Indian Beer Industry
Group 9 Amit Kumar Singh Ekta Banka Rajat Jain Sayan Mazumdar Suruchi Sharma Utham K S
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History of Beer Industry in India Beer began Beer began to be exported to India in days of the early 1700s- during the british Empire.The demand for beer in the hot climate of many parts of India by the British administrators and the troops was so great that it led to creation of a new style of beer by George Hodgson in his London brewery — “India Pale Ale” also known as IPA. IPA. As of today no brewer in India makes India Pale Ale. All Indian Beers are either:
Lagers (4.3% alcohol)
Strong lagers (15 % alcohol) [1]
Market Overview Indian beer market is valued at INR 35 bn with volume sales of 172 mn cases for FY 2008-09 and at the current trend the market is expected to grow at an annual rate of 17.2% till 2011. Foreign brewers are eyeing the Indian beer market which is largely untapped and has huge growth potential. [2] International beer companies have a good enough reason to tap markets like India. That their main markets, North America and Europe, are either flat or in a state of decline is no secret. Carlsberg, for instance, said it could look at closing select European breweries due to a slump in demand. In contrast, beer is flying off the shelves in India. A recent report by global beverage consultants Canadean states that consumption of beer in BRIC countries (Brazil Russia, India and China) increased by almost 50 per cent during 2002-2007. In India, beer sales grew at nearly 90 per cent, compared to a less than 60 per cent growth for other alcoholic drinks. Industry sources estimate that the Indian beer market is expected to nearly double to 23.3 million hectolitres by 2012 from 12.5 million hectolitres at present. But the market is difficult to break into. More than 80 per cent of the market is controlled by the two players, UB and SAB Miller. While UB with brands like Kingfisher, Zingaro and Kalyani Black has a 48 per cent market share, SAB's bouquet of acquired brands-- Haywards, Royal Challenge, Knock Out and Foster's deliver a combined market share of 37 per cent.(See exhibit 6 for Market share) In the last 9 years beer consumption has been growing rapidly at a CAGR of 7% .Looking from the industry perspective,the Indian beer industry has been witnessing steady growth of 10% per year over the last ten years. With the average age of the population on the decrease and income levels on the increase, the popularity of beer in the country continues to rise. [3] Drivers & Challenges Drivers
Young population
Nearly 28% of Indian population live in urban areas which comes close to the population of USA. Urbanization is happening at a very fast pace and about 40% of the total population is expected to live in urban areas by 2020. Also people in India are relatively younger when compared with global average. About 50% of the Indian population would be under 30 years even in 2015.
Low per capita consumption
Indian per capita beer consumption is very low compared to global average. In the total alcohol market in
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India, beer contributes only 4% of revenue. The low penetration in beer consumption provides a substantial and sustainable growth in demand for beer in future. [4](see Exhibit 1 for the average beer consumption across the world)
Rising income levels
India is one of the most attractive consumer markets in the world with about one-sixth of the global population. The rising income levels has a direct positive impact on beer sales in India. Also, urban consumers who are more exposed to the western culture socialize with beer. The growing income levels particularly in the urban earning class is a potential market for beer manufacturers in India.
Dynamism in Beer market Many foreign beer manufacturers have entered or plan to enter the Indian beer market with their product line. The market is set to flourish with 15 new breweries and 10 international brands in the next 3 years. With the global markets experiencing low or stagnating growth and focus shifting to India, the Indian industry is expected to witness fast growth in the coming years. [5] (see Exhibit 02 for the major brands available in India)
Challenges
Bottling shortage What often happens is people have more bottles at home than they drink on a weekly basis because they tend to buy regularly and bring them back irregularly. SABMiller, which manages Shaw Wallace Breweries Breweries Ltd, has warned that the country could face a beer shortage in the approaching summer, the peak consumption season. Mr.Richard Rushton, Managing Director of SABMiller India Ltd, told Business Line in an interview that he feared industry would not be able to adequately service the demand in the summer months on the back of "an inefficient bottle pool management" in a market that is heavily dependent on recycled bottles. MrRushton said, "The route which the bottle takes to the trade and ultimately to the consumer should be the same it takes back to the brewer through the value chain. But in India, it gets fragmented and dispersed to spend a lot of time in the trade and results in high incidence of breakage," he added. The 650 ml beer bottle is common to all companies and only the 250-300 ml bottle has proprietary designs and logos on it. Thanks to breakages and diversion to other unorganized players, only around 60-65% of bottles are actually returned to the company, says liquor industry consultant, UB Bhat. Till about a year and half ago, bottles were being returned to companies at an average of Rs 3.00 to Rs 3.50 per bottle. Taking advantage of the shortage, second hand bottle traders hiked prices from the normal Rs 3.00 to Rs 3.50 to Rs 7.00, almost equal to the price of a new bottle! Not to be left out of the party, glass manufacturers sharply increased prices too. The shortage in bottles took their toll on profitability of the companies. Richard Rushton, managing Director of SWBL admitted that bottle prices had seriously affected the company’s profitability, especially considering that regulations in a number of states prevent companies from passing on cost increases to. UB too talks of an “unprecedented cost push” caused by the shortage in its annual report. In fact, UB disclosed that the spiraling bottle costs shaved off Rs.30 crore - 40 crore in its operations during the last financial year, 2003-04. Indian brewers have injected about 250 million new returnable glass bottles into the beer market during the last nine months to beat down prices of recycled bottles. [8] Many bars across the State of Kerela now display the sign ‘No beer' and several others tell their patrons: “Only one bottle per person, sir.” They apologetically tell the customers that they are not getting sufficient
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supplies from the Kerala State Beverages Corporation (Bevco), the government-owned monopoly distributor of liquor.
