Foaming with action

In Europe, Danish brewer Carlsberg is a formidable giant, watering the continent’s beer-crazy population with its distinctive German-styled pilsner. It is also the fourthlargest beer maker in the world. In India, it is a tiny upstart to both Indian giant United Breweries (UB), maker of the ubiquitous Kingfisher, as well as SAB Miller, which sells the popular Haywards beer brands amongst others. Both these behemoths together have a vice-like grip over the market with an 80 per cent share.

This hasn’t deterred Carlsberg’s India plans one bit. The Gurgaon-based company launched its India campaign by taking over an established brewery in Ponta Sahib, Himachal Pradesh in early 2007, and then quickly expanded operations to Alwar, Rajasthan and Aurangabad, Maharashtra last year. A fourth Carlsberg brewery is about to go online next month near Kolkata, which Pradeep Gidwani, Managing Director, Carlsberg India, says will tap the under-exploited eastern and north-eastern markets. “We can’t seem to brew enough beer,” says Gidwani. Most significantly, Carlsberg is getting ready to storm the prized beer bastion in South India—an area that boasts maximum beer consumption in India and is a UB stronghold—by building a brewery there as well.

On the surface of it, India’s beer market may not seem so hot. Despite possessing possibly the world’s most ideal climate for beer consumption thanks to the intense heat of the Indian summer, India has among the least per capita consumption of beer in a large (non-Islamic) country. “Indians consume around 1.4 litres of beer per capita, and that number has hardly grown from the start of the century, when we consumed on average around one litre of beer,” says Gidwani. The irony is that Indians consume over one litre of spirits (Indian Made Foreign Liquor—IMFL) per capita every year. A 2004 World Health Organisation report ranks India at 160th in the world in “pure” (undiluted) alcohol consumption at 0.82 litres per capita per annum (this includes country liquor).

India today, however, is not the India of 10 or 20 years ago. Roughly 60 per cent of the population is now under 30, many of whom are living, working and spending their hardearned bucks partying it up in urban towns. Rather than knocking back a few pegs of whisky after work, like their parents might have decades ago, these youths are increasingly gravitating towards beer and wine—and this is the market that beer makers are eyeing hungrily. Also, with incomes rising, thanks to a high-growth economy, India has become one of the top three markets in Asia. Since 2007-08, the beer market here has been growing at 10 per cent a year, with consumption touching 170-174 million cases in 2008-09, up from 157 million cases in FY 2008. “Carlsberg has tasted success in China and the management feels that India is ripe for a beer explosion,” says Gidwani.

For companies like Carlsberg, India is the next El Dorado. Sure, competition is stiff, but new entrants have also probably watched, with great interest, the gigantic success that SAB-Miller, one of the world’s largest brewers, has had in the country. Over the past decade, the company has cornered an impressive 35 per cent of the Indian market by scarfing up independent brewers and and the beer division of Shaw Wallace & Co. Other foreign brewers who have entered India with high expectations are Hacke-Beck, Strohs and Cobra— but they haven’t exactly set the market on fire. Budweiser’s Indian joint venture is now operated through Belgian’s InBev and Heineken is being distributed by UB.

What Ales Beer?
Despite these promising developments, beer consumption in India has been hobbled considerably by draconian regulations governing beer sales. Every state has a separate tax rate for beer. Tamil Nadu insists that only beer brewed locally can be sold there. Also, strong and light beers are taxed at the same rate and licensing hurdles (and the associated bribes) have crippled the spread of liquor outlets, with brewers having to pamper local distribution monopolies. It’s a wonder that beer gets sold at all.

For instance, Greater Mumbai, India’s largest urban conglomeration, has around 2,500 outlets for alcohol. By contrast, Shanghai, the Chinese financial centre that Mumbai wants to emulate, has 18,000 despite a similar population base. Across India, alcohol is available at 55,000-odd outlets—including shops, bars and restaurants—or one outlet for every 20,000 residents. The global average is one for every 250. In China, it is one for every 300.

Beer just doesn’t seem to get any breaks here. “Beer is taxed at the same level, in fact, even higher than hard spirits in some states,” says Shekhar Ramamurthy, Deputy President, United Breweries. He points out that a quart of Bagpiper Whisky (made by UB’s sister firm United Spirits) delivers much more punch than a bottle of Kingfisher Strong, but, in Mumbai, where beer prices are among the highest in India, the difference between a bottle of strong beer and a quart of whisky is under ten rupees.

It gets worse. Indians have a particular appetite for “strong” beers or those with over seven per cent alcohol by volume (ABV)—70 per cent of India’s beer industry is made up of these higher-octane beverages. But they pay the same tax for “light” beers. “Beer is taxed not by alcohol volume but as ‘one’ commodity, so there is no significant difference between strong and mild beers in terms of price,” says Sundeep Kumar, Director, Corporate Affairs, SAB-Miller India. And don’t even try to sell beer made in one state across the country. “It’s crazy,” says Ramamurthy, “there are export duties on beer from one state to another. Imagine, you are penalised for ‘exporting’ a product!” As a result, India’s largest breweries have a capacity of around 1 million hectolitres, while the world’s single-largest brewery, built by Mexico’s Grupo Modelo, makers of Corona, has a capacity of 60 million hectolitres. That’s three times India’s annual consumption.

Beer distribution is another headache. Even though India has a limited number of outlets, local distribution monopolies exist in some states. “I spend around 15-20 days every month travelling, talking to distribution guys. It is quite a challenge”, says Gidwani.

The case for beer
Considering these Olympian hurdles, it is impressive that a new entrant like Carlsberg can’t keep up with demand, according to Gidwani, producing around 50,000-60,000 hectolitres every month between its three operational breweries. In Delhi, Carlsberg and its upscale brand Tuborg are almost regularly out of stock in major retail outlets. “The high-worth market is admittedly growing very fast today,” says Kumar, who is also Vice-President of the Indian Brewers Association.

The Indian beer industry feels that if unshackled, it can actually not just contribute to government coffers but can also reduce alcoholism. “You can’t stop or legislate against drinking. What you can do as governments in China and Russia have done is to encourage people to consume lighter alcoholic beverages and this is where beer slots in,” argues Kumar. Beer consumption has climbed significantly in states like Andhra Pradesh that have outlawed country liquor. Andhra Pradesh is India’s top beer-consuming state. “If rules are relaxed and beer is not treated as a pariah, farmers would also benefit,” says Ramamurthy.

Today, Indian barley, used to make malt, does not come up to global standards. “We import all the malt used to make Carlsberg,” Gidwani says. Both SAB-Miller and UB have pilot projects for barley farmers in northern Indian states. “I am not saying make beer as freely available as soft drinks, but we need the government to realise that beer isn’t bad,” argues Kumar.

Is anyone out there listening?