BEER INDUSTRY ANALYSIS

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Group Members : Anjali Chauhan Avik Chattopadhyay Avishek Bhattacharya Mukul Attri Sahil Swapnil Bhosale Zeeshan

Contents

1. Size

2. Structure - Key Players
Market Shares 3.Growth rates over the past 3-5 years 4.Expected Growth Rate in future

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5.Key growth drivers
6.Segment analysis (what r they n their shares) 7. Key performance parameters for industry 8. Dynamics of the industry ( Price n cost


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9. Critical success factors (core strength)
10. Regulations that affect the industry 11 Imports n Exports 12. Recent Events 13. Analysis of Cost and Profitability 14.Risks & Future Outlook

INDIAN BEER INDUSTRY: SIZE & SCENARIO

India has become the ideal market for the industry. which is the targeted segment for beer sellers So.Indian Beer Industry  Huge growth since the liberalization and opening up of economy in 1991.    . Intolerance towards alcohol in India has decreased through globalization and cultural influence of western countries Majority of Indian population falls in the age group of 18-35 years.

In consumption. some 36 units are manufacturing beer in India with an estimated output of 670 mn litres. Presently.Indian Beer Industry(Contd…) The Indian beer market is expected to grow 20 times in next 20 years in view of changing life styles. India holds the 29th position with the annual consumption growing by 8% per year. • • • . burgeoning middle class and the government policy to promote low alcoholic drinks in the country.

US-74 litres) • . Average indian drinker consumes . China.1. 129 litres in new Zealand and 116 litres in Denmark.7 litres of beer a year (Hong kong.22 litres.• Per capita consumption of beer is as low as half-a-litre as against 128 litres in Germany. • In the last 5 years.37 litres. the total beer market has seen a 10% cagr.

strong beer category grew over 16% and continues to dominate the beer market. Beer in metal cans is growing faster than beer in bottle.young adults and professionals aged 18 .• Beer's key consumer . . In 2012. accounting for around 85% of the beer category. • • • Companies like carlsberg and anheuser-busch inbev launched strong premium beers carlsberg elephant and budwesier magnum.40 years. respectively.

driven by urbanization and the increase in disposable income. In the mild beer segment: ~ Kingfisher ~ Golden Eagle ~ Royal Challenge     In the strong beer segments ~ Haywards 5000 ~ Haywards 2000 ~ Knockout ~ Khajuraho . The premium beer segment is currently growing at the rate of 49% and is the fastest growing segment within the Indian beer market. The ratio in mild-strong beer has shifted from 66:34 in 1993-94 to 45:55. The Indian beer industry has shifted towards the strong beer segment.

Beer Prices in India .

Beer Taxation in India .

Availability of Beer .

Overall Industry Growth .

Low beer consumption .

4% share of the market's volume.687. United Breweries Limited is the leading player having 42. an increase of 91.4 million liters   Standard lager is the largest segment accounting for 91.639 million.8% in 2010 to reach 1.Market overview   Indian beer market grew by 17.8 million Volume grew by 13.   .8% of the market's total value.9% since 2010.022. forecasted to have a value of $9. with the top three players holding 70.6% of the total market volume. Indian beer market is highly concentrated. In 2015.1% in 2010 to reach a value of $5.

CAGR for period 2006-2010 was 21.9%.00 10 50.000.00 15 100. Indian beer market grew by 17.00 30 200. Rs.00 2006 2007 2008 Year 2009 0 2010(e) Data source: Datamonitor .1% to reach a value of $5.000.000.8 million.00 25 20 RS.00 % age growth In 2010.Market Value Market Value 250. million % Growth 5 0.022.000.000. millions 150.

4 million liters.687.8% in 2010 to reach a volume of 1.Market Volume Market Volume 1800 1600 1400 1200 Volume 1000 800 600 400 200 0 2006 2007 2008 Year Data source: Datamonitor 2009 2010(e) 18 16 14 12 10 8 6 4 2 0 % Growth Volume (million ltrs) % Growth Volumes grew by 13. CAGR for period 2006-2010 was 14.4% .

stouts & bitters 0.8% Mohan Meakin Limited 5.0% 92% Specialty beer 0.0% Data source: Datamonitor Data source: Datamonitor .2% Ales.4% SABMiller 22.Market Characteristics Market Segmentaion 0% 8% Standard lager 91.0% Market Share United Breweries Limited 42.8% Premium lager 8.4% Low/no alcohol 0.3% Others 29.

source: Datamonitor • Main substitutes areData spirits and wine. • Barriers Substitutes Entrants • But new entries can happen through differentiated products. • Switching costs are not high for Substitutes Medium .Porter‘s Five Forces Porters Force Buyer Power Strength Medium Reasons • Supermarket chains are able to negotiate very strongly on price • But producers can also differentiate their products quite Buyer strongly Power Supplier Power Medium 5 4 • Non-vertically 3 integrated Degree of Supplier businesses 2 rivalry Power 1 • Independent barley growers 0 can find alternative markets New Entrants Medium New to entry are high.

Toasted malti-ness and mild fruitiness of this pale gold lager. Fresh. A Danish company‘s with Pilsner Beer.Major Beer Brands in India Refreshing beverage represents lifestyle choice for Indians. light taste with transparent bottle Known for great taste and innovation. low flavored pilsner beer with its transparent bottle. Tuborg is famous for easy to drink. . malty and eminently drinkable. a pleasing mix of bitter and sweet . This Aussie lager is full-bodied. Haywards 5000 is brewed with the choicest of malts and hops lending itself to a unique flavor.

BEER CONSUMPTION IN INDIA .

Key market players .

 It has two breweries in Aurangabad and Bangalore. Mysore Breweries and Singapore-based subsidiary of Heineken NV. are exploring the chances of setting up of a joint venture.Key Market Players MYSORE BREWERIES  Major brands of Mysore Breweries     Knockout Bengal Premium Pals Premium Seven Stars.  .000 hl. with a total capacity of 450. Mysore Breweries was to set up its third brewery in Andhra Pradesh. the fastest growing beer market. Asia-Pacific Breweries. which manufactures the popular Tiger brand.

Cobra Beer had acquired a brewery in Bihar and currently sells beer in India from that unit. lightweight. Kingfisher alone commands 18% of the market. Kingfisher and Kalyani Black Label. takeaway 650 ml and 330 ml glass bottles.15 mn hectolitre plant at Himachal Pradesh ( at an investment of Rs 550 mn).   . UB‘s two beer brands. through a 0.Haake Beck  Haake Beck. an innovation where recycled bottles has been the norm. Mohan Meakin and Mysore Breweries also enjoy a significant market presence. enjoy one-third of the market. entered India through a technical tie-up between Brauerei Beck of Germany and Indian Him Neel Breweries. Shaw Wallace.  Haake Beck is sold in non-returnable.

which has already made its presence felt in north India by taking over Narang Industry's brewery in UP. . producers of London Pilsner beer. It has also acquired majority control over beer manufacturing Inertia by raising its stake to more then 51% from 31%.  With this acquisition.UNITED BREWERIES  United Breweries group acquired a 65% stake in the Mumbai-based Associated Breweries & Distilleries (ABD).  United Breweries is expanding the capacity of its Nacharam brewery in Andhra Pradesh to 220.000 hl. UB has protected the western Indian market from South African Breweries (SAB).