Government Tax and regulation Advertisements barrier
Building brands, particularly for alcoholic beverages, is easier said than done. In the mid-1990s, the Indian government banned advertising of alcoholic beverages. By then, existing brands such as Kingfisher, Foster's and Haywards had already built their brand without any surrogate branding efforts. In contrast, the new entrants will have to rely only on surrogate advertising. For instance, Cobra is now advertised on television as sparkling water with the tag line "so smooth, anything goes down well". [7] As the advertisement of liquor is banned in India, Carlsberg has cashed its international image to boost its sales in the domestic market. They have targeted the public houses and discotheques for their promotion which is very apt. Kingfisher employs the style of surrogate advertisment, where it try to gain cutomer attention by advertising about its mineral water,etc. But with government banning even indirect advertisements of wine, alcohol, liquor and any tobacco products forthwith in the interest of public health, the brand building is going to be a great challenge.(See exhibit 14)
Beer Highly Taxed
Minority preference for beer in India and high tax structure are the major challenges for Indian beer industry. One of the reasons for the low preference for beer is high taxes imposed on beer consumption. On absolute alcohol basis, beer is taxed higher than spirits in most of the states in India. There are about 26 different alcohol specific taxes that constitute 50% of the consumer price which is among the highest in the world. In India, beer taxes are levied by individual states and taxes are also paid between states .[9](See Exhibit 5 for comparison of tax rates) Beer, which is a softer form of alcohol consumption, is taxed higher by most states compared to Spirits on absolute alcohol basis. This is primarily because taxes on beer in India tend to be relatively higher than spirits whereas in most parts of the world, in fact, the reverse is true. Globally, on a per alcohol basis beer is taxed at 50% of hard liquor whereas in India, beer is actually taxed 60% more than hard liquor. (See Exhibit 8) The Indian beer industry is plagued with myriad taxes & levies that vary from state to state. In fact no two states or UTs have a same or even a similar policy. The inconsistency in the state policies leads to fostering an environment of mismanagement & lack of focused strategy to manage state finances. States usually do not adopt policies based on scientific management or by considering the social aspects of managing this trade. The policies are generally short term in their outlook, with little or no thought to long-term interests of all stakeholders, including the general public. (See exhibit 3 for Sample duties table)
Price Restrictions
Price restrictions in many large markets remain a biggest challenge for the industry. The Government decides the End Consumer Price (ECP), leaving the manufactures with no say in determining the price of the beer. In a free market economy this has no rationale.
Inadequate Market I nfrastructure
The market infrastructure for beer in India is inadequate. For every 21000 persons there is one outlet hampering the availability of beer. In China, for instance the figure is 300. The highly regulated market hampers beer sales, unlike most developed countries where beer and wine are not regulated in grocery/
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retail stores. The retail distribution channels are not completely open for selling beer in India. Regulations are stiff with respect to selling beer through modern retail chains where as in most developed nations beer and wine is available in grocery or retail stores.
Restriction of Movement of Beer
For the movement of beer from one state to another, an export license and an import license is required. Export fee is imposed in the state where beer is manufactured and import fees on the State where it is sold. In some states only beer manufactured in that state can be sold. Few states like Tamilnadu have strict rules of selling only beer manufactured within the state.
Consumer choice and preferences: India is predominantly a hard spirits market and beer is a minority preference for those who consume Beverage Alcohol. Beer makes only 4% by revenue of the total alcoholic market. It would be pertinent to mention that while per capita consumption of spirits in India is 65% of global average, in the case of beer it is a mere 3% of global average. (See Exhibit 4 to compare beverage consumption across the world) World over it has been identified that policy focus should not as much be on controlling consumption but more importantly on reducing harm. Therefore, beer and wine dominate the alcohol market in most countries. It is considered to be common man’s drink and in many countries is even priced in parity with soft drinks. But in India things are different in India. The per capita consumption of beer in India is just 1 liter per person per year as compared to the world average of 22 liters. This is one of the lowest in the world.
