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The recently forged India-UK trade agreement has stirred considerable interest, particularly concerning its potential impact on the alcoholic beverage market, specifically Scotch whisky. While the headline promise of halved tariffs on UK imports initially conjured images of significantly cheaper Scotch for Indian consumers, industry experts temper these expectations, painting a more nuanced picture. The core message emerging from their analyses is that while Scotch may indeed become more affordable, the reduction in price is unlikely to be substantial enough to trigger a dramatic shift in consumer behavior or market dynamics. The primary reason for this muted optimism lies in the structure of alcohol taxation in India, where state-level levies account for a lion's share of the final retail price. Customs duty, the component directly affected by the trade deal, constitutes a comparatively smaller portion of the overall tax burden. Consequently, a 50% reduction in customs duty translates to a far less pronounced decrease in the price that consumers ultimately pay at the liquor store, estimated to be in the range of 8-10%. This marginal price decrease, while welcome, is unlikely to spark a significant surge in demand, particularly among price-sensitive consumers. However, the trade deal's impact extends beyond mere price considerations. The reduced tariff burden is expected to boost margins for both British distillers exporting to India and Indian producers who blend imported Scotch with locally manufactured whisky. This improved profitability could incentivize increased investment and production, potentially leading to a wider variety of Scotch brands becoming available in the Indian market. The influx of new brands, particularly those adopting aggressive pricing strategies, could intensify competition and reshape the competitive landscape of the premium whisky segment. This scenario presents both opportunities and challenges for established players in the Indian whisky market. They may need to adapt their pricing strategies, brand positioning, and marketing efforts to effectively compete with the newcomers. The trade deal also raises questions about the future of bottled-in-India (BII) whisky, a category that has thrived due to the cost advantages of importing Scotch in bulk and bottling it locally to avoid higher tariffs on bottled imports. As the tariff differential narrows, the economic rationale for BII production diminishes, potentially leading to a shift towards increased imports of bottled-in-origin (BIO) Scotch. This shift could have implications for employment and investment in the Indian bottling industry. The Confederation of Indian Alcoholic Beverage Companies (CIABC) has expressed concerns about the potential influx of new Scotch brands, suggesting that these brands might not be well-known but could enter the market with extremely competitive pricing, potentially undercutting established Indian premium whisky brands. The argument rests on the premise that these less-established brands, facing less brand equity pressure, can afford to operate on lower margins and thus offer more attractive prices to consumers. This underscores the importance of brand building and marketing for Indian whisky manufacturers to maintain their market share in the face of increased competition. Naveen Malpani of Grant Thornton Bharat emphasizes that the Free Trade Agreement (FTA) is more likely to influence product availability and premiumisation than to trigger a sudden surge in demand. This suggests that the primary beneficiaries of the trade deal will be UK whisky makers, who can leverage the reduced tariffs to expand their brand presence and introduce a wider range of premium offerings to the Indian market. From a consumer perspective, this increased availability could lead to greater choice and a more sophisticated whisky drinking culture. However, the actual price reduction at the consumer level will be limited, as Vinod Giri points out, citing the example of Black Label in Delhi, where a reduction of only Rs 200-300 is expected. The benefit of improved margins for Indian blenders comes from the lower cost of imported Scotch, which is used in blends with Indian-made whisky. This cost reduction may not necessarily translate into lower prices for consumers, but it does improve the profitability of Indian whisky makers who use imported Scotch. The article highlights the concern that the tariff reduction could hurt bottling in India, as bottled-in-origin (BIO) whisky becomes more competitive with bottled-in-India (BII) whisky. The reduction in customs duty will result in bottled-in-India (BII) whisky becoming BIO over a period of 3-4 years. This could lead to reduced investment in bottling facilities in India. Scotch distillers in the UK have welcomed the reduction in tariffs, which will give them greater access to the world’s biggest whisky market by volume. Jean-Etienne Gourgues, Chairman and CEO of Chivas Brothers, highlights that the deal will support long term investment and jobs in their distilleries in Speyside and their bottling plant at Kilmalid and help deliver growth in both Scotland and India over the next decade. The interplay between customs duties, state excise taxes, logistics costs, and distributor margins determines the final consumer price of Scotch in India. Customs duties constitute a relatively small fraction of the overall cost structure, while state excise taxes represent the largest portion. Therefore, a reduction in customs duty, even a substantial one, has a limited impact on the ultimate retail price. The potential for new Scotch brands to enter the