OTHER BRANDS

Carlsberg Breweries based in Denmark had decided to bring two of its brands, Carlsberg and Tuborg to India. It launched Bengal Premium, a lager beer. Shaw Wallace is launching its Royal Challenge beer in cans. Kingfisher beer from UB is already available in cans. Australian Beer Company Foster‘s launching of premium lager beer in India is targeting 15% growth in sales. Recently the company launched Amberro in India. Foster's premium lager mild claims to enjoy good market shares in several states. Foster India has evinced interest in introducing Foster's other international brands including Crown Lager, Foster's Ice, Subzero, Carlton Cold and Victoria Bitter.

80 per cent of beer sale in India is of strong beer while 20 per cent is of mild beer. In north, Punjab and Haryana account for only five per cent of beer consumption in the country. Southern markets were way ahead in the beer sales.

Beer market segmentation and growth forecasts

Market Segmentation GEOGRAPHICAL North CONTENT 12% East 2% West 37% South 49% .

Demography .

Punjab and Haryana account for only five per cent of beer consumption in the country. In north. the world's second largest brewery was planning to enter the country in view of the emerging growth opportunities in the sector. LowenBrau Buttenheim entered the Indian market with a subsidiary. a regional player in Karnataka that owns the Knockout brand of strong beer. world's third largest producer of beer. for collaboration and marketing alliance. had made plans to invest over $150 mn with Mohan Meakins as a joint venture partner. Interbrew. It was scouting for a partner and was in negotiations with various brewery majors like Mysore Breweries. LowenBrau Buttenheim India. The plan included five breweries.     . with local promoters. The Miller Brewing Company.

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by 2016. however.     .349 crore. a 13% growth in volume. which is fast expanding its presence in the Indian beer market. to more than double by 2017 to 430 billion rupees. with volume growing 36 percent. Carlsberg eyes 10% of India‘s beer market in couple of years.Beer Industry 2013 & ahead  SABMiller‘s sales jumps 20% in FY13 to Rs 3. Carlsberg India. forecast that consumption will rise to 2. is further beefing up its product portfolio.6 litres. Mintel expects India's retail beer market. The Beeronomics report. worth more than 200 billion rupees last year.

2% for the next year. The top two beer players in India account for about 75 per cent of beer sales in India and the industry stands a chance to see more consolidation in the near future. India also provides attractive profit margins due to the consolidated nature of the industry.Beer—A lucrative Market  Indian beer market is valued at INR 41 billion for the year ending 31st march 2010 and it is expected to grow at 17.  .  Apart from providing strong growth.

  . UBS. Swiss financial services firm.7 Litres/Year/Person. and a Compound Annual Growth Rate (CAGR) of 10 per cent over the last 5 years. India‘s Business Standard says that nation‘s beer industry sold between 250 and 260 million cases in 2011. The nation enjoys a consumption rate that stands at 1.2 billion. And according to ValueWalk.Growth Rate of Beer Industry  Consumption in India has increased into double digits in last decade. the Indian beer industry is growing at a rate of 15%. estimates the Indian beer market recorded revenue CAGR of 27% between FY02 and FY12 to $2.

Future growth rates  Beer mix today is approximately 60 percent lager beer and 40 percent strong beer. The premium beer market is a mere 5% of the total but this segment is rapidly expanding. The Indian beer market is dominated by strong beers (>5% alcohol by volume).    . touching a growth rate of between 35-40%. The market is now skewed towards strong beer with more than 60% of the market being strong beer market. The strong beer market grew at 8-10% during the year at the expense of lager beer. which account for 70% of the total beer industry.

India has predominantly a warm/hot climate 2. The beer-drinkers in the country are much younger than the average beer-drinker elsewhere in the world. 4.Optimistic future of Beer Industry 1. Increasing exposure to beer and wine drinking.Entry of international players. All these factors combined make the scenario very promising for beer industry and are 'in sync' with their strategy for India. mainly due to media and consumer mobility. This makes them more likely to carry the brand with them for a lifetime. 3. .

Beer Consumption and Distribution (Real & projected) Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2014-15 528 565 632 676 723 770 820 875 930 985 1320 Kls Geography Market Share% North 12 East 2 West 37 South 49 .

Why invest in Beer industry??? .

7 litre per annum.Investment Opportunity in Beer Industry  Industry analysts say tax and levies on beer are anticipated to fall over the next 2 to 3 years. driving down retail prices by 25 to 50%. Considering the expected increase in consumption and the current growth trends.   . At present the per capita consumption is 0. the future of Indian beer market looks bright and seems set for continuous double digit growth in the coming years. It is estimated that beer will sell for Rs 15 to Rs 20 per 330 ml can and Rs 20 to Rs 30 per 650 ml bottle in the coming year with the reduction tax and levies. but industry experts predict that this may rise to around 20 litres in the next 10 years.

Key growth drivers

Growth factors
Huge market potential

Entry of international brands
Rising income levels Increasing popularity among youngsters

Regulatory Environment

High tax structure

Key Growth Drivers
Huge market potential Impact

The population and current consumption trends are expected to boost the beer sales in India. 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. 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.

Artoi palone Tiger. Baron’s Upcoming or recent ventures in beer industry   Asia Pacific Breweries Anheuser-Busch InBev Carlsberg .Key Growth Drivers International Ventures In Beer Industry  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. International players Brands Stella. 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. cannon10000.

Key Growth Drivers 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. urban consumers who are more exposed to the western culture socialize with beer. Also.    . The growing income levels particularly in the urban earning class is a potential market for beer manufacturers in India.

   .Key Growth Drivers Increasing Popularity  In India.3 million hectare liters in 2012 States like Haryana and Punjab have shown tremendous growth figures since the replacement of auctioning system with licensing system. growth of beer sector has seen record growth of 90% whereas average growth rate for other alcoholic drinks has been 60% Beer market has doubled from 12. India has predominantly hot climate so beer is becoming a popular drink throughout the country.5 million hectare liters in 2007 to 23.

Key Growth Drivers Low per capita Beer consumption  Indian per capita beer consumption is very low compared to global average .

Per capita consumption of beer is 1.Key Growth Drivers  1.  . 60% of the population is under the age of 30.5 liter and has been growing at over 15% in the last few years. Knock Out and Royal Challenge to become a leader in the industry. 3. Rapidly growing consumption – Beer is increasingly acceptable as a social drink and the urban youth in particular favors it as the preferred alcoholic beverage. Further. Home grown brands – Even international giants like SAB Miller and Carlsberg have not been able to grow their own brands significantly. Young population – India has amongst the youngest population in the world.  2. over 50% of the population is in the working age of 22-54. SAB Miller leveraged its acquired Indian brands like Haywards.

their attitude towards alcohol is relaxing. this acceptance is only going to rise. The greatest evidence of this trend is the increase in beer consumption among women.Key Growth Drivers(Contd.. . as urban consumers become more exposed to western lifestyles. With increasing urbanisation. through overseas travel and the media. However.)  Changing lifestyles: A deep-seated traditional social aversion to alcohol consumption has been a traditional feature of the Indian society. Social habits are undergoing a transformation as mixed drinks are becoming more popular. More and more women are consuming beer – the penetration in metropolitan areas is almost twice as high as the penetration in other large cities – implying that the greater tolerance towards alcohol consumption in metropolitan areas facilitates the consumption of beer.

affect the market for beer.. Firstly. . as most states do not have a differential tax structure based on the alcohol content.)  Reduction in beer prices: The Indian consumer typically values an alcoholic beverage on the basis of its 'kick' factor versus its price. The following two factors therefore.Key Growth Drivers(Contd.

