Analysis - India optimism good for alcohol firms, but is luxury a step too far?
A survey of consumers in India has revealed that alcoholic beverages may have the most to gain from high levels of optimism in the country.
The poll, part of Bernstein's annual survey of 800 consumers in each of the four BRIC nations, found that 57% believed the economy in India is improving, much higher than the 26% who saw a worsening trend. It was also higher than for the same question asked in China (49%) Brazil (36%) and Russia (22%).
Couple that with good potential for wages growth (India's per capita GDP is the lowest of the BRICs and just 15% of China's) and Bernstein foresees opportunities for companies with a strong focus on innovation, broad geographic reach and strong price/volume control. This, the analysts say, puts alcoholic beverages in the sweet spot.
However, the good news comes with a warning for companies operating in the higher value end of the Indian drinks market.
According to the survey, trade-up rates among consumers have been steadily falling, with only 68% of respondents saying they bought a more expensive brand in at least one consumer goods category over the past 12 months. This compares unfavourably with the 71% level of last year and 2012's 73%. Trade down rates, meanwhile, are “high”, Bernstein says, with 62% of respondents in India saying they have purchased a less expensive brand in at least one category over the past 12 months.
This is bad news for drinks companies who have put their faith in global premiumisation strategies as incomes in developing countries rise.
In February, Constellation Brands, which offloaded its “value” spirits portfolio five years ago, launched Svedka Vodka in India in the hopes of capturing younger consumers with disposable incomes.
Brewers such as Heineken have also based their global business models on consumers trading up from local brands to imported offerings to receive - as Heineken's management speak puts it - their “five-minute luxury”.
Perhaps it is a luxury that India - with its low GDP - is not yet willing to afford.
To read an analysis of Bernstein's consumer survey of Russia, click here.
The Future of the Spirits Market in India to 2017
The report presents detailed data on the Spirits consumption trends in India, historic and forecast consumption volume and value at market and category level, brand share, alcoholic strength, price se...read more
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