Tubegraph

NonAlcoholic Drink Industry

7 min read

From: nikhil.kamath

The non-alcoholic beverage industry in India is a vast and evolving market, experiencing significant growth and diversification. Valued at approximately 1,376 billion rupees (around 17-20 billion USD), it encompasses a wide range of products from traditional sodas to specialty coffees, kombuchas, and mixers [02:22:21].

Key Industry Segments

Coffee Industry

The craft coffee segment in India is a burgeoning market. There are roughly 5,000 branded coffee shops and an equivalent number of unbranded establishments across the country [01:04:44]. The total net sales for the coffee shop market is estimated to be around 1 billion USD [01:04:54].

Historically, Indian consumers were not perceived as willing to pay for high-quality coffee, leading growers to believe it had to be cut with Robusta or offered as a commodity Arabica to lower prices [00:05:35]. However, brands like Blue Tokai Coffee Roasters and Subko Coffee have played a crucial role in changing this perception and building a domestic market for specialty coffee [00:05:25], [01:00:09].

Currently, coffee prices are at a 50-year high [02:48:11]. In coffee shops, this can be absorbed by adding two to three rupees to the cost of a cup [02:48:17]. However, for packaged coffee products like canned coffee or retail beans, rising costs can significantly shrink margins [02:48:37].

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is evident in the coffee market, with consumers willing to spend around 250 rupees per cup before noticing price increases [02:50:02], [02:52:12].

Kombucha Market

The kombucha market in India is relatively small but growing rapidly. In 2021, it was valued at approximately 30 crores (300 million rupees), growing to about 200 crores (2 billion rupees) by 2024 [01:44:02], [01:44:27]. This represents a near tripling in just a few years [01:44:40]. Projections suggest it could reach 1 billion USD by 2032 [01:45:00]. For context, the US kombucha market is valued at approximately 45 billion USD [01:44:25].

Kombucha is a fermented sweetened tea, utilizing a “scoby” (symbiotic colony of bacteria and yeast) to break down sugars into organic acids, probiotics, and prebiotics [01:33:32], [01:34:50]. These components are beneficial for gut health [01:36:37].

One significant regulatory challenge for kombucha in India is the alcohol content limit, which must remain below 0.5% for it to be classified as an FMCG product and avoid excise regulations [01:03:10], [01:53:23].

Consumers often drink kombucha as a healthier alternative to carbonated beverages like Coke, valuing the fizz and the “better for you” aspect rather than specific health claims [01:39:09], [01:45:11]. Lowering prices has shown a significant increase in demand; one brand saw a 6x increase in sales when dropping the price from 130 to 99 rupees [01:47:56].

Mixers and Sodas

The non-alcoholic mixer segment, exemplified by brands like Svami, has seen growth by identifying a white space in the market, traditionally dominated by players like Schweppes [02:00:56], [02:15:36]. A key differentiation lies in flavor profiles and bitterness levels [02:43:01].

India’s affinity for sweet products means that less sweet options may struggle in certain markets like Delhi [02:43:07]. Manufacturers need to cater to diverse tastes, even if it means products are not their personal favorite [02:44:21].

Taxation

A significant challenge in the non-alcoholic beverage industry is taxation. Beverages with both sugar and carbonation are taxed at 40% [02:00:07]. If carbonation is removed, the tax drops to 28% or 18%, and if sugar is removed, it drops to 18% [02:00:22]. This contrasts with products like packaged juices, which can have high sugar content but are taxed at a lower rate [02:00:34]. This tax structure is seen as hindering innovation [02:04:09].