Limiting factors .

Hence.  .Limiting Factors To Growth  The Indian liquor market is characterized by very high regulation. store. there are very few players who are truly ―National‖. Licenses to produce and bottle are particularly scarce and contract manufacturing is a wellestablished market entry strategy. The liquor industry is a State subject and hence subject to laws in each state. bottle. Independent Licenses are required to produce. This means a company has to have licenses and permissions to operate in each state. distribute or retail all liquor products.

To give you an idea. Price is controlled – Excise duties. FDI approvals are issued on the basis of a particular licensed capacity and any further increase in capacity will require FIPB again. the typical manufacturer/ brand realizations are below. VAT and various intermediary margins contribute bulk of the retail price. In most states. the government tightly controls the retail price of liquor. sales tax. In some cases where the investor is an Indian entity with foreign owners (Eg: SAB Miller India). the investment would require clearance from the Foreign Investment Promotion Board (FIPB). a tender process is used to determine prices and volumes that will be bought by the distributors.Limiting Factors To Growth  FDI – 100% FDI is permitted in the alcoholic beverages sector. A foreign entity can invest in an Indian business through the automatic route. Taxation is high. provided the required licenses are in place. In many cases.  .

Segmental Analysis

Segmental Analysis of Beer Industry

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Segmental Analysis of Beer Industry
Beer market has been segmented into :

Strong beer Standard beer

Premium beer

Share of Different segments premium 1% Standard 45% Strong 54% .

Categories of Beer .

Porter: This is less dark than stout. .8% alcohol and has a medium hop flavor. it is heavily hopped and contains 5-6. Alcohol content is around 5%. it is light with 3.0-3. Ale: Top fermented. The alcohol content is around 45%  Stout:  Dark with burnt flavor and strong malt aroma. Malt: A strong flavored. even less hopped and is somewhat sweet. high alcohol content beer that ranges in flavor and colors.5% alcohol.Major Categories of beer  Lager:  It is stored for a specified period before being bottled or canned. this kind of beer has distinct hop aroma. Pilsner: A type of lager beer.  Creamy Ale:  A highly carbonated beer that is produced by a combination of Ale and Lager.

Competitive Drivers .

Competition Drivers  Price  Price does not vary much in a segment for different brands.  Hence price is not a major area of competition  Cost  High costs are associated with production and sales of beer Every state has a different tax structure for liquor   Supply chain  Contract farmers for growing Barley Dedicated local breweries for fermentation near every major market  .

.  Segmentation  Competitors continuously segment and sub segment the market based on the changing tastes and preferences on the consumer.Competition Drivers  Distribution   Interstate distribution is expensive. Good distribution network is required to sell your product in the cluttered market.

a JV between Anheuser-Busch InBev and the RK Jaipuria Group.000 farmers in the northern Indian state of Rajasthan to grow barley. handles the marketing of Budweiser. United Breweries benefits from 28 breweries spread across the country‘s 28 states.       . That tops the 13 that SABMiller uses and Carlsberg‘s five. SAB Miller contracts 10. High regulatory barriers force foreign giants to enter into Joint Ventures For example. Foster's.5% interest in India's largest alcohol company. Heineken bought a 37. which is branded as Australian is brewed in India. It will hugely benefit from its strong distribution network. United Breweries.

Key Performance Parameters .

Cost of Procurement. Distribution Network . Time to Market Products & Extensive Advt. .Key Performance Parameters Role of Prices – Current Prices & Expected Hike in the future. Integrated Inventory Management Systems. Cost Management & Integrated Financial System.

Most state governments permit price hikes only once a year.Role of Prices Pricing power is a concern for the sector. A few companies are using a premiumization strategy to pass on the volatile prices of molasses and glass. thereby improving realizations. . The sector also faces progressive taxation. as this attracts higher taxes. which further dissuades price hikes.

The manufacturer‘s profits from increased sales is at the expense of distributors‘ margins whereas distributors could profit by selling products at higher profit margins. sell. This structure often creates a conflict of interest between the value-added distributors and the beer manufacturers.Distribution Network The traditional distribution system in the brewery industry involves a three-tier structure with delivery enabled through value-added distributors The distributors merchandise. and deliver the product to the end consumers. which forces the manufacturer to cut or optimize their own costs .

The conflicting interests of manufacturers. distributors and retailers coupled with government regulations force manufacturers to revaluate their supply chain systems to address some of the following challenges: •Address commodity price volatility •Manage expanding portfolio of multiple variants of different products/stock keeping units (SKUs) and eliminate non-profitable variants •Provide higher service levels demanded by distributors and retailers •Comply with government regulations in batch management and traceability requirements •Accurately understand the complexities of working in emerging markets and the high cost to serve variation between urban and rural markets .

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Dynamics of the industry .

Price • Price does not vary much in a segment for different brands • Hence price is not a major area of competition • The beer industry does not have evidence of price wars • Beer prices have increased. but that is mostly due to inflation • The increased prices are industry wide and not company specific Cost • High costs are associated with production and sales of beer • Every state has a different tax structure for liquor .

Segmentation • Competitors continuously segment and sub segment the market based on the changing tastes and preferences on the consumer.Supply chain • Contract farmers for growing Barley • Dedicated local breweries for fermentation near every major market Distribution • Interstate distribution is expensive. . • Good distribution network is required to sell your product in the cluttered market.

Other factors of dynamics Complex distribution systems with conflicting interests Continually increasing retailer power Product safety issues Demographic and lifestyle changes Fierce competition Consolidation and globalization .

Complex distribution systems with conflicting interests Often in the beer industry. manufacturers use value-added distributors to merchandise. and deliver the product to the end accounts This structure often creates a conflict of interests between beer manufacturers and distributors because: Beer manufacturers profit from increased sales at the expense of distributors‘ margins • Beer manufacturers historically have had higher returns and lower capital requirements Beer distributors historically have had lower returns and higher capital requirements for distribution networks Beer distributors push their customers towards the brands with the highest profit margins . sell.

Specifically.) Beer distributors continue to consolidate in an attempt to offset margin pressure through cost reduction. size helps them to: • Spread fixed costs over greater volume • Make larger investments in warehousing and distribution equipment • Contain the costs of acquiring new customers • Increase customer loyalty Beer manufacturers continue to develop new products and packages. often requiring them to make additional capital investments .Complex distribution systems with conflicting interests(contd. which increases the operational complexity for distributors.