Capital Barrier
The capital required to set up and maintain a brewery is very high. Branding is another issue. It takes time for a new beer brand to gain acceptance and shift loyal customer tastes. So the companies prefer to grow inorganically by acquisitons and mergers. Characteristics and trends Growing demand for barley and evolving contract farming Barley accounts for one-sixth of the cost of making beer. Increase in domestic consumption and export demand has pushed the barley prices up by 20% from Jan 08 - June 08. Moreover, Increase in barley prices has let to 10% increase in cost of beer. The protein content in barley crop in India is 13-15% compared to 710% in developed nations and this high protein content in Indian barley is not suitable for making beer. Rajasthan is an ideal place where barley can be grown under suitable climatic conditions for having lower protein content required by the beer industry. SAB Miller India is encouraging farmers in Rajasthan to cultivate a type of malt barley required by the industry. The company launched a programme called Saanji Unnati for educating farmers to sow the right type of certified seeds and practices. [10] (see exhibit 11 & exhibit 12 for growth of barley prices and its consumption in 2008)
Rise of premium beer sector
Premium beer segment is outpacing the mainstream beer market touching a growth rate of between 40-50%. The Indian beer industry is moving towards premium category of beer. Lifestyle changes and increasing western culture in India are some of the factors driving the premium segment. Many domestic and foreign premium brands are finding the interests of young urban working class. Premium beers are priced about 30% higher than regular brands. (See Exhibit 9 & Exhibit 10) Some of the premium brands in India are: UBL - Kingfisher Premium, UB Premium,Ice, Kalyani Black Label Premium
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SABmiller IndiaIndia- Foster’s, Peroni, Royal Challenge Other Premium BrandsBrands- Cobra 5.0% Premium, Budweiser, Carlsberg, Stella Artois, Tiger, Beck’s[11] Inorganic Growth in the Industry Players are growing inorganically through joint ventures and acquisitions. The entry of foreign players will expedite the consolidation of beer market in India. Setting up a greenfield brewery takes about 18-24 months, thus companies are looking at joint ventures or acquisitions. In 2007,Anheuser-Busch International, USA acquired 50% stake Crown Beers Ltd, Carlsberg acquired 52% stake in Parag Breweries. In 2008, Cobra Beer acquired 76% stake in Iceberg Industries Ltd. In 2009 Yuksom Breweries acquired 100% stake of Rhino Breweries. The big players have grown inorganically mainly due to huge entry barriers.[12]
Consumers open to Experimentation
New sub-categories of beer are emerging as consumers in India are now open to experimentation. With Indian consumers open to experimentation, many multi-national firms are introducing alcohol-free and flavoured beers in the market. Craft beers, which are available in unique flavours, is expected to penetrate the lager dominated Indian beer industry. Craft beers are expected to attract women consumers and these new sub-categories are estimated to cut 25-30% of market share of regular lagers. Cobra beer is bullish on alcohol-free beer and flavored beer in India. It has rolled out:
Cobra LightLow calories and low carbohydrates Cobra Zero %: Alcohol-free Cobra Bite: Flavored beer (Includes Lemongrass, Blood Orange, Sweet Lime and Fresh Ginger flavours)
The UB group also sees an opportunity for new beer sub-categories and segments in India. The company plans to cater to different consumer segments in the industry and will launch three new varieties of beer including fruit flavored and low alcohol brands.[13]
Competition Currently more than 80% of the market is controlled by two major players United Breweries Limited (48%) and SABMiller India (35%).Strong beer is predicted to grow faster as it is perceived to offer value for money alternative to spirits. With InBev acquiring Anheuser-Busch, it has potential to emerge as the third major player in the Indian beer market. The future of beer market in India looks positive with the entry of many international players. Beer sales will increase along with increasing number of brands and sub-categories in India. Existing players like UBL and SABMiller are planning to expand their range of products.New players like ABInBev, Carlsberg are bringing their internationally renowned brands to India.[14] (See Exhibit 6 & Exhibit 7) Top players
United Breweries
United Breweries crossed milestone of 100 million cases. It enjoys a 57 per cent share in the estimated 200 million cases domestic beer market. Its total volume of sales increased by 20% while the revenues increased by 18%. The company also saw huge rise in its net profits- by 51%. UB Group today controls 60% of the total manufacturing capacity for Beer in India. The company, which sold
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over 100 million cases of beer in 2009-10, expects a sales growth of 30-35 per cent in the current fiscal. For FY 2008-09-The Company reported a net turnover of INR 17475.7 mn and profit after tax of INR 624.9 mn Brands: Kingfisher (Premium, Strong, Strong fresh, Draught, Ultra, Blue, Red, Bohemia), Zingaro, UB Export, Londer Pilsner Premium strong, Kalyani Black Label strong, Bullet, Marco Polo, Guru Strong, London strong.[15] Business Strategy: UBL has a manufacturing network of 22 breweries across India. The company enjoys a market share of 48% in the industry and plans to expand its share further. Kingfisher Strong is the single largest selling beer brand in India, while Kingfisher Premium continued to outperform in its category.UBL plans to set-up two new green field breweries at Mallepally in Andhra Pradesh and Nanjangud in Karnataka in order to support the revenue growth. UB Group firm United Breweries Ltd today said it is planning to locally produce Dutch beer brand ''Heineken'' by next fiscal besides launching a refurbished ''Tiger'' brand in India this year.[16]
