India poised to become key growth driver in alcobev

India is among developing beverage alcohol markets, besides China, Brazil and Mexico, which are poised to become key growth engines in value terms for the sector in the next five years, beverages market researcher IWSR said.

Gains from mature markets, meanwhile, will prove more elusive, with the US being a notable exception, as many may see marginal growth or even a contraction, the study said.

“Following a tough 2023, when global total beverage alcohol value rose by only about 1%, future value gains will be led by India, China and the US, which are expected to add a combined $30 billion in incremental value (at 2023 prices) by 2028,” the study said, adding that India and the US will each add incremental value of about 7.6 billion.

The next most value-adding total beverage alcohol markets, excluding Russia, are expected to be Brazil, Mexico, South Africa, Vietnam and Nigeria, which will add a combined $14.4 billion by 2028, it added.

“The shift that’s been happening over a fairly long period of time from developed to developing alcohol markets is continuing and is, if anything, intensifying,” said Emily Neill, chief operating officer for market research at IWSR.

While India and the US are expected to add a similar value in absolute terms between 2023 and 2028, there is a strong contrast in anticipated growth rates.

In the US, value is expected to grow at a compound annual growth rate (CAGR) of 0.8% in the five years to 2028, while India’s anticipated growth over the same timeframe is more than 4%.

“Given that the US beverage alcohol market is four times larger than that of India in volume terms, and almost six times larger in value terms, the growth that’s expected to come out of India is quite remarkable,” Neill said.

Changing landscape

In other value-adding markets, Mexico’s total beverage alcohol value is expected to grow by 3% until 2028, with South Africa and Brazil seeing solid gains of 3% and 2%, respectively.

Meanwhile, China’s expected compound growth of 1%, excluding national spirits, translates to an incremental gain of nearly $5 billion due to the scale of its market.

By contrast, mature alcohol markets are defined by sluggish value performance, showing either a marginal increase of 1% or less in the US, Spain, Australia, Italy, and the Netherlands; essentially flat performances in France and Poland; or value declines in the UK, Japan, Germany, and Canada.

Underlying factors

Several factors drive this shift in anticipated sources of value gains, the most significant being growth in population of those who are of legal drinking age (LDA) and increases in gross domestic product (GDP).

Most developing alcohol markets, except China, are predicted to see strong LDA population gains, while mature markets may see marginal gains or reductions. India is expected to add 65 million consumers who are of legal drinking age over the next five years.

Although India’s beverage alcohol market is less developed than those in mature nations, the regulatory landscape in key states is becoming less bureaucratic, with state governments adopting a more pragmatic approach to an industry that significantly contributes to tax revenues. The combination of population growth and deregulation is expected to result in significant value growth, the report said.

In terms of GDP growth, both absolute and percentage, developing markets are forecasted to outperform mature economies. There is a strong correlation between this and IWSR’s projections for beverage alcohol value growth.

“Despite its smaller GDP growth rate percentage change, absolute dollar growth in the US is likely to be high because of its scale,” Marten Lodewijks, president of IWSR’s US division, said. “But, on average, GDP growth rates for developing markets are 2% or maybe 3% higher than those across developed markets.”

“This translates to a combination of increasing population and rising wealth, resulting in volume and value growth in those developing markets,” he added.

Sensitive to financial pressures

In the short term, however, inflation and geopolitical tensions like the wars in Ukraine and the Middle East are likely to constrain consumer spending power on discretionary categories.

IWSR forecasts that global total beverage alcohol value will be essentially flat at 0.5% this year, with a recovery expected in the next year.

While personal finance sentiment is starting to recover, past six-month alcohol spend remains subdued, according to IWSR Bevtrac consumer research conducted in April.

“There’s a strong correlation here, especially in mature markets,” says Richard Halstead, chief operating officer of consumer research at IWSR. “Increased financial control may precede a recovery in alcohol spending.”

The two standouts are India and China, both of which show strong positivity about personal finances and robust gains in recalled alcohol spend.

However, scores from China are typically positively biased for cultural reasons. It’s also important to note that China’s recalled alcohol spend, while still positive, began to trend downward in Januaury-to-June due to growing economic uncertainty.

“At the moment, even in markets where personal finances are viewed positively, people are still spending less,” Halstead said.

For instance, while Brazil shows optimism about future household finances, short-term financial sentiment remains negative; recalled spend changes are also negative in all categories except whiskies.

In Mexico, consumer sentiment is stable and positive, though recalled spend change remains negative except in a few categories.

“In this context, India stands out as one of the key value growth drivers, positive in both sentiment and intended spend,” Halstead said.

This contrast underscores that future value gains will depend heavily on developing markets, which often exhibit higher volatility and risk, making them more complex and costly for businesses to navigate.

“We are now operating in a more complex, uncertain trading environment,” Neill said. “The growth axis has shifted towards developing markets, which entails higher business risks. As a result, if brand owners want to focus on new growth markets, they will need to operate with a greater appetite for risk.”