. defined as people age15-34  This age group is regarded as the major force behind the growth in the alcoholic beverage industry  In addition to age and demographic concerns.Demographic and lifestyle changes  There is significant concern regarding a forecasted decline in core beer consumers. increased awareness of caloric intake and carbohydrates has hit the beer industry particularly hard  While this trend has spurred some innovation. the industry as a whole has been slow to mount an effective response  Thus. resulting in an overall shift toward premiumpriced beers. consumers are increasingly choosing quality over quantity. due to maturing tastes and greater amounts of disposable income.

forcing beer companies to become more efficient.Retailers‘ power continuously increases World‘s dominant retailers are demanding better service and shorter order-to-delivery cycles from beer companies This is dramatically reshaping the industry. while taking pricing power out of their hands The dual need for improved supply chain agility and cost-efficiency is challenging suppliers to revaluate the ways in which they plan and manage their supply chains They are constantly searching for approaches that will help them achieve the rock-bottom prices and increased efficiency The growth of private-label products is encouraging manufacturers to take a number of steps to compete more effectively They are turning to innovation and new product introduction to achieve real differentiation and growth Branded manufacturers are also looking to get closer to the consumer and trying to better understand the in-store consumer experience by monitoring the execution of in-store activities. .

high-growth companies in emerging markets by industry leaders . Managing Competition • Consolidation and rationalization. driven by opportunities for costcutting through operational improvements or elimination of redundancies • The acquisition of small. which has significantly raised the bar for the ―scale needed to compete‖ • Growth of private label products.Fierce competition Competition is growing due to the following factors: • Falling consumption in mature markets • Constant demand for new products and packaging • Industry consolidation.

both beer manufacturers and distributors are turning to mergers and acquisitions to fuel growth Size. for both the beer producer and distributor.Consolidation and globalization Because of tough competition and slow growing future prospects. has also become an increasingly important means of offsetting retailer power. helping suppliers to obtain a strong position within the distribution chain and to gain prime shelf space .

. through improved operational efficiency. through reduced inventory levels of beer held in cold storage. through demonstrating quality by participating in retailer assurance schemes and assisting trade customers in achieving full compliance with new traceability legislation. improved product availability. as driven by product and packaging innovation. lower labor costs and the capture of operational synergies from acquisitions  Improved Asset Utilization – for example. better management of customer relationships. and increased control over the distribution channels  Cost Reduction/Margin Improvement – for example. and better control over field assets  Regulatory/Assurance – for example. faster turnaround of re-usable transit packaging in the supply chain.Key focus areas to manage the dynamics  Revenue Protection And Enhancement – for example. differentiated quality.

That tops the 13 that SABMiller uses and Carlsberg‘s five.000 farmers in the northern Indian state of Rajasthan to grow barley. Heineken bought a 37. . United Breweries. High regulatory barriers force foreign giants to enter into Joint Ventures United Breweries benefits from 28 breweries spread across the country‘s 28 states. which is branded as Australian is brewed in India.EXAMPLES FOR DYNAMICS SAB Miller contracts 10. Foster's.5% interest in India's largest alcohol company. It will hugely benefit from its strong distribution network. For example. handles the marketing of Budweiser. a JV between AnheuserBusch InBev and the RK Jaipuria Group.

KEY SUCCESS FACTORS .

BRAND HOLDS THE KEY BEER IS A CONSUMER GOOD BRAND SALIENCE IS IMPORTANT FOR BUILDING A STRONG AND SUSTAINABLE MARKET POSITION STRONG BRANDS LEAD TO CUSTOMER LOYALTY ALLOW THE OWNERS TO CHARGE PREMIUM .

WHICH ACCOUNTS FOR INSTITUTIONAL BEER SALES IN THE COUNTRY.GEOGRAPHICAL DIVERSITY PLAYERS WITH NATIONAL PRESENCE ENJOY COMPETITIVE ADVANTAGE HELPS WITHSTAND ANY CHANGE IN STATE POLICY DIVERSITY SALES TO CANTEEN STORE DEPOT OF THE DEFENSE SERVICES. IS ESSENTIAL FOR BUILDING STRONG MARKET POSITION .

PRESENCE ACROSS SPIRITS AND PRICE BANDS DIVERSIFIED PRESENCE ACROSS DIFFERENT SPIRITS AND PRICE SEGMENTS PROVIDE COMPETITIVE ADVANTAGE TO RESIST IMPACT OF CHANGES IN CONSUMER PREFERENCES IT HELPS COMPANY TO RESIST DOWNTURN IN A PARTICULAR SEGMENT .

SIZE OF OPERATIONS
SIZE

OF OPERATIONS HELPS REDUCE DISTRIBUTION OVERHEADS

IT

ALSO INCREASES A PLAYER‘S BARGAINING POWER WITH DISTRIBUTOR

HELPS

IN STATES WHERE DISTRIBUTORS CONTROL PRICE AND ALSO THE BRANDS THAT WILL BE SOLD

AVAILABILITY OF PRODUCTS TO CUSTOMERS
BREWERS

MUST MAKE THEIR PRODUCTS READILY AVAILABLE TO WHOLESALERS OR THEY WILL SWITCH TO OTHER KEY COMPETITORS
THIS

WILL HELP THE BREWERS REMAIN COMPETITIVE

INNOVATION OF NEW PRODUCTS

THE

DEVELOPMENT OF NEW PRODUCTS MAY CREATE A NEW DEMAND

IT

CAN ALSO HELP TO RETAIN REPEAT CUSTOMERS WHICH CAN BE A KEY TO SUCCESS WHEN THE OTHER COMPETITORS DO THE SAME

STANDOUT NEW ADVERTISING NEW BETTER AND INTERESTING WAYS TO PROMOTE PRODUCT HELP PEOPLE REMEMBER PRODUCT HELPS COMPANY DIFFERENTIATE PRODUCT AND NOT GET LOST IN THE MIX .

CUSTOMER LOYALTY CUSTOMER LOYALTY IS AN IMPORTANT COMPETITIVE ADVANTAGE THIS ENSURES THAT COMPANY WILL BE LESS LIKELY TO SWITCH TO ANOTHER COMPANY FOR A SIMILAR PRODUCT .

ADJUSTABILITY TO DEMAND THE COMPANY SHOULD HAVE THE ABILITY TO MAINTAIN AND TWEAK CAPACITY THIS CAN HELP THE COMPANY TO EITHER LOWER OUTPUT IN TIMES OF LOWER DEMAND OR RAISE OUTPUT IN TERMS OF HIGHER DEMAND THIS CAN HELP GENERATE REVENUES TO THE COMPANY THAT WOULD OTHERWISE GO TO ITS COMPETITORS .

EFFICIENT DISTRIBUTION CHANNELS THE COST OF DISTRIBUTION IN BEER INDUSTRY IS ONE PRIMARY CONTRIBUTORS OF COST THE COST FROM DISTRIBUTION CAN SIGNIFICANTLY IMPACT THE PRICE WHICH CAN RESULT IN THE CUSTOMER CHOOSING THE COMPETITOR‘S PRODUCT .