SABMiller
SABMiller India is a subsidiary of SABMiller PLC registered in India as SKOL Breweries Limited. For FY 200708 the company reported a net turnover of INR 10860 mn and profit after tax of INR 344 mn. Brands: Haywards 5000, Haywards 2000, Haywards Black, Foster’s, Indus Pride, Peroni, Royal Challenge, Knock Out Note on Foster’s:
Foster's Lager is a uniquely international beer, brewed with the finest sun-dried malted barley, the purest water, and Foster's own specially bred 'Pride of Ringwood' hops imported directly from Australia to give the beer an authentic flavour. Its crisp, clean flavour won it immediate international acclaim when it was first brewed in Melbourne in 1888. Today, more than one hundred years later, it is still recognized as one of the world's best beers. Foster's Lager is a uniquely international beer, brewed with the finest sun-dried malted barley, the purest water, and Foster's own specially bred 'Pride of Ringwood' hops imported directly from Australia to give the beer an authentic flavour. Its crisp, clean flavour won it immediate international acclaim when it was first brewed in Melbourne in 1888. Today, more than one hundred years later, it is still recognized as one of the world's best beers.[37] Business Strategy: SABMiller has 10 breweries located strategically across India to serve the beer markets efficiently. The company has a market share of 35% and stands in the second position. The company has invested about INR 1250 mn in the past two years for upgrading the breweries to global standards. SABMiller has leveraged its global expertise in packaging, pricing, occasion and product gaps which were improved based on consumer insights.Also it plans to bring the iconic Dutch premium beer Grolsch to India. SABMiller Plc has acquired the brand for USD 1.2 bn in 2007. [17]
Other players
InBev India Brands: Tennents Super, Beck’s, Stella Artois, Hoegaarden, Leffe Anheuser-Busch (AB) was acquired by InBev in 2008 and formed ABInBev India; currently operates using trading name InBev India. InBev operates in India through a 49:51 joint venture with soft drink bottler RKJ
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Group. AB started operations in India through a 50:50 joint venture with Crown Beers International initially but later AB purchased the remaining ownership from Crown Beer India Ltd. Business Strategy: InBev India has a production capacity of 1.9 mn cases a year through two contract brewering arrangements in Regent Breweries in Madhya Pradesh Pradesh & Dasappa and Sons Bangalore. InBev plans to introduce Tennents brand in North India either by finding a contract brewer or by setting up a brewery. ABInBev India launches Budweiser beer in North India in August 2009. It has received a good response in the Southern states and Maharashtra. The company expects to cross 2.9 mn cases in sales of Budweiser beer by December 2009. [18]
Carlsberg It entered Indian market in 2006 & operates here through a joint venture named South Asia Breweries and positioned itself as a premium mild beer. With the launch of its flagship brand, the company is trying to create a premium, all-malt beer category. In 2009 Carlsberg was the 4th largest brewery group in the world. Its products are sold in more than 150 markets. In 2008 the Group sold more than 120 million hectoliters of beer, nearly 100 million bottles of beer a day. Their major consumers are in Southern India. Howsoever, it consciously chose the north, east and west regions of the country to set up its breweries Strategy adopted by Carlsberg is to concentrate on to the untapped market of north and west India in the initial stage of the production. Moreover, since it has positioned itself as a premium product, it is only catering to the urban cities of India. [19]
Comparison between Indian and US Beer Industry US Beer Industry- A snapshot Production Beer is the most popular alcoholic beverage in the United States, manufactured by more than 1,500 breweries which range in size from industry giants to brew pubs that sell their beer only on premises. Home Brewing is very popular in the US. The United States produces about 230 about 230 million hectoliters (about 6 billion gallons) of beer annually and leads the world in beer production with regards to volume. The number of breweries in the United States ranks first in first in the world. Consumption and Major Players Annual Beer consumption by Americans is about 85 liters per capita, which in 2002 ranked 8th in the world. There are currently five big dominating companies in the US market. These include Anheuser Busch, SABMiller, Molson Coors, Heineken, and Carlsberg. Anheuser Busch firm had the largest market share in the US in terms of sales. (See exhibit 13) Future Prospects In the global stage beer companies face a slower growth, mainly due to the increasing consumption of wine and spirits. Demographic changes in many parts of the world made a strong impact on US beer industry. This is mainly because population growth rate in markets like China, Russia and India incur opportunities for large sales growth for foreign beer companies. European and Asian markets present a great opportunity for American beer companies.
