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Beer Industry in India

Beer Industry in India

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Published by Amit Kumar Singh
A brief on Beer Industry in India by students of SPJIMR- 2010-12
A brief on Beer Industry in India by students of SPJIMR- 2010-12

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Published by: Amit Kumar Singh on Jul 25, 2010
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03/12/2013

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Indian BeerIndustry
Group 9Amit Kumar SinghEkta BankaRajat JainSayan MazumdarSuruchi SharmaUtham K S
 
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History of Beer Industry in India
 
Beer 
began to be exported to India in days of the early 1700s- during the british Empire.The demand for beerin the hot climate of many parts of India by the British administrators and the troops was so great that it ledto creation of a new style of beer by George Hodgson in his London brewery
 
“India Pale Ale” 
also known as
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 thecurrent trend the market is expected to grow at an annual rate of 17.2% till 2011. Foreign brewers are eyeingthe 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 Canadeanstates that consumption of beer in BRIC countries (Brazil Russia, India and China) increased by almost 50 percent during 2002-2007.In India, beer sales grew at nearly 90 per cent, compared to a less than 60 per cent growth for other alcoholicdrinks. Industry sources estimate that the Indian beer market is expected to nearly double to 23.3 millionhectolitres 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 acombined 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 industryperspective,the Indian beer industry has been witnessing steady growth of 10% per year over the last tenyears. With the average age of the population on the decrease and income levels on the increase, thepopularity of beer in the country continues to rise.
[3]
 
Drivers & ChallengesDrivers
 
Young populationNearly 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 inurban 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 consumptionIndian 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 substantialand sustainable growth in demand for beer in future.
[4]
(see Exhibit 1 for the average beer consumptionacross the world)
 
Rising income levelsIndia is one of the most attractive consumer markets in the world with about one-sixth of the globalpopulation. The rising income levels has a direct positive impact on beer sales in India. Also, urban consumerswho are more exposed to the western culture socialize with beer. The growing income levels particularly inthe 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 Indianindustry is expected to witness fast growth in the coming years.
[5]
(see Exhibit 02 for the major brandsavailable in India)
Challenges
 
Bottling shortageWhat often happens is people have more bottles at home than they drink on a weekly basis because they tendto buy regularly and bring them back irregularly. SABMiller, which manages Shaw Wallace Breweries Ltd,has warned that the country could face a beer shortage in the approaching summer, the peak consumptionseason.Mr.Richard Rushton, Managing Director of SABMiller India Ltd, told Business Line in an interview that hefeared industry would not be able to adequately service the demand in the summer months on the back of "aninefficient bottle pool management" in a market that is heavily dependent on recycled bottles. MrRushtonsaid, "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 designsand 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 3.50per bottle. Taking advantage of the shortage, second hand bottle traders hiked prices from the normal Rs 3.00to Rs 3.50 to Rs 7.00, almost equal to the price of a new bottle! Not to be left out of the party, glassmanufacturers 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 thelast 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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