A COMPANY MAINTAINS A GOOD NAME THROUGH ITS SUPPLIERS. CUSTOMERS AND EMPLOYEES THIS HELPS THE COMPANY TO DEAL WITH THE FACTORS FROM ARISING WHICH MIGHT LEAD TO FACTORS OF LAWSUITS AND MISSED OPPORTUNITIES THROUGH THE PEOPLE IT DEALS WITH .BEING ETHICAL AND MAINTAINING A GOOD NAME/POSITION BY TAKING GOOD ETHICAL STAND ON ISSUES.

CORE STRENGTHS .

CORE STRENGTHS STRONG ENTRY BARRIERS PROTECT INCUMBENT PRICE HIKES LIMITED TO ONLY ONCE A YEAR OF BRANDS WITH STRONG SUB-SEGMENTATION STRATEGY EXPANSION HIGHER PROFITABILITY AND LESS COMPETITION FOR COMPANIES SELLING COUNTRY LIQUOR NUMBER OF SKUS LIMITED .

CHALLENGES .

STRONG ENTRY BARRIERS BAN ON ADVERTISING OF BRANDS ONLY AT POINT OF SALE PROMOTION BRAND CREATION THROUGH ADVERTISING LIMITED DOMESTIC PLAYERS MAINTAIN MARKET LEADERSHIP BRANDS HAVE DIFFICULTY IN BRAND CREATION HELPED FOREIGN .

WHICH ACCOUNT FOR 59% BEER CONSUMPTION .REGISTRATION WITH CSD 15% OF BEER SALE OCCURS AT CSD MILITARY CANTEEN TAKES APPROXIMATELY 9 MONTHS REGISTRATION COMPANY UNABLE TO REGISTER WITH CSD UNABLE TO ATTRACT LARGE NUMBER OF CUSTOMERS CSD PRIMARILY RESPONSIBLE FOR GROWTH IN SOUTH INDIA.

OTHER CHALLENGES AND IMPEDIMENTS India predominantly a hard spirits market Beer a minority preference for those who consume Beverage Alcohol Per capita consumption of beer mere 3% of global average Indian beer industry plagued with myriad of tax and levies .

IMPORT DUTIES ON INTERSTATE TRANSFER SELLING BEER ACROSS STATES ATTRACTS HIGHER EXCISE DUTY THROUGH QUOTA SYSTEM REDUCES THE QUANTITY BEING IMPORTED IMPORT BEER MANUFACTURES COMPELLED TO SET UP DISTILLERIES IN EVERY STATE STATE TAXES RESULT IN HIGHER PRICES HIGHER .

ANDHRA PRADESH AND KARNATAKA DISTRIBUTION SEMI-CONTROLLED BY GOVERNMENT DISTRIBUTION IS FREE IN MAHARASHTRA AND GOA STATE GOVERNMENTS OF GUJARAT. MANIPUR AND MIZORAM HAVE BANNED SALE OF BEER . NAGALAND. KERALA AND NEW DELHI IN UTTAR PRADESH.DISTRIBUTION-KEY ENTRY BARRIER GOVERNMENT ACTS AS DISTRIBUTOR IN TAMIL NADU.

DISTRIBUTION STRUCTURE IN INDIA .

LIMITED SKU ONLY FIVE SKU ALLOWED IN BEER CREATION CAN BE DONE THROUGH DIFFERENT PACK SIZES COMPANIES CAN LAUNCH GIFT PACKS AND FESTIVAL PACKS AGAINST LAUNCH OF DIFFERENT SKUS HAS RESULTED IN LOWER BRANDING MARKET CONSUMER PROHIBITION POWER .

LIMITED SKU ALLOWED .

IN THE RANGE OF 1% TO 12% IN THE PAST FOUR YEARS REAL INCOME GROWTH RATES WHICH IMPACT THE CONSUMPTION PATTERNS .CHANGING DEMOGRAPHICS INFLATION VOLATILE LEVEL HAS BEEN VOLATILE.

VOLATILE PER CAPITA INCOME GROWTH RATES .

GOVERNMENT REGULATIONS HIGH LEVEL OF TAXES AND LEVIES RESULT IN 65% OF THE CONSUMER PRICE REGULATIONS PERTAINING TO MANUFACTURING PROCESSES(GRAIN BASED OR MOLASSES BASED) EVERY STATE HAS A DIFFERENT REGULATION(INCLUDING THOSE ON DISTRIBUTION) AND TAX RATES FOR THE INDUSTRY RESTRICTION AND LEVIES ON INTER-STATE MOVEMENT .

GOVERNMENT REGULATIONS : IMPACTS HIGH LEVEL OF TAXES AND LEVIES AND LESS CONTROL FOR COMPANIES OVER DISTRIBUTION SYSTEM MEAN LIMITED PRICING FLEXIBILITY LOW MARGIN LEVELS CAPACITIES WITH HIGH OVERHEADS AND POOR ECONOMIES OF FRAGMENTED SCALE RESTRICTION ON ADVERTISING RESULTED IN SURROGATE ADVERTISING .

THE STATE SHALL ENDEAVOR TO BRING ABOUT PROHIBITION OF CONSUMPTION OF INTOXICATING DRINKS BEER INDUSTRY ONE OF THE LARGEST CONTRIBUTOR TO STATE REVENUES .GOVERNMENT REGULATIONS:IMPACTS HIGH BUDGET FOR PROMOTIONAL ACTIVITIES AND COMMISSION TO RETAILERS DISCOUNTS ACCORDING TO THE INDIAN CONSTITUTION.

STATE GOVERNMENT CANNOT AFFORD TO LOSE THIS REVENUE CONTRIBUTOR STATE GOVERNMENTS UNLIKELY TO LOWER CONTROLS ON MANUFACTURING AND SELLING BEER IN SHORT TO MEDIUM TERM .STATE GOVERNMENT REGULATIONS DIFFICULT TO ENFORCE PROHIBITION AGAINST THE NATURE OF DEMAND FOR BEER SINCE HUGE POWER SUBSIDIES AND FIFTH PAY HAVE WEAKENED STATE FINANCES.

CHALLENGES FOR MANUFACTURERS SUPPLY CHAIN Address commodity price volatility Manage expanding portfolio of multiple variants of different products/ (SKUs) and eliminate non-profitable variants Comply with government regulations in batch management and traceability requirements Accurately understand the complexities of working in emerging markets and the high cost to serve variation between urban and rural markets .

INTER -STATE TRANSFER FEES ON MOLASSES MOST STATES HAVE LEVIED TAXES ON IMPORT OF MOLASSES PROFITABILITY FOR BEER MANUFACTURES DISTRIBUTION AT THE DISCRETION OF STATE GOVERNMENTS LOWER LICENSE .

Distribution channel characteristics .

Road to beer market in India The unrestricted import of alcohol has been allowed by the Indian government for more than five years now. plus the old ones who had stopped importing due to stringent laws. heavy duties and a restricted market. now expanding at over 30% a year. . The number of Beer importers has increased from about 35 a couple of years ago to nearly 80 and will soon touch 100 if one considers the many new arrivals.

The bonded warehouses are the initial barriers. Excise bonded warehouses and a license is required in each state. requiring considerable financial investment and bank guarantees. Brands have to register each label individually. and pay a hefty annual license fee. .Distribution Restrictions The Barriers to import remain high.