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Latest Developments 1.
A deal struck in December last year between UB Group and Heineken, the Dutch brewer had agreed to produce and market its world-renowned beer, ''Heineken'', only through UBL. Moreover, ''Heineken'' had also agreed to transfer the Indian operations of its Singapore-based subsidiary, Asia Pacific Breweries (APB), which owns the ''Tiger'' beer brand, to UBL. The company said it will launch the new brand in phases and expects to make a pan-India presence by next fiscal. [20]
2.
Year 2009 was highly dynamic in terms of new brand launches, with United Breweries Ltd and Carlsberg India Pvt Ltd expanding their domestic premium lager portfolios by launching Kingfisher Ultra and Tuborg, respectively. [21]
3.
Brands such as Tennent’s, Kingfisher Blue and Indus Pride, which were launched in late 2008, became available in outlets nationwide in early 2009. [22]
4.
Niche products, such as dark beer, also saw greater availability, with the launch of ales from the Little Devil’s and Coopers portfolios in 2009. [23]
5.
VB –victoria bitter was launched at a function on 20 January 2010 in a lead-up to the Australia Day celebrations in New Delhi. VB – The Beer Australia’s favourite beer.[24]
6.
2009 total volume growth was two percentage points lower than the total volume CAGR recorded over the review period. Although 2009 volume growth was higher than that in 2008, growth rates did not bounce back to the highs seen in 2006 and 2007. While the long summer in 2009 buoyed the beer market in North and West India, sales growth in the key southern states, such as Karnataka, Andhra Pradesh and Tamil Nadu, was adversely affected due to taxation-related price rises in Karnataka and the withdrawal of United Breweries Ltd’s and SABMiller India Ltd’s brands from Andhra Pradesh in first half of 2009. [25]
7.
Both domestic and multinational players were very aggressive with brand launches and promotional activities in 2009, and the category benefited from consumers trading down from imported premium lagers to domestic premium lagers. Moreover, brands such as Tiger, Carlsberg and Budweiser, which were available as imports in several cities in 2008, saw a sharp rise in availability and accessibility as domestically produced SKUs of these brands were rolled out nationwide in 2009. [26]
8.
The average unit price of beer rose only marginally in 2009, by about 1%. Overall prices remained stable in most of the states in India. Nonetheless, fluctuations in taxation policy did drive up prices in some states, including Karnataka and Delhi-NCR. [27]
9.
Imported premium lager grew by 12% in 2009, which was significantly lower growth than the review period CAGR of 18%. Imported premium lager growth was adversely affected by the dual effect of a rise in import taxes in key markets, such as Maharashtra and Karnataka, and the economic uncertainty in the first half of 2009, which resulted in depressed on-trade sales. With major international brands, such as Carlsberg and Budweiser, being priced on a par with domestic brands, such as Kingfisher, consumers had access to several aspirational international brands within domestic premium lager, thus growth in imported premium lager sales slowed down. [28]
10. 81% of volume sales of beer are derived from off-trade sales, as beer consumption is most common during social and family gatherings at home. Moreover, beer is priced on a par with spirits in on-trade outlets, and many consumers prefer consuming spirits with mixers, which provide a quicker “high”. [29] 11. Glass bottles of 330ml and 650ml are the dominant type of beer packaging available in India. However, canned beer continued to see strong volume growth in 2009. Canned beer volume sales grew by more than 20% in India in 2009. [30] 12. In May 2009, Can-Pack India Pvt Ltd started its operations in India, with the aim of supplying 65% of its one billion can annual output to the beer industry, and gained contracts with most of the major beer players. [31]
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13. The domestic production of beer is on the rise, with official statistics reporting an 11% increase in domestic beer production in 2008, which is in line with the 12% growth in volume sales of domestic lager in 2008. In October 2009, Carlsberg India Pvt Ltd started work on its new greenfield brewery in Medak (Andhra Pradesh), which is expected to have a production capacity of 4 million litres per month and start operations in late 2010. [32] 14. Exports of beer out of India declined marginally in 2007, while imports rose by 39% in volume terms. This reflected the robust growth in sales of imported premium lager in India. [33] 15. Imported beer accounted for less than 1% of beer volume sales in 2009. Imported beer is only available in niche premium on-trade outlets, where it is sold at significantly higher prices than domesticallyproduced beer, due to high import duties. In addition to more widespread distribution and lower price points, domestic brands also have the benefit of higher brand recall, due to high-profile marketing activities.