POTABLE ALCOHOL INDUSTRY

CHALLENGES & WAY FORWARD FOR 21ST CENTURY

Dr. Shovan GanguliSr. Vice President Diageo India R&D

• Diageo Technical Capability

• Alcoholic Beverages Market

• Challenges Portable Alcohol Production

– Raw material

– Water

– Neutral Spirit Specifications

• Alcohol Congeners & Consumer

Experience

• Way Forward for 2021

IndiaOpportunity in Alcohol Industry

Content

DIAGEO’S BRAND TECHNICAL CENTRES

Diageo - 4 Main Brand Technical & 4 Satellite Hubs (Panama, SV, NR, Singapore)

International Supply Technical HQ, MenstrieScotch, formulated products(Dublin - Creams, Italy – Wines,Panama & Singapore)

Tech Dir. - Robert McElroy

Plainfield, IllinoisNorth America Technical CentreSpirits, Formulated Products, Creams

SVP – Pietro DiPilato

International SupplyTechnical, Panama

Tech Dir. - Robert McElroy

OpEx Beer Technical Centre, DublinBeer, Malt Drinks, fermentationAfrica spirits.

Tech Dir. – Paul Gallagher

International SupplyTechnical, SingaporeScotch, local and white spirits

Tech Dir. - Robert McElroy

USL Technical Centre, BangaloreMainstream Spirits, Whisky

Tech Dir. – Shovan Ganguli

DIAGEO INNOVATION R&D CENTRESInnovation R&D partner with Supply Technical to bring innovations to life

Woodside, Herts England

Norwalk, Connecticut

Sydney

Innovation R&D folks work in close partnership with market-facing Supply Project Managers

Hong Kong

Bangalore, India

ALCOHOLIC BEVERAGES MARKET

ALCOHOLIC BEVERAGES MARKET POTENTIAL INDIA

There is not 1, but 3 distinct India TBA Growth

Potential Spirit

requirement by 2026 –Expected

1.7X@ 5% CAGR

~3 Bn to 5 Bn

~ +7%annual

LDA-New Entrants

~18 million/annum

Per capita Consumption

5X less

Market Potential Premiumization of IMFLPremium variants of core IMFL brands that mimic focus brands

Premium priced variants to give better sensorial experience and markers of aspiration to consumers Opening up the opportunity and new occasions

Meeting Global Specification of ENA to Globalize and Premiumization of core brand to win Emerging Market

India : Growth through premiumization ~15%Emerging Market : Additional ~40 Million Cases /Annum for IMFL

Emerging Market Potential for IMFL

Population Growth : >90% of 500m increase in LDA+ population coming from emerging markets over the next decade

Spirits Growth : - Aspirational Products - Headroom for formal spirits

growth, especially Africa

Income Growth: - Increase of 1 Billion consumers globally

earning >$5k p.a. in the next decade.

THE PROPORTION OF MC SUB-GROUPS VARY BY MARKET DEPENDING ON THE DEVELOPMENT STAGE

CHALLENGES

CHALLENGES FOR DISTILLERY

• Raw material availability

• Water Availability

• Spirit Quality

• Consumers satisfaction

• Effluent

5594 5490.6

4158.5

01000200030004000500060007000

FY-2015 FY-2016 FY-2017

Prod

uctio

n Vo

lum

e in

Tho

usan

d M

T

Year

Production Volume of Molasses

Source: www.statista.com

050

100150200250300350400

Rice Wheat Coarse Cereals Food Grains Sugar Cane

Prod

uctio

n in

Mill

ion

MT

Crops

Production of Major Crops

2013-14 2014-15 2015-16Source: Annual report 2016-17, Ministry of Agriculture and Farmers Welfare GOI

-Grain availability for ENA

production

- Water Stress in India - >100

million population live in

water stress area

- Climate change –C3 & C4

plants

NEUTRAL SPIRIT SPECIFICATIONS – INDIA V/S GLOBAL

ABV 96 %

Total Acidity 10 ppm

Esters Not Detected

N-Propanol 1 ppm

Methanol 2.5 ppm

Acetaldehyde 1 ppm

Di-acetyl 0.03 ppm

Grain

Molasses

ABV 96 %

Total Acidity 10 ppm

Esters Not Detected

N-Propanol 30 ppm

Methanol 100 ppm

Acetaldehyde 2 ppm

Di-acetyl 0.03 ppm

ABV 96 %

Total Acidity 10 ppm

Esters Not Detected

N-Propanol 5 ppm

Methanol 50 ppm (Earlier 500)

Acetaldehyde 2 ppm

Di-acetyl 0.03 ppm

India Global Diageo

More Stringent

CONSUMER PERCEPTION OF SPIRIT QUALITYpa

ram

eter

s

Aldehyde Level

Methanol Content

N- Propanol Content

Fusel Oil content

Harsh, raw characters in the

blend

Consumer Perception

Spirit Quality

Product Quality

Faster Oxidation due to which

less Blend Stability

Spiritynote, faster

Hangover and Toxic at higher

level

Faster Oxidation and more

pungent in sensory

Alcoholic harsher at higher level

Low top note and Faster

oxidation at higher level

Pungent, Harsher burning

sensation

Different profile, faster

oxidation

Human health

• Relatively more depressant than ethanol

• Metabolizes faster by ADH & ALDH

• Metabolizes slowly by ADH & ALDH

• Contributing to hangover

• Metabolizes by ADH & ALDH to formic acid which damages optic nerve causes blindness

• Contributing to hangover

• Increases DNA damage possibility -carcinogenic

Ove

rall,

hig

her d

istill

ery

cong

ener

s con

trib

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st

rong

ly in

han

gove

r

THE WAY FORWARD

THE WAY FORWARD

Challenge

Raw Material

Water

Spirit Quality

- New grains - Millets- Optimized process – High recovery grains- New Gen process for better Starch conversion

- High Gravity fermentation – 18-20% alcohol fermentation

- Water recycling- Use of Millets- Use of new distillation Technologies

- Right Fermentation & Distillation- Good yeast- Production as per demand – No Slob- Use of new Distillation technologies- Better utilities

Way Forward

Facts about crop wise water usages

- Sugarcane: 1157 Kg / 1 kg of Sugar- Rice: 2000 lit / 1 kg of rice grain

Millets: 200 Lit /1 kg of grain (Sorghum, Bajra , Finger Millets or Ragi)

RECOMMENDATION

Emerging Market Challenges : - Right spirit quality

- Technical in-capability to deliver the right cost and quality

- Raw material availability

- Global taste aspiration

Indian Distillers

- Meet the global specification

- Right cost by right and optimized process

- In-house capability to deliver right specs

- Capability for exploring alternate raw material for sustainability

- Adopting new technologies for water and carbon footprint reduction

- In House capability to monitor and control the global requirements – GC, Sensory

- Industry should join hands for better price and quality supply of ENA – Win-Win

situation for both (Distillers and IMFL producers)

How to unlock the global and local market potential ?

Bridge the Gap

USL Diageo Quality Standards for Global Supplies

GRMS (Global Risk Management Standard) – Integrated Standard based on - ISO 22000, ISO 18000, ISO 14000Applicable for both Bottlers and Distillers, for USL Diageo supplies

RECOMMENDATION

Sustainability:

- Alternate raw material from Arid region

- Stand with farmers

- Supply model for raw material

- Partnering with universities &

technology suppliers

- New gen yeast and enzymes

Example :

US Maize and Alcohol Model

Food Valley in Netherlands

CSR can unlock the potential !!!

Benefit to business

Benefit to society

High

HighLow

Partnering

THANK YOU