Yet. . even though the market isn‘t big enough for everyone to thrive. who are generally forced to use the services of existing bonders. who is obliged to rent these services. The commission payable for these two services alone varies between 10-20% of the cost of wine. This affects the viability of the small importer. there are few exits and the number of importers is steadily going up.These two restrictive measures set a sufficient barrier to new entrants. the new importers are making a place for themselves: At the break even of 1200-1500 cases sold annually.

The states of Maharashtra. . Haryana. paving the way for continuous growth through these channels. More states are allowing sales through easier channels like supermarkets. Karnataka. Delhi is still restrictive. while stores that sell only wine and beer are given cheaper licenses. Goa and Punjab have a liberal retail policy.Distribution Pattern Sales are controlled by each state individually.

. Each state requires wholesalers to have their own excise license. The state of Haryana allows retail sales through a license issued annually through the drawing of lots. with the retail sector expanding during the current year.Such policies are likely to change the market trends. The importers and distributors must sell their products through these wholesale licensees. but the retailer must buy through wholesalers who have to get a separate license.

and Indian beer producers like Champagne Indage and Sula stepping up imports. With giants like UK‘s Berkmann Cellars. UB. . and Diageo entering the market. the distribution hierarchy is expected to undergo an overhaul.

RECENT NEWS IN BEER INDUSTRY .

Carlsberg Elephant. -> Carlsberg India has the following beer portfolio: Carlsberg Green.its signature French premium beer. Tuborg green. Tuborg strong.Recent Events in Beer Industry  Carlsberg to expand its beer portfolio in India: -> The company has announced the launch of Kronenbourg. . Palone 8. Tuborg Booster strong.

Pune. Carlsberg India is the third largest brewer in India. Chandigarh and Ludhiana. Mumbai. Carlsberg India has achieved the market share of 7. Chennai. Kolkata and Bangalore and Hyderabad.Today . Gurgaon. Goa and Pondicherry. In the first phase of its launch Kronenbourg will be available across 14 cities including Delhi.8 market share on YTD. Thane. . Amritsar.

In view of changing lifestyles. burgeoning middle class.Indian Beer industry poised to grow 20 times   The Indian beer industry is expected to grow 20 times in the next 20 yrs. Cobra Beer had acquired a brewery in Bihar and currently sales beer in India from that unit.  . and government policy to promote low alcoholic drinks in India.

prefer premium brands. say industry sources. The development is perhaps most clearly illustrated in the beer segment.  . where demand for premium brands is growing faster than their regular counterparts. even in tier-III markets.More Tipplers take to premium beer in India   Premiumisation seems to be the overriding trend in the liquor business in Tamil Nadu. Consumers.

Premium brands alone account for close to 40 per cent of sales. on an average 29 lakh cases (12 bottles of 650 ml each) of beer are sold in the State every month. consumers prefer premium beer for its improved quality and taste. . According to sources in the State-owned TASMAC (Tamil Nadu State Marketing Corporation). irrespective of alcohol strength. as against Rs 80-90 in the case of regular beer.Industry sources say. the monopoly wholesaler and retailer of liquor. The retail price of a bottle of 650 ml premium beer is Rs 100.

Tamil Nadu adds fizz to brewer’s sales. The state has also granted breweries permission to package beer in cans rather than glass bottles they come in now. . clears beer export Tamil Nadu excise department has allowed export of beer brewed in the state across the country and the world. Tamil Nadu was the only state that prohibited import and export of alcoholic beverages.

Carlsberg is currently the third largest brewer in India with an estimated 6% share.1-billion-litre beer market in the next couple of years by pushing its strong lagers into more cities. especially in key states like Andhra Pradesh and Maharashtra. . United Breweries (UBL) and SABMiller. but is still far behind its two larger rivals.Carlsberg eyes 10% of India’s beer market in couple of years The India arm of Danish brewer Carlsberg is eyeing a 10% share of the country's 2.

.Strong beer overpowers milder version in the Indian market While Americans and Europeans prefer their beer to be light on alcohol content. The domestic market for strong beer grew faster in 2013 than in the past three years due to new product launches by foreign brewers and increasing sales of market leader Kingfisher Strong. a preference that‘s become further accentuated of late along with an improvement in the image associated with such beverages. Indians have traditionally been partial to a stronger brew.

up from 80% last year. The Indian preference for strong beer led Carlsberg. . Foster’s maker SABMiller and Anheuser-Busch InBev to launch brands tailored specifically to the market over the past two years. They include Tuborg Strong. priced at par or higher than Kingfisher Strong.Strong beer. Carlsberg Elephant and Budweiser Magnum. with alcohol content of more than 5%. now accounts for more than 83% of all beer sold in India. according to industry executives.

 Both Diageo and United Breweries have challenged the Karnataka High Court decision. The creditors of Kingfisher — including BNP Paribas. . challenging a Karnataka High Court order setting aside its acquisition of 6. Avions De Transport Regional GIE and SBI — had challenged the sale in the face of several winding up petitions pending against the UB Group.Diageo moves Supreme Court against High Court order on United Spirits deal  UK spirits company Diageo on Monday argued before the Supreme Court that a foreign investor's acquisition undertaken after all permissions cannot be declared "null and void".96 per cent stake in United Spirits from UB Holdings.

Cannon-10000. SAD: 4% Sales Taxes: 45% . Tuborg.Major Brands venturing into Indian Market INTERNATIONAL PLAYERS Asia Pacific Breweries Anheuser-Busch InBev Carlsberg BRANDS Tiger. 5 % cess . Palone Sample Duties: Import Duty on beer: 100% basic . Leffe Carlsberg. Excise Duty: Rs: 4/. Stella Artois. . Baron‘s Budweiser. 10% surcharge. ( State Subject). Beck‘s.bulk litre in Karnataka ( State subject).

Export policy .

B) A separate Provision for warehouse to be made for the storage of export items. .Export Policy of Beer The export policy of beer may continue for the year 2013-14 with the same terms and conditions approved by Indian government. A) There shall be separate label registration for export items with the legend ‗ Not for sale in India ‘.

E) It has been decided to ensure that breweries should utilize their capacity to the full and surplus produce will be allowed to export. D) The export fee shall be Rs. 1 lakh. .C) For export brands the manufacture have to pay the additional license fee of Rs.per LPL of beer.2/.

-> Importers and authorized representatives of foreign distilleries/company will register themselves with Ministry of food Processing in India. . -> All the shops having valid license and lift the Imported Beer after paying composite registration charges to the concerned authority.

Cost and profitability analysis .

 The study will provide a thorough analysis of the business opportunity.FEASIBILITY STUDY  The main goal of feasibility study is to assess the economic viability of setting up a brewery. including a look at all the possible roadblocks that may stand in the way of a successful brewery set up.  . The outcome of the feasibility study will indicate whether or not to proceed with the proposed brewery project.

deficiencies. logistics    Site plan.Following are some points which should be addressed in course of doing the feasibility study:      Defining company. skill. location (Where will the facility be located relative to the potential customers). building layout. resources. Capital cost estimate Construction/equipment set up cost estimate . level of expertise. different processes to be followed. challenges Pros and cons of selected marketing strategy Reasons of selected technology and equipment Initial or preliminary design Potential of targeted market and production capacity.