[34] 16. Apparent consumption levels grew by 24% in 2007 over the previous year, to reach 390 million litres. This is less than one third of the reported market size of 1,193 million litres in the year. This discrepancy between the calculated apparent consumption and total market size is chiefly due to problems associated with data collection by government bodies. Companies often underreport actual production figures. In addition, many units will be sold via both official and unofficial channels, such as with the illegal imports of beer into prohibition states. [35] 17. Effect of IPLIPL- The IPL 2010 held in April provided a major boost to the sales of beer. UBL signed a contract with IPL that all the beers used in IPL parties would be supplied by UB groups. In a total of 54 IPL parties, which amounted to 270 hours of partying, approximately 1.3 lakhs beer bottles were consumed. [36] 18. Effect of Soccer World cup 20102010 - As per the Pub owners the traditional combination of beer and soccer,
coupled with the soaring heat, could mean a sale of upto 700 litres of beer for some pubs every day, till
the end of the world cup. “We saw an average consumption of 500 litres of beer every day during the IPL; we expect that to double now. Soccer brings a lot of expats and corporates, and for them the game is incomplete without beer,” observed a pub owner. According to South African Breweries (SAB) 100,000 hectolitres (1 hectolitre = 100 litre) of beer will be sold during the five-week World Cup.
Questions 1. 2.
Give a brief analysis on entry of new firms. Do a competition analysis of the beer market.
3. 4. 5.
What kind of market is Indian Beer industry. Why? Effect of advertising/association with IPL on demand curve of beer. What is the beer market segmentation in India statewise?
Answers Ans 1. The article shows that currently there are two major players in the Indian Beer Industry – United Breweries with a 49% market share and SABMiller India with a 38% market share. The remaining 16% market share is shared between strong domestic players and some aspirational international Brands. The barriers include:
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High Government Tax Highly Regulated Market Infrastructure Advertising barriers Consumer tastes not aligned with the consumption of beer vis-à-vis other beverages Preference to promote to higher alcohol content drinks after starting with Beer High-Capital Barrier Challenges faced in procuring raw materials like bottle & Barley Although the market is equitable with respect to the brands, we see high concentration with respect to companies. This is mainly because of aggressive acquisitions of relatively successful brands by the biggies in the recent times.(Exhibit 6 & 7) The potential for growth is equally enticing for Major brands to participate in Indian beer industry. With Brands like Diageo & Victoria Beer venturing, we can expect dynamism in this space.
Ans 2. Competitive analysis of players in the beer market. Although there are more than 10 players in the market, two groups hold the maximum share of the market. On applying Herfindahl index to get a feel of the competition in the Market. (The Four Major players and their share is provided in Exhibit 6, UB – 49% SABMiller – 38% Millenium Alchobov – 9% Mohan Meaking 4%) HHI = 492 + 382+ 92+42 = 3942 An HHI index of more than 1800 represents a highly concentrated market. With an HHI of 3942, we can deduce that Beer market in India is highly concentrated and dominated by few players. Also the case confirms the same. Ans 3. The beer market has turned itself into an oligopoly in the past 100 years. Where there once were hundreds of local brewers across the country, there now are just a few major players in the industry. As an oligopoly is characterized by multiple firms, one or more of this will produce a significant portion of industry output. Oligopolies exist where a few large firms producing a homogeneous or differentiated product dominate a market. There must be few enough firms so that they are mutually interdependent, which means they must consider rival's reactions in response to decisions about prices, output, and advertising. The causes of the beer oligopoly are as followed: 1. Economies of scale exist, which indicate that a few large firms would be more efficient that many small ones. 2. A high degree of capital investment required 3. Other barriers to entry may exist like patents, control of raw materials, large advertising budgets, and traditional brand loyalty. As evident, all these criteria are satisfied by the Indian beer market . [38] This market can be analyzed using Cornout Model. As per it, each firm must decide how much to produce, and at the same time- taking its competitor in account. Also each player treats the output level of its competitor constant when deciding as to how much to produce. Based on this model we can draw the reaction curves of the 2 firms- UBL (49% market share) and SABMiller (38% market share).
