introduced in Andhra Pradesh markets. * Market Expansion: During the same year 2004, the company made its entry into Tamil Nadu by the way of its brands, Contessa Rum, Old Admiral Brandy and 8 PM Select whisky, launch in the Tamil Nadu market through Golden Midas Distilleries, who is bottling partner of the company in Tamil Nadu. * Expansion and Technology: A green field bottling plant of the company was set up at Bajpur Industrial area, Uttaranchal for bottling of 600000 cases during the year 2004-05. It had set up a fully automatic 750 ml kidney shaped PET bottle manufacturing plant in Uttaranchal and also added additional capacity for molasses at Rampur. * Global Expansion: The Company had inked overseas Joint Venture (JV) agreement in UK and Western Africa in May of the year 2006. * Joint Venture and Product Differentiation: Diageo, the world's largest drinks company and Radico made an equal JV in Indian sprits market during August of the same year 2006. In March 2007, Diageo Radico Distilleries Pvt Ltd, the joint venture between Diageo and the company had launched Masterstroke Deluxe Whisky, a blend of Premium whiskies. * Expansion and Product Differentiation: Radico forayed into the flavored vodka market by launching six flavors under its Magic Moments extension brand-Remix in August of the year 2008. Radico Khaitan now wants to enter the beer market but would do so only if it gets to tie-up with a foreign beer major.
Jagatjit Industries:
Initially setting up a distillation/rectification plant to manufacture potable and non-potable spirits, Jagatjit Industries took up production of carbon dioxide gas in 1947, and later on, moved to malt and malt-extract products in 1963. The existing promoter, L P Jaiswal, currently holds 37% in the company. JIL's liquor business is worth Rs 500 crore.

Major Strategies and Developments

Product Differentiation: Jagatjit has in its fold well-known whisky brands like Aristocrat, Black Velvet and Fortune Gold, all of which are in the popular price range.

Partnerships: Hiram Walker (India), set up as a joint venture with Hiram Walker, UK (now known as Allied and Domeco Spirits and Wine), by the company in 1993-94, launched Teacher's scotch whisky during 1994-95. JIL has also signed another agreement with Brown Forman Corporation, US, for alcoholic beverages in India.

NATURE OF COMPETITION
United Breweries (UB), Shaw Wallace and McDowell (part of the UB Group) presently dominate the liquor and beer market. Other players in the Indian spirits market include Radico Khaitan, Mohan Meakin, Seagram, Diageo, Radico Khaitan, Globus Spirits and a few more regional players such as Khoday’s and Amrut Distilleres. As recently as 2005, the UB group acquired the Shaw Wallace group furthering cementing its place as the market leader. The market on its part is set to undergo a radical change with the arrival of MNCs. The removal of quantitative restrictions (QRs) on the import of bottled alcoholic beverages only makes the competition tougher.

