Trends

Cheers to beer!

Beer is perhaps the oldest and most popular of all alcoholic beverages in the world. Even though beer is unable to compete with the liquor market in India, there still remains a growing market for the beverage. By Sayoni Bhaduri

Beer has been a part and parcel of Western culture, particularly North America and Europe for eons. However, looking at recent developments in the beer industry, it appears that companies have reached their tipping point - so much so that Carlsberg has shut down a few breweries in Europe due to the fall in demand. This is where the BRIC (Brazil, Russia, India and China) countries make a grand entrance.

In Asia, a lot is expected from India and China. And while China has achieved all that was expected of it as a beer consuming nation. A survey by Canadean (a research and data management group for international beverage and allied industries) in 2007 showed that China consumed 25 litres per capita, while beer consumption in India has been less than five litres per capita. Yet there is hope; India has shown maximum CAGR in the past five years from all other countries in Asia. (Table 1 and 2)

Is India the next China?

So will India follow in China's footsteps? Kevin Baker, director of alcoholic beverages, Canadean, while discussing the situation, says that both nations have a similar demographic pattern with concentration of wealth in the urban areas. This follows similar consumption patterns in alcohol, with low beer consumption and high consumption of cheap local spirits. However, he elaborates, one has to also take into account the differences in the age groups; India has a greater youth population in comparison to China. Moreover, taxation which is India's biggest hurdle is not a problem in China. This can be attributed to the fact that China has a centralised policy making system, unlike India where policies regarding alcohol are made by the states. Nevertheless, industry-wise, the beer industry itself is more structured and organised in India, while in China it is fragmented. In addition, strong beer is more favoured in India while China prefers beer with a low alcohol content. Thus, growth of beer in India is definite, though it may not follow the same pattern as China.

Yet things are complicated in India. Taxation and policies regarding alcohol in India fall under the State list; hence every state has different rules, norms and policies. Tamil Nadu, for instance, does not allow sale of alcoholic beverages manufactured in other states, while Gujarat does not allow sale of alcohol at all. There are also excise duty levels which vary from state to state and every state imposes additional taxes and levies. While the highest taxes are levied by Uttar Pradesh, Maharashtra and Delhi, the lowest taxes are levied in Kerala, Karnataka and Tamil Nadu. Then there are other obstacles in the way as well. Since the 1990s, the government has banned advertisements of any sort promoting alcoholic beverages. However, an interesting way to overcome this and promote the brand has evolved - advertisements for mineral water or aerated water with the same brand name as the beer. Apart from this, there is also the matter of preferences. The older generation of Indians still prefer whisky or scotch, while the youth have been seen opting for wines and white alcohol, like vodka for example.

All the above factors have an interesting impact on beer consumption. Andhra Pradesh and Maharashtra together account for almost 40 per cent of beer consumption in the nation, while Karnataka, Tamil Nadu, Rajasthan, Delhi, Kerala, and Uttar Pradesh account for a further 40 per cent of consumption. The rest of the states combined, account for just 20 per cent. As for per capita consumption, the highest recorded figures are from Goa, Andhra Pradesh, Delhi, Tamil Nadu and Maharashtra.

Closely related to consumption is distribution. According to Baker, the number of retail outlets in the country is very small. There are 20,000 licensed bars and 42,000 licensed retail outlets with about 1,200 distributors. Of the total beer consumption in India, one per cent can be attributed to the sales made to armed forces through canteen stores. And again for each state, distribution channels take time for set up.

Table 1

Table 2

The present and the future

It is interesting to know that foreign investors still have faith in the Indian beer market, despite the situation described above. Cobra Beer, founded by UK-based Karan Balimoria, has now started licensed production at Mount Shivalik, as well as at Impala, Manav and Iceberg Breweries and may look at building a brewery in the future. Asia Pacific Breweries (APB) acquired Aurangabad Breweries in 2006 and has a 67 per cent stake in a joint venture (JV) with Jaipuria Group to build a greenfield brewery near Hyderabad. APB plans to brew Heineken and Tiger. Carlsberg has formed a JV ‘South Asia Breweries’ with Lion Brewery, Ceylon. South Asia Breweries in turn will be building a 450 khl greenfield brewery in Rajasthan and has acquired HimNeel Breweries in Himachal Pradesh and Parag Breweries in West Bengal. Carlsberg will soon brew Carlsberg and it's Polish brand Okocim in India. InBev has formed a JV with RKJ Group to import and distribute its brands in India, primarily Beck's and Stella Artois. Latest to enter the market is Anheuser-Busch which has formed a JV with Crown Breweries to build a 500 khl greenfield brewery in Andhra Pradesh, for the licensed brewing of Budweiser.

So what brings these global players hither, considering that there is strong competition from the UB group which is the market leader with a 46 per cent share, closely followed by SABMiller which has 33 per cent of the market share? First and foremost the rapid economic growth of India has charmed the rest of the globe. Constantly increasing GDP, favourable growth in the demographics with a growing urban middle class, growth of modern retail formats, hopeful rationalisation of the taxation rules and ban on local country liquor are factors which will act in favour of the growth of beer in India. On-premise consumption, a major sociological reason which hinders growth of any alcoholic beverage, is expected to grow. Keeping these patterns in mind, Canadean predicts that beer consumption in India will reach 21 mhl by 2012 and the growth between 2006 and 2012 will reach 16 per cent per annum. This is a good sign for the future.