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R2 r e l l i M B A S y t i t n a u Q
R1
E
Q2'
O
Q1' Reaction curve for UB UBL
R2
R1
Quantity UBL
Reaction curve for SABMiller
As per the Duopoly Cournot’s model the graph drawn below depicts the market conditions. Q1’ and Q2’ represent production quantity of UB group and SABMiller. R1R1 and R2R2 represent the UB groups and SABMiller’s reaction curve. With UB group as the market leader the quantity output is OR1. With this condition SABMiller selects various strategies to enter in to the market and capture the market share by acquisitions and international branding and it produces an output. Since SABMiller has entered the market the UB group will change it production by decreasing it along its reaction curve. Similarly SABMiller reacts by increasing its production along its reaction curve. Then both the player reach the equilibrium point (E) or try to attain the point such that the price is satisfactory, both of them are able to sell the quantity which is exhausted and are able to maximize their production. It is with this model the market leader UB group has moved to lower market share of 47% and SABMiller to 37%. There will be further change in the market share to attain the equilibrium point (E). In the Cournot equilibrium model the two firms are making the profits that exceed those that earned under perfect competition but less than those that would be earned by monopoly. They earn less than a monopoly would earn because of their joint outputs exceeds the monopoly outputs. They earn more than perfectly competitive firms would make since each is aware that it drives the price down when it increases its own output. Thus the above analysis shows the duopoly market condition in Indian beer industry. Ans 4. As discussed in the case UBL had signed a contract to supply all the breweries consumed in IPL parties. There were total 54 parties which amounted to 270 hours of partying. Approximately 1.3 lakhs beer bottles were consumed. Looking it from a micro economic perspective, we can say that there has been an increase in the demand. Hence assuming the same supply, the market would clear at a higher price.
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As we can clearly see from the demand curve above, with the advent of the IPL season the theory propogates and increase in price and demand of the beer. Also the following report confirmed the same hypothesis. The table below shows the original selling price and new selling price. Brand (750 ml) Kingfisher Premium Haywards 5000 Knock Out Cobra RC Beer
Original SP Rs 67 Rs 78 Rs 78 Rs 60 Rs 67
New SP Rs 80 Rs 90 Rs 90 Rs 75 Rs 80
As we can see there was almost 15% rise in the market clearing price and also the market clearing amount increased by approximately 1.3 lakhs bottle. Hence we can conclude that, with people willing more to spend on beers during the IPL season, we see that IPL had an overall effect of increase in the demand of beer. [39] Ans 5: The beer industry in India is highly concentrated with southern India contributing to the bulk of the sales. Andhra Pradesh and Maharashtra together account for 40% of the beer sales in India. While Karnataka, Tamil Nadu, Rajasthan, Delhi, Kerala, and Uttar Pradesh account for other 40% and rest of states account for 20%. Excise duty varies from state to state and every state imposes additional taxes and levies. Movement of beer is restricted from one state to other, an export and import license is required. Tamil Nadu does not allow sale of alcohol manufactured in other states. Players have to build separate strategies for each state and build multiple manufacturing capabilities across India. Hence we can say that a firm cannot have a same strategy for the entire nation. With different states following different policies it becomes more important to have a different operational strategy.
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One of the reasons for higher sales of beer in South-India is the hot and humid climate for around 10 months. Due to this people consume beer all throughout the year increasing the volumes. As the figures suggest, the hot states contribute most to the revenues generated from the beer sales. (See Exhibit 15) .
Hence we conclude that the overall market in India is highly diverse and for each region different strategy needs to be employed.
