LONDON: Global brewer SABMiller expects beer consumption in India to rise five-fold over the next 5 years as the fastest-growing beer market in
Asia expands rapidly despite high taxes and a low number of retail outlets. Although the world’s second most populous country has a small beer market, its growth has attracted the world’s top four brewers to the subcontinent, and analysts say attacks this week on the financial capital Mumbai are unlikely to halt growth.
Even the current world financial crisis and commodity price hikes have not slowed growth, and SABMiller in eight years has carved out a market share of over a third putting it close behind market leader United Breweries.
India’s beer market is only a quarter the size of the British market despite its 1.1 billion population, with per capita consumption only around 1 litre a year compared to big beer drinking nations in western Europe of over 100 litres. “I would be surprised and disappointed if consumption would be under 5 litres in 5 to 10 years,” managing director of SABMiller India Jean-Marc Delpon de Vaux told a briefing. The Indian market grew 14% in the year to end-March 2008 in volume terms outpacing China at 9%, and in the prior year it was as high as 30% reflecting the easing of regulations in two north western Indian states.
Traditionally, India is a spirits drinking market and consumption there comes close to the global average, but India’s per capita beer consumption lags the world average of 22.1 litres and even China drinks 25 litres per head annually. “People ask why is beer consumption so low and the answer is price, and price means taxation,” said Delpon de Vaux.
Beer taxes are levied by individual states in India and taxes are also paid between states so beer taxes are some of the highest in the world, at twice the international average and equal to four times the level for the Indian spirits industry.
Inter-state taxes discourage trade between states, while India’s second biggest beer drinking state Tamil Nadu in the southeast restricts beer entering the state. SABMiller is currently seeking plans to build a brewery in the state so it is able to operate and sell beer there.
Taxes make up 49% of beer’s retail price compared to a global average of 33.6% and this means after the distributor and retail margin, beermakers only see 35% of the retail price compared to a global figure of 55.4%.
So with high taxes and little control of distribution and price, SABMiller’s India business with an annual turnover of nearly $350 million makes only a small 2.3% operating profit margin on its sales, according to latest figures.
Therefore, SABMiller is lobbying state governments arguing that with the market growing fast due to strong economic growth and a burgeoning
middle class, some easing of the tight rules could be undertaken without hitting state finances hard, while there is no sign yet of any slowdown in beer market growth.
"We are not saying we will not see any slowdown but while property, cars and durable goods are feeling the pain we have seen no softening in the beer market," said Delpon de Vaux.
Although United Breweries and the world’s No 2 brewer SABMiller control nearly 80% of the market, other big brewers such as Anheuser-Busch InBev, Heineken and Carlsberg have entered the market.
India’s 65 breweries scattered across most of its 26 states only produce 12.3 million hectolitres of beer, an amount which Delpon de Vaux says could be produced by 2, 3 or 4 breweries if it wasn’t for the complex state control of the market.
Distribution is out of the hands of the brewers. In half the states, the local government controls distribution, pricing and hence profitability, while distribution in the other states is controlled often by well-established players.
The easing of state regulations in two states north west of Delhi, Haryana and the Punjab, saw national beer volumes jump 30% in the year to March 2007, while India’s biggest beer drinking state Andhra Pradesh has generally less strict rules.
As the market develops, Delpon de Vaux believes SABMiller has a better strategy with a number of brands to meet a more sophisticated market compared to India’s largest beer maker United Breweries which largely relies on the Kingfisher brand.
He has brands such as Royal Challenge and the recently launched Indus Pride to compete in the below 5% alcohol “mild” sector and Haywards 5000 in the “strong” above 5% level, and then Foster’s and imported Peroni Nastro Azzurro in the premium category.
SABMiller’s market share was 34.8% in the year to March 2008 against UB at 43%, while SABMiller says its last three-month market share is up to 35.8% as the group has taken share from United Brewers and other players.