Indian market with aggressive pricing strategies poses a significant threat to established Indian whisky brands. These new brands, lacking the same level of brand recognition and loyalty as their established counterparts, may resort to price wars to gain market share. This could erode the profitability of the entire whisky sector and force established brands to re-evaluate their pricing strategies. Bottled-in-India (BII) whisky has historically enjoyed a cost advantage over bottled-in-origin (BIO) Scotch due to the higher tariffs imposed on bottled imports. However, as the tariff differential narrows, the economic rationale for BII production weakens, potentially leading to a shift towards increased imports of BIO Scotch. This shift could have significant implications for employment and investment in the Indian bottling industry. The reduction in customs duty on Scotch could also have a ripple effect on the broader alcoholic beverage market in India. As Scotch becomes more affordable, it could attract consumers away from other categories, such as Indian-made foreign liquor (IMFL) and beer. This could intensify competition across different segments of the alcoholic beverage market and force producers to innovate and differentiate their products to maintain market share. The long-term impact of the India-UK trade deal on the Indian Scotch whisky market will depend on a variety of factors, including the pace of tariff reductions, the pricing strategies of new entrants, the responsiveness of Indian consumers to price changes, and the effectiveness of Indian whisky brands in defending their market share. The trade deal represents a significant opportunity for UK distillers to expand their presence in the world's largest whisky market. However, the full potential of this opportunity will only be realized if they can effectively navigate the complexities of the Indian market and adapt their strategies to meet the unique needs and preferences of Indian consumers.
The blended whisky segment, a significant portion of the Indian whisky market, stands to gain from reduced Scotch import costs. Brands such as Blenders Pride and McDowell's No. 1, which incorporate imported Scotch into their blends, will experience a reduction in their cost of goods sold (COGS). This cost saving could either be passed on to consumers in the form of lower prices or retained by the companies to improve their profitability. The choice between these two strategies will depend on the competitive dynamics of the market and the companies' strategic priorities. The trade deal’s influence on the premiumisation trend in the Indian alcoholic beverage market is noteworthy. As disposable incomes rise and consumer preferences evolve, there is a growing demand for premium and super-premium spirits in India. The reduced tariffs on Scotch could accelerate this trend by making premium Scotch more accessible to a wider segment of the population. This could lead to a further expansion of the premium whisky market and create new opportunities for both domestic and international players. The regulatory landscape surrounding alcohol in India presents a complex web of state-level regulations and excise duties. Each state has its own set of rules governing the production, distribution, and sale of alcohol, making it challenging for companies to operate across state borders. The impact of the India-UK trade deal will vary across different states, depending on their specific excise duty structures and regulatory policies. Companies need to carefully analyze the regulatory landscape in each state to develop effective market entry and expansion strategies. The trade deal's impact extends beyond the immediate beneficiaries – Scotch distillers and Indian whisky blenders. It also has implications for ancillary industries, such as packaging, transportation, and distribution. As the volume of Scotch imports increases, these industries will experience increased demand for their services, creating new job opportunities and stimulating economic growth. However, the potential decline in bottled-in-India (BII) production could negatively impact the Indian bottling industry. The reduction in customs duty could also incentivize greater investment in Scotch distilleries in Scotland, leading to job creation and economic growth in the UK. This highlights the interconnectedness of global trade and the ripple effects that trade agreements can have on different sectors and regions. The long-term success of the India-UK trade deal in the alcoholic beverage sector will depend on several factors, including the effective implementation of the agreement, the ability of companies to adapt to the changing market dynamics, and the responsiveness of consumers to the new opportunities and challenges created by the trade deal. The reduction in tariffs on Scotch could lead to a shift in consumer preferences, with a greater emphasis on premium and imported spirits. This could have a positive impact on the quality of alcoholic beverages available in India and contribute to a more sophisticated drinking culture. However, it is important to ensure that the benefits of the trade deal are shared equitably and that the interests of all stakeholders are taken into account. The Indian government should also consider reforms to the alcohol taxation system to create a more level playing field and promote fair competition. The trade deal presents a significant opportunity to strengthen the economic ties between India and the UK and to foster greater collaboration in the alcoholic beverage sector. By working together, the two countries can create a mutually beneficial environment that promotes innovation, investment, and growth.