Challenges for New Entrants and Entrepreneurship

Starting a beverage brand in India comes with several challenges:

  • High Initial Investment: Opening a 1,000 sq ft coffee shop in a prime location like Bandra could cost between 80 lakhs to 1.5 crores rupees [02:49:24].
  • Talent Retention: While barista pay scales are increasing, retaining high-quality kitchen talent for hot food operations can be challenging, as they prefer restaurant settings [02:52:13], [02:52:21].
  • Raw Material and Packaging Sourcing: Obtaining small quantities of bottles from manufacturers can be difficult [02:14:08]. The cost of a bottle can be around 8-9 rupees, similar to a can [02:13:57].
  • Contract Manufacturing: Bottlers and contract manufacturers are increasingly being acquired by larger companies, limiting options for smaller brands [02:13:02].
  • Competition: Established international brands like Starbucks operate at a large scale, while local giants like PepsiCo (owning Sting) dominate the lower price points through vast distribution networks [02:17:21].

The Canning Mafia [02:12:10]

The beverage industry faces significant hurdles from the “canning mafia” and powerful distribution lobbies in India. These groups, often with local political connections, can restrict access to bottling facilities and distribution channels [02:12:57].

Building a Brand: Marketing and Differentiation

For new entrants, building a strong brand identity and differentiation is crucial.

  • Quality and Consistency: Especially for repeat business, consistent quality in both coffee and food is vital [00:52:47].
  • Experiential Focus: In India, where customers tend to occupy real estate for longer, coffee shops need to offer more than just a drink. This can include unique atmospheres, subcultural associations (e.g., vinyl records, cigar lounges), or community events like pop-ups and art installations [00:54:14], [01:19:58], [01:10:43].
  • Product Innovation: Creating unique flavor profiles (e.g., Ragi or Kapi coffee, spicy tonic water, hoppy kombucha) can help brands stand out [02:16:47]. Experimenting with functional beverages that offer protein or fiber is also an area of opportunity [02:08:50].
  • Storytelling and Authenticity: Genuine storytelling and strong product quality are more impactful than marketing fluff or relying on performance marketing [02:20:56], [03:06:52]. Engaging the company’s team in content creation adds authenticity [03:05:40].
  • Price and Perception: For Indian independent beverage brands, pricing needs to reflect quality and value, even if it means being more expensive than international counterparts to counter the perception that Indian products are cheaper [02:39:00], [02:23:58].

The Role of Quick Commerce

Quick commerce platforms like Blinkit have become a significant distribution channel for beverages, particularly for products like kombucha [01:46:54]. For one brand, quick commerce constitutes about 60% of their business [01:47:21].

Pros and Cons of Quick Commerce

  • Pros: Offers volumes that traditional retail cannot, especially for new entrants, and provides immediate access without competing for physical shelf space [02:31:46]. It caters to the Indian consumer’s expectation of instant delivery for products like mixers [02:33:38].
  • Cons: Platforms charge high commissions (e.g., 30-50%) [02:31:38], and can use sales data to launch their own private label brands, squeezing out smaller players [02:32:51]. Brands cannot solely rely on quick commerce for growth; they must build their own brand equity and customer relationships [02:35:11].

The non-alcoholic beverage industry in India is poised for continued growth.

  • Shift in Consumer Behavior: Younger generations are increasingly opting for non-alcoholic options and spending more time in coffee shops than nightclubs [00:57:05].
  • Health and Wellness: There’s a growing consumer focus on health, even amidst economic slowdowns, suggesting an opportunity for “healthier” or “better for you” beverages [01:30:57].
  • Emerging Opportunities: The concept of “hard kombucha” (alcoholic kombucha) is prevalent in the US, with a market size similar to regular kombucha [01:51:15]. While not yet widespread in India, it represents a potential future segment [01:51:26].
  • Local Brands Ascendancy: Indian consumers’ affinity for international brands is diminishing, creating a favorable environment for homegrown brands that understand the local market and connect with consumers authentically [02:21:13].
  • Consolidation: The industry is expected to see more mergers and acquisitions, similar to global trends, as larger players seek to expand their portfolios [03:17:31].

Overall, the non-alcoholic beverage industry in India presents significant opportunities for innovation and growth, especially for brands that can navigate regulatory complexities, build strong distribution, and connect with consumers through compelling products and authentic storytelling [02:28:10], [03:22:50]. The craft beverage space, defined by authenticity, innovation, and quality, is seen as crucial for the market’s expansion [01:58:36].

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