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Exhibits Exhibit 1
Average Beer Consumption 90
80 74
80 70 60 50 40
25
30
22.1
20 10
1.2
0 US
Europe
China
Global Average
India
Exhibit 2 Major Brands venturing into Indian Market International Players
Brands
Asia Pacific Breweries
Tiger, Cannon-10000, Baron’s
Anheuser-Busch InBev
Budweiser, Stella Artois, Beck’s, Hoegaarden, Leffe
Carlsberg
Carlsberg, Tuborg, Palone
Exhibit 3
Sample duties Import duty on beer - 100 % basic; 10 % surcharge; SAD : 4 % Sales taxes - 45%, 5% cess (State subject). Excise Duty - Rs. 4/ Bulk liter in Karnataka (State subject)
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Exhibit 4
37.42
Tea 30.55
Milk
29.11
CSD 21.94
Coffee
World
15.69
Bottled water
India 7.85
Fruit beverage 1.38
Distilled spirits
22.06
Beer 0
10
20
30
40
50
Showing per capita consumption (liters /per annum) Exhibit 5
Tax on beer(base value:tax on hard liquor)
India
global
-60
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-40
-20
0
20
40
60
80
Exhibit 6
Beer in India India - Mark Market et share share 4% 9%
UB Group SABMiller
49%
Millenium Alchobev Mohan Meaking
38%
Source: Euromonitor International I nternational Exhibit 7
Top 10 Beer Brands in India Kingfisher UB Group
3% 3% 3%
Haywards SABMiller
2% 3%2%
Knock Out SABMiller
6% 47%
8%
Royal Challenge Premium Lager SABMiller Zingaro Millenium Alcobev Foster's SABMiller
23%
Golden Eagle Mohan Meakin UB Export UB Group
Source: EuroMonitor International
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Exhibit 8
Comparison of price of Beer Large across India
100 90 80 70 60 50 40 30 20 10 0 e r o l a g n a B
r e n a k i B
i m a i n l o n d a n h a C C
e R r r o d a C l i o b t N a a / a b i w r e G h d m l i y e o D H C
r u p i a J
i i j m a a a b n l a m a v u P o K M
y M r r V e h T c i d n o P
Source: pintprice.com Exhibit 9
Market share of premium beer (volume) 5% 95%
Premium Beer
Mainstream Beer
Exhibit 10
Market Share (Segment Wise)
Strong
Mild 7% 23%
30%
70%
SabMiller
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40%
30%
UBL
Others
SabMiller
UBL
Others
Exhibit 11
Growth in barley prices (2008) 1400 1200
g K 0 1000 0 1 800 r e p 600 e c 400 i r P
200 0 Jan/08
May/08
Jun/08
Exhibit 12
India’s barley crop consumption break-up 25% 75%
Beer an and Ma Malt fa farms
Feed to to an animals
Exhibit 13
S. No
Parameters 1 2
Annual Production(2008-2009) Type of Market
US Beer Industry
Indian Beer Industry
230 million hectoliters
16 million hectoliters
Oligopolistic – very competitive
Oligopolistic
1.5% (Mature Market)
17.2% till 2011 (Rapidly growing market)
3
Expected Annual Growth Rate
4
No of dominating players
5
2
5
Per Capita Consumption
85 liters
<6 liters
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Exhibit 14
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Exhibit 15
Region-wise market share 3% North 18%
North East 5% 7%
46% 21%
West Central South Others
Bibliography
[1] http://en.wikipedia.org/wiki/Beer_in_India [2] http://www.mindbranch.com/Beer-India-Forecasts-R587-51/ [3] http://www.scribd.com/doc/26542793/Beer-Market [4] UBL Annual report 2009; SKOL Breweries Annual report 2008; Bloomberg “SABMiller Fights India’s Beer Rules in Court to Double P rofit”, Dec 2008, TASMAC [5] UBL Annual report 2009; SKOL Breweries Annual report 2008 [6] All India Brewers’ Association report, Nov 2008 [7] http://www.rediff.com/money/2007/dec/04bspec.htm [8] http://wapedia.mobi/en/Indian_beer [9] All India Brewers’ Association report, Nov 2008 [10] Financial Express “Barley gains attention of beer industry”, Jan 2008 & “High demand from beer cos pushes barley prices up by 20%”, May 2008 [11] Company websites; Press articles; Business Line “SABMiller looks to introduce premium beer brands in India”, May 2008 [12] Securities.com [13] Business Standard articles “Indian beer market ready for new fizz”, May 2008 & “Craft Beers set to challenge 'Lager' territory”, Jun 2009 [14] Company websites; Annual reports; Press articles; DNA article “SABMiller seeks bi gger mild-beer glug”, Mar 2009
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[15] Press articles, Company website [16] http://economictimes.indiatimes.com/news/news-by-industry/cons-products/liquor/NewArticle/articleshow/6159400.cms [17] Press articles, Company website [18] Press articles, Company website [19] Press articles, Company website [20], [21],[22],[23] http://www.euromonitor.com/Beer_in_India [24] http://indianwine.com/ [25]- [35] http://www.euromonitor.com/Beer_in_India http://www.euromonitor.com/Beer_in_India,, http://www.researchandmarkets.com/reportinfo.asp?report_id=450612&t=d&cat_id= [36] http://www.cinejosh.com/andhra-daily-telugu-news/7398/13-lakh-beer-bottles-ipl.html [37] [37]http://www.mybangalore.com/article/0410/the-art-of-chilling-with-cricket.html [38] http://www.oppapers.com/essays/Beer-Industry-Oligopoly/56059 [39] http://andhralekha.com/news/11-26569-Beer%20prices%20skyrocket%20in%20IPL%20Season!!
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