The future of Scotch whisky consumption in India will likely be shaped by a complex interplay of economic factors, regulatory policies, and evolving consumer preferences. The India-UK trade deal represents a significant catalyst for change, but its ultimate impact will depend on how these various factors interact. The reduction in tariffs on Scotch is expected to make it more accessible to a wider segment of the Indian population, but the extent to which this translates into increased consumption will depend on the price elasticity of demand and the ability of consumers to afford premium spirits. The growing demand for premium and super-premium spirits in India presents a significant opportunity for Scotch distillers. However, to capitalize on this opportunity, they need to develop effective marketing strategies that resonate with Indian consumers and differentiate their brands from the competition. The regulatory landscape surrounding alcohol in India remains a major challenge for companies operating in this sector. The complex web of state-level regulations and excise duties makes it difficult to operate across state borders and creates uncertainty for investors. The Indian government needs to streamline the regulatory framework to create a more predictable and business-friendly environment. The potential decline in bottled-in-India (BII) production could have a negative impact on the Indian bottling industry, but it could also create new opportunities for companies that are able to adapt to the changing market dynamics. For example, companies could invest in new technologies to improve the efficiency of their bottling operations or diversify their product offerings to include other types of beverages. The trade deal could also lead to increased competition among Indian whisky brands. As Scotch becomes more affordable, Indian whisky makers will need to innovate and differentiate their products to maintain market share. This could lead to the development of new and innovative whisky blends that appeal to Indian consumers. The long-term success of the India-UK trade deal in the alcoholic beverage sector will depend on the ability of both countries to work together to create a mutually beneficial environment. This includes addressing trade barriers, promoting investment, and fostering collaboration on research and development. The trade deal has the potential to transform the Indian Scotch whisky market and to create new opportunities for both domestic and international players. However, to realize this potential, it is essential to address the challenges and to create a level playing field for all stakeholders. The reduction in tariffs on Scotch could also have a positive impact on the Indian economy. By making Scotch more affordable, the trade deal could increase tax revenues and create new jobs in the alcoholic beverage sector. The Indian government should consider using these revenues to invest in infrastructure and social programs that benefit all citizens. The trade deal is not without its critics. Some have argued that it will lead to job losses in the Indian bottling industry and that it will benefit foreign companies at the expense of domestic producers. However, these concerns need to be weighed against the potential benefits of the trade deal, including increased competition, lower prices, and greater choice for consumers. The India-UK trade deal represents a significant step forward in strengthening the economic ties between the two countries. By working together, India and the UK can create a mutually beneficial environment that promotes innovation, investment, and growth in the alcoholic beverage sector and beyond. The future of Scotch whisky in India is bright, but it will require careful planning and execution to realize its full potential. The India-UK trade deal has set the stage for a new era of growth and opportunity, but it is up to the industry to seize this opportunity and to create a thriving and sustainable market for Scotch whisky in India.
Source: Will scotch get cheaper for Indian consumers after UK trade deal? Not by much, say experts