 Operating cost estimate (This includes the daily costs involved in running the business.) Financials analysis.contd. rent. balance sheets. alternative/variable cost analysis   Based on the estimated revenues and costs. what is ROI (return on investment). and interest payments on outstanding debt etc. profit & loss. utilities. . tax considerations. such as wages.

00.00.00.000 and above 60 80 110 180  Bottling fees   @RS. ESTABLISHMENT COSTS PRODUCTION CAPACITY(in bulk litres) ANNUAL LICENSE FEE(Rs.00. . 7 per BL of beer manufactured of brands other than the own brand. 6 per BL of beer manufactured @RS.00.000 120. Lakhs) 1 2 3 4 UPTO 120. NO. License fee for breweries SR.000 180.001 TO 180.00.000 400.001 to 400.

The vendors will issue Cash Memo on demand to the consumers. 10 per BL   Maximum Retail Price (MRP) will be displayed on each bottle of BEER. While the landing cost will be decided by the price fixation committee and OSBC margin will be decided by OSBC Ltd.. 75000/Application fee for Label Regd. + Retailer Margin. failing which the vendors shall be penalized with fine up to RS. 20000/Import Fee on BEER – RS.   . the retail margin on beer should be 25%.: Beer per Brand – RS.  Application fee (non refundable)for grant of licence for brewery – RS.10000 The MRP shall be decided on the principle of landing cost + all taxes /duties + OSBC Margin.

no. 1 BEER Beer made in India STRENGTH Up to 5% v/v Above 5%v/v EXCISE DUTY 25 /BL 25 /BL 25 /BL Up to 5%v/v Above 5%v/v Up to 5%v/v Above 5%v/v Up to 5%v/v Above 5%v/v Up to 5%v/v 25 /BL 25 /BL 25 /BL 25 /BL 25 /BL 25 /BL 25 /BL 2 3 4 5 6 Beer imported from Foreign Countries Draught Beer Diet Beer Canned Beer Breezer Low Alcoholic Beverage .EXCISE DUTY SR.

Operating costs  From the Profit and loss account we can see that the major costs for the company arises from:  Cost of material consumed Other Expenses  .

This highlights the importance of good packaging in the industry in order to sell the products. Good packaging is also essential to preserve the quality of beer as it may get affected with exposure to adverse climatic conditions.)  Material Consumed has been further subdivided into:   Raw Material Consumes Cost of packing material   The cost of packing material is almost double the cost of raw material consumed.  .Operating costs (contd.

8% cost structure Raw Material. 45% labor Marketing Marketing.COST STRUCTURE Administrative . 15% Raw Material packaging packaging. 12% Administrative . 20% labor.

Selling & Distribution expenses is also high as product distribution and availability plays a crucial role in the final sale.   . Although direct advertisement of alcoholic beverages have been banned in India. but the companies have been promoting its products to subtle and indirect advertisements like event sponsorships. It is clear indication of the substantial amount of money spent by beverage companies on sales promotion. Sales Promotion expense of 604 crores definitely stands out.

Growth is coming from markets other than the metros with UP. young adults and professionals aged 18 . driven by urbanization and the increase in disposable income.22 litres. Bihar growing faster than the industry average. US-74 litres) Beer's key consumer . the total beer market has seen a 10% CAGR Average Indian drinker consumes .CURRENT MARKET GROWTH  In the last 5 years. Rajasthan. (Hong Kong. China37 litres.1.40 years Beer in metal cans is growing faster than beer in bottles The premium beer segment is currently growing at the rate of 49% and is the fastest growing segment within the Indian beer market.      .7 litres of beer a year.

Beer Cafe and Pint Room. among others. Restaurants and high-end clubs offer extensive premium beer menus and host beer festivals.  A new breed of bars has been mushrooming in Indian metros . For instance. Carlsberg's association with English Premier League and Heineken's with Champions League. .CURRENT MARKET GROWTH  Football and music are the top marketing platforms for beer brands.

99 6.82 9747.39 ROA United Breweries United Spirits Radico Khaitan Globus Spirits 54.84 1447.36 3.80 77.10 1258.21 320.68 5.) 3903.28 34.52 Net Profit(in CR.19 Profit Margin(%) 4.PROFITABILITY NAME Sales Turnover(i n CR.39 528.79 120.) 172.33 488.70 54.) 2810.14 8585.45 Total Assets(in cr.60 433.90 .

Globus Spirits also has a monopoly market in its market segment and therefore the higher profitabaility. The major competitors to Kingfisher Beers are foreign made liquors like Bud. and therefore the prices have to be competitive.    .PROFITABILITY  We see that most players in the industry operate around 4-7% net profit levels. The only company whose profits and ROA seems to be standing out is Globus Spirits which primarily operates in rural markets and sells locally made liquor. Tuborg etc.

PROFITABILITY  In spite of recessionary trends registered in the Indian economy. The market owes its rapid expansion to a number of factors. including the swelling middle-class. changing lifestyles and rapid urbanization. . increasing disposable incomes. the country‘s beverage market is likely to experience double-digit growth in 2013.

PROFITABILITY WE are optimistic for a continuous growth and profitability of BEER industry because of the following reasons:   India has predominantly a warm/hot climate The beer-drinkers in the country are much younger than the average beer-drinker elsewhere in the world. mainly due to media and consumer mobility. . Increasing exposure to beer and wine drinking.  All these factors combined make the scenario very promising hence strategy for every beer company in India should be in sync with above factors. This makes them more likely to carry the brand with them for a lifetime.

COMPETITIVE STRATEGY OF A KEY PLAYER:UB .

Competitive strategy of UB  Investing behind the brand Leveraging aspirational properties in fashion and sports Football: Kingfisher East Bengal Formula One: Force India Fashion: Kingfisher swimsuit calendar .

Quality over quantity   K2 bottles World class PoS materials 4.  Strong focus on digital media 3.Competitive strategy of UB  Building brand equity for the future Selective launch in key metros: Mumbai.Perfect execution    Targeted Distribution Premium Visibility Cold & Fresh Stock management 2. Bangalore. Kolkata and Goa Gradual roll-out based on: 1.Driving awareness & be part of the conversation.Leveraging UBL strengths in market . Delhi.Set benchmarks at every touch-point .

Competitive strategy of UB  Manufacturing network across all major states   Unique brewery footprint In line with the requirements of a complex regulatory framework  18 owned breweries and 10 contract breweries Closeness to market a critical success factor Freight costs     Import and export duties Freshness Ability to manage contract brewers in key states  .

RISKS AND MITIGATION .

Identified Risks      Infrastructure Political Tensions Input sourcing Trade Restrictions Currency    Regulatory and legal issues Labor issues Corruption .

Infrastructure Risks  Indian Roads  80% of traffic is crammed into 3% of available roads Reliability problems Widespread power outages  Power Requirements    Water Requirements   Increasing depletion of surface and ground supplies Pollutant contamination .

Risk reduction     Reduce distance to market Build brewery in the Navi Mumbai Two distribution centers in Mumbai and Pune  Power .Risk reduction  Purchase backup power generation equipment  Water Supply .Risk Mitigation Roads .Risk reduction  In-house. reverse-osmosis filtration systems .Infrastructure .

