UB under attack

Back in December, sitting on a beach in the Andamans while supervising the last leg of the Kingfisher Calendar shoot, Vijay Mallya, Chairman, UB Group, is asked by this reporter what he thinks of the several wellfunded new players entering the Indian beer market. Mallya ponders for a while and says: “Let them come, this is a market where we have the distribution, the brand and the knowledge. This is my market.” Indeed, it is, with United Breweries (UB) enjoying a near 50 per cent market share.

Barely three months later, with the northern plains betraying the first signs of an impending hot summer, a liquor vend at the Galleria shopping complex in Gurgaon showcases the challenge Mallya faces.

In the beer freezer, several imported brands jostle for space with the locally-produced ones. And it is the newer brands, particularly Danish brand Carlsberg, which are flying off the shelves. In the southern and western markets, American beer Budweiser is grabbing away share.

Who’s in? Almost all the well-known international beer brands have set up shop in India. South Asia Breweries It is a joint venture between Carlsberg A/S and Lion Brewery Ceylon of Sri Lanka. Has one operational brewery with another coming up. Current brands: Carlsberg and Palone Availability: Northern India Asia-Pacific Breweries* It is a joint venture between Singapore-based Heineken B.V–Fraser and Neave on one side and Jaipurias on the other. Has two breweries in India. Current brands: Baron’s Strong Brew (Heineken and Tiger planned) Availability: Northern/Western India Anheuser-Busch It is a joint venture with Crown Breweries. Started sales in mid-2007. Current brands: Budweiser availability: Southern/Western India *APB might pose a serious conflict of interest for Heineken, since Heineken B.V inherited the 37.5 per cent stake that Scottish & Newcastle had in United Breweries (see: A Global Headache for UB?).

However, while the burgeoning beer market—155 million cases (each case consists of a dozen 650ml bottles) as of 2007-end, up from around 110 million cases at the end of 2005—has attracted new breweries to India, the market still remains a duopoly between UB and SABMiller India, which has a 38 per cent share. The newcomers have a battle on their hands. But they are more than willing to fight it out.

“Admittedly the duopoly has huge advantages in terms of distribution and geographical location,” says Pradeep Gidwani, Managing Director, South Asia Breweries Limited (SABL), the Indian jointventure company of Danish brewer Carlsberg A/S.

The problem, he maintains, lies in Indian laws that actually tax brewers for exporting beer out of one state to another, as well as creaking infrastructure, which makes transportation difficult. Having a network of breweries becomes a necessity then.

“India has 65 breweries producing the amount of beer that it does. In South Africa, our largest brewery produces 11 million hectolitres (one hectolitre=100 litres) alone. You can never get those economies of scale in India,” Sundeep Kumar, Director, Corporate Affairs, SABMiller India points out.

SABL is, therefore, basing its India strategy around multiple breweries rather than flood the market with tens of brands. And, like all the new entrants—Crown Beers, the Anheuser-Busch joint venture and Asia-Pacific Breweries Limited (APBL)—SABL is also either establishing or has already set up new greenfield breweries, since most of India’s 65 breweries, particularly those that are still independent of large beer brands, fall woefully short of international standards.

And, unlike in the past, most new entrants this time have entered with ‘strong’ beer brands: SABL has Palone, a Polish brand; Crown Beers entered with Armstrong; while Asia-Pacific breweries have launched with Baron’s Strong Brew, a South-East Asian brand—APBL was initially marketing a ‘super strong’ beer called Cannon 10000 before launching the international Baron’s Strong Brew. “Strong beers sell because it is maximum bang for the buck, since there is no price differential between strong and mild beers,” Gidwani says.

Most of the new entrants are playing for the fastest growing segment of high-end ‘premium’ beers that account for around 2 per cent of the market at present. “This is a very attractive segment,” says Vivek Chhabra, Regional Director, South Asia, APBL. “Look at the market, there are rising disposable incomes and an energetic young population for whom drinking is not seen as a taboo.” Chhabra says once APBL has operations running smoothly they would like to bring in brands such as Tiger and Heineken.

But UB isn’t too perturbed— Kingfisher is still by far the best-selling beer brand in the country. In the high-end segment, UB has already launched Draught canned beer and plans to launch an ‘extra premium’ beer called Kingfisher Ultra. Shekhar Ramamurthy, Executive Vice-President (Sales and Marketing), UB, says because of Kingfisher’s dominant position, “the onus is on them (the new entrants) to sell their brands, not on us to compete against them”.

UB also has several smaller brands in its portfolio such as Kalyani Black Label, Sandpiper and Zingaro. Ramamurthy acknowledges that along with the brand, UB’s core strength lies in its distribution and manufacturing base, which, he believes, would be impossible for any new entrant to replicate.

Despite the additional competition, United Breweries and the Indian beer market remain extremely small on the global scale (see: Beer Facts). “The problem is that state governments see beer as a cash cow and don’t try and encourage people to consume lighter drinks, and that drives people to drink more spirits,” says Gidwani. In fact, in India people drink more hard spirits (1 litre per capita) than beer (0.9 litres per capita). Competition or not, while the beer market stays chained by the last vestiges of Licence Raj, the market is not going to go anywhere in a hurry, and United Breweries needn’t worry.

A global headache for UB? Strange are the ways of globalisation. When Danish brewer Carlsberg A/S and Dutch brewer Heineken B.V bought out British brewer Scottish & Newcastle (S&N) for £7.8 billion, they also landed 37.49 per cent of United Breweries, India’s largest brewer, which S&N acquired in 2004. When the assets of S&N were split, Heineken B.V ended up with the UB stake. This has led to complications for both Heineken and UB. Heineken’s joint venture partner in Asia, Asia-Pacific Breweries Limited (APBL), recently stated operations in India. According to Vivek Chhabra, Regional Director, South Asia, APBL has plans of rapidly expanding its brand portfolio, which could soon include Heineken (which is currently imported). Heineken owns 42 per cent of APBL’s India subsidiary. United Breweries, on the other hand, has welcomed the deal, but it is reportedly not happy with Heineken being in India through two separate ventures. The ball is clearly in Heineken’s court, and they responded to a BT questionnaire with the comment, "The proposed S&N acquisition offers a compelling opportunity to own a significant stake in the number one brewer in India. We believe it is an exciting opportunity but we are too early in discussions with the various parties to make any substantive comment." One industry veteran, however, told BT: "I am pretty sure that Mallya will get his way on this. India is too important a market for Heineken to mess up." So, the possibility of APBL merging its India operations with UB is on the cards, and this will give UB the India rights to a whole host of international brands, not just Heineken but also Tiger and Anchor.