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Tough time for booze, tobacco firms' in India

India looks like an attractive market, but the tight rules make life difficult, as the global majors find out.

india Updated: Sep 27, 2006 15:26 IST

Diageo's office in a large complex in midtown Mumbai is often mistaken for a pub, with prominent displays of Johnnie Walker whisky, Smirnoff vodka, Guinness beer and other brands on the walls of its sleek lobby.

But for Diageo, the world's largest alcoholic drinks maker, the displays are a way to promote its brands in a country where advertising of tobacco and alcohol is banned, and manufacture, distribution, retail and pricing are controlled.

With its growing young population, India looks like an attractive market for global drinks and tobacco makers looking to expand, but the tight rules make life difficult.

"We have to work within the constraints," said Asif Adil, head of Diageo India, which has a joint venture with India's Radico Khaitan Ltd. to make mid-priced spirits locally.

"It is limiting, but there are surrogate methods of promotion that are permitted," Adil said.

These surrogates include television ads for unrelated products that feature the logo of the drinks brand prominently. So, for example, Bacardi's brand appears on ads for some CDs, ads for apple juice and golf accessories carry the 8 PM and Bagpiper whisky logos.

Consumers are likely to see more of this as brands line up to launch in the fast-growing market.

Facing waning volumes and litigation at home, Altria's Philip Morris and British American Tobacco Plc are expected to spend more to expand in Asia's emerging markets, including India.

But, in 2003, the Indian Parliament banned all direct and indirect advertising of tobacco products, smoking in public places and sale of tobacco to anyone younger than 18 years old.

The same year, a World Health Organisation study slammed Bollywood for the manner in which smoking was portrayed in films, with more than three-fourths of all films showing tobacco consumption.

India responded last year by banning smoking scenes in films, setting off an outcry in the world's most prolific movie industry and a petition against the ban in the highest court.

The chief of the board of censors, a former actor, is famously reported to have said actors could chew on a pencil or a toothpick instead of lighting up on screen.

Before the ban, makers of cigarettes and other tobacco products including 'paan', a form of chewing tobacco, spent an estimated 2.5 billion rupees ($54 million) on advertising every year.

ITC Ltd., 31.7 percent-owned by British American Tobacco, accounted for half the outdoor advertising for tobacco and sponsored major sports events.

Today it has a chain of Wills Lifestyle apparel stores, named for its best-selling cigarette, and is the lead sponsor of the Wills India Fashion Week, which gets wide media play. It also has a John Players apparel line, endorsed by a Bollywood actor.

Beer leader United Breweries Ltd. has an airline and a mineral water named for its flagship beer, Kingfisher.

"I don't understand the regulators' psyche: Why should we have to advertise apple juice and water?" said United Breweries group Chairman Vijay Mallya, who is lobbying to serve liquor on local flights.

"Instad, we can work with them to promote responsible drinking," said Mallya, who often smokes cigars at conferences.

It is easy to see why tobacco and liquor firms are so keen on India: of its 1.1 billion population, one in four consumes tobacco, lighting up 108 billion cigarettes annually, while implementation of the public smoking ban and health warnings is half-hearted at best.

Beer and branded liquor sell nearly 200 million cases a year, and with more than half the population below the age of 25, annual consumption of beer and wine is growing in double digits despite a traditional preference for spirits.

UB Group's McDowell, Diageo and joint-venturepartner Radico, Mohan Meakin, and Pernod Ricard compete in spirits.

United Breweries, which has a joint venture with Scottish & Newcastle, has nearly half the beer market. SABMiller, which has Foster's Indian assets, has one third.

Also, Asia Pacific Breweries Ltd. is stepping up investment in India, while Anheuser-Busch Cos., Carlsberg and InBev are eyeing the market.

But it won't be easy: in a country that frowns on drinking, manufacturing capacities are licensed, as are distribution and retail in many states. Other states control distribution, fix retail prices and order bars to shut as early as 11 p.m.

The European Commission will soon decide whether to refer India to the World Trade Organisation over additional duties and sales restrictions on imported spirits and wines.

"The industry is too controlled, too restrictive and too heavily taxed," said Andre Parker, managing director for Africa and Asia for SAB Miller, which also sells Royal Challenge water and Castle non-alcoholic beverages in India.

"We understand we are dealing with alcohol, that it has a risk, and India is not unique in imposing limits," he said.

"But there has to be a distinction between tobacco, spirits and beer," he said, pointing to some western markets where advertising of beer and wine is permitted with conditions.

First Published: Sep 27, 2006 19:16 IST