Hindu Tensions  Rise of Hindu fundamentalism following ascent of Bharatiya Janata Party (BJP) in 1991 2002 Gujarat Riots .Over 1000 dead or missing  .Political Tensions Risks Pakistan .Kashmir border conflict   Long-running dispute over the Indian States of Jammu and Kashmir in Northern India   Both Pakistan and India have tested nuclear weapons Progress towards normalizing relations  Muslim .

Political Tensions . State of Maharashtra is next to Gujarat Unknown premium amount Normally obtained as riders on property insurance  Prudent to obtain terrorism and political violence insurance    Put plans in place to protect employees in case of political violence or turmoil Physical plant and distribution network security Consider creating a business continuity/security office to oversee security and monitor security situation   .Risk Mitigation  Brewery location   Far from Jammu and Kashmir However.

agricultural commodity prices may be artificially low due to imported products   . hops. sugar Glass bottles and aluminum cans  Production may come to a halt without raw material availability Expected demand for hops may outstrip domestic supply Except for hops.Input Sourcing Risks  Brewery requires periodic resupply of raw materials   Malted barley. water.

hops and sugar mitigate against minor disruptions Obtain long-term contracts with local producers Purchase future contracts     Barley. sugar and wheat futures are traded in NCDEX Indian commodities exchange  Contract with alternative sources outside India in case of local disruption .Risk Mitigation On-site storage facilities for barley.Input Sourcing .

4 percent in 2005 Some agricultural import tariffs are as high as 115%  Non-tariff barriers include:   Excessive bureaucracy Import taxes .Trade Restrictions Risks  Agricultural sector is suffering from crisis due to low commodity prices     60% of population is supported by agriculture Market restructuring could cause further political instability Weighted average tariff rate was 14.

no suggested additional action recommended   .Risk Mitigation  Import tariffs are only relevant when domestic supplies are not available Currently. domestic agricultural prices are low due reduction of trade barriers At this time.Trade Restrictions .

Corporate and personal borrowing up 28% over past 12 months. India has the world's 4th largest GDP at US$4. 12th largest economy in the world.  GDP for past 3 years > 8%    Wages have increased 15%-plus for skilled workers. In terms of purchasing power parity (PPP).   GDP is US$1. .103 billion.156 trillion.Currency Risk  Indian economy is currently in a rapid growth phase. Increased wealth = consumption & competition increase.   February 2007: Referred to as ―Overheating Economy‖. Overall demand for goods has increased and surpassed supply.

5%. 2007. Rupee at a current 9 year high vs. Ban on wheat exports has help soften food prices. Raised interest rate ¼% to to 7.  Spot rate as of 7/17/2007 = 40. U.S. inflation is at 4. . dollar.8%.5%.5%. Down from 6.75% on April 24.Currency Risk  Current inflation comfort zone between 5 and 5.   Raised bank reserve ratio to 5.9% in January.  RBI inflation goal is between 4 and 4.   June 2007.230 rupees per dollar   Cuts in fuel taxes and import duties.

Hedge risks in the options market with excess capital. Solved by a forced devaluation of the rupee. .Currency Risk  Past/Future Outlook  India has had two major financial crises : 1966 and 1991. so to avoid another financial crisis.  Rupee appreciation will lead to less exporting.   Increase the cost of capital. RBI needs to curb spending and borrowing.  Currency Risk Mitigation  Closely watch Indian economy.   Caused by large out of control trade deficits and shrinking foreign exchange reserves.

 Subject to licensing from state governments where the unit will be set up. Government set up the Foreign Investment Implementation Authority (FIIA). Helps FDI investors obtain necessary approvals. Facilitates quick translation of (FDI) approvals into implementation.   Foreign shareholdings in industry were restricted to a maximum of 74%.  Entry into brewery sector through automatic approval route      Under automatic route.Regulatory Risks  In early 1990s alcoholic beverage industry open to foreign investment. Sorts out operational issues with various Government agencies to solve problems. approval of the RBI is required. 100 % FDI in manufacture of alcohol under the automatic route is allowed.   Helps avoid multiple layers of approvals required in some activities.  January 2006 India approved a major rationalization of FDI policy. . Entry into India was exclusively through the joint venture route.

even if foreign owned.Regulatory Risks Continued…  Foreign capital is freely allowed to be repatriated. profits.    Includes capital appreciation.37% market share Budweiser and Crown Beers of India. Taxes must be paid before repatriation.50% market share SAB Miller.  Domestic corporate tax rate = 33%. Any company incorporated in India is considered domestic.  Potential Risks   Lightened regulations may cause potential market saturation in the brewery sector. and dividends.5% market share goal . Immediate competition with large brewers already present.    United Breweries.

 Current registration is good for 7 years.Regulatory Risks Continued…  Regulatory Risk Mitigation   Focus on brand naming company image.  Focus on developing in new areas and markets. Register a trade mark to avoid brand duplication. .

  56% of rural males and 33% of rural females 57% of urban males and 18% of urban females in the labor force. Pressure to transfer agricultural land to higher productivity industry. Labor force is growing at 2.Labor Risks  National Sample Survey Organization survey  Equal to approximately 42% (of 1.5% annually.   Approximately 2.3%.1 billion) of India‘s population.   If unemployment increases.5 million employable college graduates emerging every year.  10% in formal economy. demand for beer decreases.8%. 60% self-employed. employment is growing at only 2. .  Manufacturing has generated jobs for many of the less educated who are squeezed out of agriculture.  Current Indian unemployment is at 7. 30% casual workers.

Labor commissioner in the government has to be notified of every single person working on the night shift.  .25 hours per week.  Clearly understand labor laws to avoid government intervention. Current Laws:     Any company employing more than 100 workers cannot fire people without government permission.  Risk Mitigation  Treat workers fairly through fair compensations and treatment.Labor Risks Continued…  Rigid Labor Laws  Labor market changes have not kept pace with the country's economic liberalization program begun in 1991. < or = 46. No worker to work beyond 75 hours of overtime a quarter.  Keep good rapport with involved labor unions.

Corruption Risks *2007 Index of Economic Freedom .The Heritage Foundation .

judiciary. dollars.  India study estimates the monetary value of petty corruption in 11 basic services like education.21. to be around Rs.  Equivalent to $4. etc.  Ranked 72 in 2001.S. and 83 in 2003. healthcare..068 crores in 2005. police. 73 in 2002.Corruption Risks Continued…  Corruption is perceived as widespread. custom and culture Ineffective judiciary Poor economic policies .7 billion U.  India ranks 88th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005.  Reasons for widespread corruption:       Lack of transparency and accountability in the system Lack of an effective corruption reporting mechanisms Lack of honesty in officials in the Government Acceptance of bribe as a way of life.

 Adhere as closely as possible to the Foreign Corrupt Policies Act of 1977. to have an adequate system of internal accounting controls. a U.Corruption Risks Continued…  Mitigation of Corruption Risks  Establish a system of checks and balances for all executives and directors.  Conduct third party audits to ensure sound business practices. federal law.   Most recently amended in 1998. Requires any company associated in the U.S.S. .  Require multiple approvals and signatures for major decisions.

THANK YOU .