As of 2010 the United Breweries group is the only dominant player with a market share of 60%. It wouldn’t be erroneous to imply that the Indian Liquor Industry is monopolistic in nature with the UB group having the largest market share. However, the policies and strategies of the smaller domestic players also have a major impact on the market as a whole. Also, with the entry of many powerful overseas companies like Pernod Richard, Remy Cointreau and Diageo, it is widely speculated that the UB group’s monopoly could meet a slow death.
Foreseeing the highly competitive environment, the major MNCs as well as the domestic players are coming up with various strategies to cope with this competition. Acquisitions and alliances appear to be the order of the day. Several such deals are already underway while more are in the offing. The domestic majors are also reorganizing their operations so that they can forge a deal with an MNC if the need arises.
For instance, UB, which recently took up a major revamp, has said it is willing to offer a 25% stake to multinational liquor major. Diageo has tied up with Radico Khaitan for entering Indian market in brown spirits. As mentioned earlier, the UB group also acquired the Shaw Wallace group as a major strategic move to gain a strong foothold in the industry. Through this acquisition, it gained brands such as Royal Challenge whisky and White Mischief vodka. Again in 2007, it bought Scotch whisky distiller Whyte and Mackay, which had brands such as W&M Scotch and Jura single-malt to add to its offerings that include Bagpiper whisky and Celebration rum. In the process, UB has 20 millionaire brands (selling more than a million cases a year) across segments like whisky, brandy, rum, vodka and gin.
Considering the fact that advertising of alcoholic beverages is banned in India, UB has strategically positioned its products in most categories and price points in order to gain the maximum share in a market which is estimated to be growing at around 16%. These non rice strategies make UB a formidable player with a portfolio that is difficult to replicate. Another interesting strategy that UB has followed is the fact that it has never shied away from investing in brands that its analysts felt could drive the growth in market share. At present, UB has a portfolio of over 145 brands and 80 distilleries — 30 of its own and 50 contract units. The growth has been driven by careful positioning, aggressive marketing strategies, brand refurbishment and innovation backed by a huge distribution network.
For example, McDowell’s No.1 whisky has been positioned on friendship and bonding. The company’s McDowell’s No. 1 Rum is positioned on the ‘macho’ platform and sponsors hiking and motorcycling events. Royal Challenge whisky, from the Shaw Wallace stable was into golf before it became a part of cricket through the IPL team from Bangalore. Signature whisky is promoted on the fashion platform. White Mischief, its vodka brand, is promoted through Indian Premier League cheerleaders while Romanov Red is positioned on the music platform. To promote Black Dog, its premium scotch whisky, the company has used jazz events. The promotion has helped key brands like Black Dog whisky grow by 45 per cent this year followed by brands like Celebration Rum at 36 per cent and Director’s Special and Romanov Vodka at 25 per cent.
As the largest liquor company in India, United Spirits is now increasing its focus on premium brands as it aims to take a shot at the 100 million cases’ mark in another two years. As part of its strategy to drive sales of its premium and prestige brands, UB is also partnering with a slew of retailers to modernize and enhance consumer experience through multi-brand ‘Spiritz & More’ experience stores.
UB is also strengthening as well as expanding its distilleries. It plans to acquire three more distilleries and also enter into third part contracts with six others. It currently operates out of 68 distilleries which includes 20 which are owned by the company while 24 others are on contract and 14 are associates. During FY 07, the company crossed the 66- million case mark and is expected to cross the 75-million case mark in FY08. UB is in the process of tying up with a large number of breweries across the country; not only to enhance capacities, but also to meet the rising demand and prevent these breweries from going into the hands of prospective MNC entrants.
Quite a few of the international majors such as Seagrams, IDV (now UDV - United Distillers & Vintners) and Bacardi have set up shop in India. They initially launched themselves in the premium category of the liquor industry, but then have also started penetrating into the middle-class income categories. For example, UDV has launched Gilbey’s Green Label whisky in the regular segment, where the brand's volumes have crossed 2 million cases per annum. All the major global liquor players are launching their brands in the lower market segments. However, they face major hurdles in distribution and are unable to access large and lucrative markets like that of Tamil Nadu.
Thus, the major forms of non price competition have been mergers and acquisitions, launch of new brands and aggressive marketing and promotion. These strategies have helped UB cement its place in the market and enjoy a monopolistic position. However, with the entry of other MNCs and their subsequent tie ups with smaller local brands, UB is bound to face stiff competition in coming years.
Market Moving Towards Oligopoly
From the above discussion, we can infer that the overall Liquor Market in the country is moving towards Oligopoly with high entry barriers and also very few players sharing the bigger market share. This is done through acquisitions and mergers. But there are limitations in such a conclusion since the number of players is increasing day by day and the entry barriers are fluctuating due to changing government policies.
Degree of Oligopoly: Herfindahl-Hirschman Index (HHI)
The Herfindahl-Hirschman Index is a commonly accepted measure of market concentration. It is calculated by adding the squares of the market shares captured by the firms in the market. Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated and those in which the HHI is in excess of 1800 points are considered to be concentrated. Markets in which HHI is below 1000 is said to be highly fragmented.
The Indian Liquor Market Distribution is as follows: MARKET PLAYERS | MARKET SHARE | UNITED SPIRITS (includes Shaw Wallace & McDowells) | 60% | RADICO KHAITAN | 12% | JAGATJIT | 8.50% | TILAKNAGAR INDUSTRIES | 7% | GLOBUS SPIRITS | 4% | OTHERS | 8.50% |

Assuming Others share is highly fragmented and equally shared between 100 companies
Hence HHI factor is in this market is as follows
HHI = (60)^2 + (12)^2 + (8.5)^2 + (7)^2 + (4)^2 + 100*(0.085)^2 = 3881.97 which is much greater than 1800.
Hence we can say the market is highly concentrated among few players and hence it is an oligopoly.

ENTRY BARRIERS FOR POTENTIAL ENTRANTS
When a new firm enters into an industry it can affect all of the firms that are currently in that industry. “New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. Prices can be bid down or incumbents cost inflated as a result, reducing profitability. Therefore as new firms enter into an industry the entire industry’s potential for sustained profits is reduced due to the increased amount of competition in that industry. Some factors help reduce the threat of entry as they act as barriers that prevent new firms from entering into an industry. These factors include economies of scale, product differentiation, capital requirements, access to distribution channels, and government regulations. When these factors reduce the threat of entry, the profit potential for the industry increases.
Economies of Scale.
Economies of scale is defined as the “declines in unit costs of a product as the absolute volume per period increase” Therefore the greater quantity of a product that is produced the lower the cost of each will be to the producer. This creates an advantage for a high volume producer like those seen in the brewing industry. Economies of scale in the brewing industry also exist in areas other than in production and these include purchasing, distribution, and advertising. For example, national brewers achieve economies of scale in advertising through bulk media purchases and umbrella brand marketing. Local-craft brewers spend more than twice that spent by large brewers on marketing and advertising per barrel. This is a good factor for firms that are currently in the industry as they can take advantage of these unit cost breaks and while doing so also discourage the entry of new firms into the industry.
Product Differentiation.
In general, people cannot tell the difference between brands of beer. Second, more expensive brands do not cost proportionately more to make than “economy” beer.
Capital Requirements.
The capital requirements necessary to compete on the national level against the established firms are extremely high. These high costs of operation and construction expenses act as a barrier to entry for firms that are considering trying to compete in this industry on the highest level.
Access to Distribution Channels.
When a new firm is trying to enter into an industry it can find that existing competitors may have ties with [distribution] channels based on long relationships.

Government Regulation.
The government's excise policy is subject to a lot of sudden changes. The manufacturers sometimes just need to get their L-1 licenses renewed and at times they need to apply afresh, like in the year 2001. In 1993, the L-1 license holders were allowed to set up 5 'dedicated' shops in Delhi in which they could sell their approved brands in addition to having them sold in the government retail shops. The policy was withdrawn in an ad-hoc manner in 1994. On being questioned about the effects of this policy, an official in one of the country's leading breweries said that the introduction of this policy had led to an increase in their revenue by almost 30% which they have lost out on since the policy got crushed. Recently, the government's policy to open up 45 private liquor shops was quashed by the cabinet, because it meant that the MLA's power in the issue of a no-objection certificate for the setting up of a retail outlet would be questioned. Had this policy been implemented, the government would have earned Rs. 7.5 lakhs on each vend as license fees annually.
Price Restrictions
Price restrictions in many large markets remain a biggest challenge for the industry. The Government decides the End Consumer Price (ECP), leaving the manufactures with no say in determining the price of liquor. In a free market economy this has no rationale.

Inadequate Market Infrastructure
The market infrastructure for liquor in India is inadequate. For every 21000 persons there is one outlet hampering the availability of beer. In China, for instance the figure is 300. The highly regulated market hampers beer sales, unlike most developed countries where liquor is not regulated in grocery/retail stores. The retail distribution channels are not completely open for selling liquor in India. Regulations are stiff with respect to selling liquor through modern retail chains.

Restriction of Movement of Beer
For the movement of liquor from one state to another, an export license and an import license is required. Export fee is imposed in the state where beer is manufactured and import fees on the State where it is sold. In some states only liquor manufactured in that state can be sold.

CONCLUSION

Things have never looked better for the Indian liquor industry, thanks to the new, happening consumer market. India still has a huge untapped market. With consumers and companies changing colors, it's no wonder that the industry itself is going through a radical makeover. Beginning with a monopoly in the 1970s under the UB group, the market is now slowly moving towards an oligopoly with a number of new formidable entrants in the market. Moreover, the high entry barriers further establish the oligopolistic nature of the industry. However, it would be too early to jump to this conclusion as the number of players is increasing day by day and the entry barriers are fluctuating due to changing government policies. The major forms of non price competition have been mergers and acquisitions, launch of new brands and aggressive marketing and promotional strategies. Moreover, consumers' changing preferences have also forced liquor companies to shore up innovative strategies and come out with better, more targeted products.