BANGALORE – Twenty years ago, Johannesburg-based South African Breweries was a small, but successful company with a dominant position in the southern African market. That changed in 1990, when the company purchased a stake in Compañía Cervecera de Canarias SA, a tiny brewery in the Canary Islands. In the decade that followed, South African Breweries completed a series of major international acquisitions, including a deal for Miller Brewing Co., America’s second-largest brewing company, as well as deals for other breweries in emerging markets.
A member of SABMiller India’s quality control team at the Aurangabad brewery conducts beer tests. Aurangabad brewery is one of 10 breweries owned by SABMiller India. The company is ramping up its efforts to increase beer consumption in India. Photo by One Red Eye/Philip Meech
Now, that company – London-based SABMiller Plc – is the world’s second-largest brewing group, with several dozen brands, and the envy of other global brewing companies because of its success in Latin America, Africa and Asia. And yet, success in India, the fastest-growing beer market in Asia, continues to elude SABMiller.
Blame it on the South Asian nation’s complex regulatory and tax environment, which keeps prices too high for most Indians and volumes too low. “Beer is expensive in India. The reason is that it’s taxed heavily,” said Jean-Marc Delpon de Vaux, managing director of SABMiller India Ltd., the Bangalore-based division of SABMiller Plc. “At [70 cents] a bottle, a man has to work for a beer [for] over an hour.”
In India, beer is sold in two sizes – large (650 milliliter bottle) and small (325 milliliter bottle or can) – with prices ranging from about $3.75 in Chandigarh to just 60 cents in Mapusa and Pondicherry, according to PintPrice.com, a Web site that calculates the average price for a beer in cities around the world, based on user input. In Bangalore, where SABMiller India is headquartered, a beer can be had for about $1.75. Nationwide, beer sells for an average price of $1.47 per unit.
Based on the aforementioned figures, an Indian garment-factory worker would have to spend one-quarter of what he or she earns in a day just to afford the cost of a cold one. It is an indulgence far beyond the reach of most of the country’s 1.2 billion people.
Still, beer makers consider the subcontinent an incredibly lucrative market. Indians consume just over one liter of beer per person, per year, yet industry volume there grew 14 percent during the 12 months that ended last March, and 27 percent during the same period the year before. SABMiller India’s business grew by 16 percent last year, according to Sundeep Kumar, the company’s director of corporate affairs and communications.
In contrast, the typical Chinese consumes 23 liters of beer a year, just over the world average of 22 liters, while Americans drink an average of 82 liters of beer annually and Britons consume about 99 liters per person, per year. “The Indian beer industry today accounts for only about 4 percent of the total beverage-alcohol market by volume,” Kumar said. “But, the market has great growth potential – increased per capita incomes, improving lifestyles, increased urbanization and discerning consumers are factors expected to trigger demand for better and world-class products.”
Yet, if SABMiller India hopes to boost its sales in the country, it will have to overcome several formidable obstacles, chief among them the high taxes imposed by state governments and a low number of retail outlets that carry the beverage.
“Taxes on beer in India tend to be relatively higher than spirits, whereas in most parts of the world, in fact, the reverse is true. Globally, on a per-alcohol basis, beer is taxed at 50 percent of hard liquor, whereas in India, beer is actually taxed 60 percent more than hard liquor, on an average,” Kumar said. “In India, beer taxes are levied by individual states and are also paid between states. As a result, beer taxes here are twice the international average.”
Because of this, SABMiller India and its larger rival, Bangalore-based United Breweries Group, filed a lawsuit in the Andhra Pradesh High Court against the state of Andhra Pradesh for not revising the procurement price of beer in more than a decade, despite a significant rise in costs and a 300- to 400 percent increase in the retail price. In the joint petition, filed the first week of November 2008, the two companies accuse the state government of using its monopoly in not revising the 1997 procurement price, which currently stands at about $4 per case of 12, 650-milliliter bottles.
In Andhra Pradesh, only the state-run Andhra Pradesh Beverages Corp. Ltd may purchase alcoholic beverages from companies through quotation. Andhra Pradesh Beverages Corp. also fixes the consumer price and supplies beer to private retailers. The state is the single largest market for United Breweries and SABMiller India, which control about 80 percent of the Indian beer market, as it contributes about 30 percent of the total annual beer revenues for SABMiller India and approximately 18 percent of United Breweries beer revenues.
“Though the actual cost of production, which includes the price of malt, cost of power, salaries and other overheads have gone up multifold, the government has not considered an appropriate revision even to cover up the cost for over 10 years,” Kumar said. “Preferential treatment should be given to beer, which is a softer form of alcohol and having direct agri-benefits, the easing of state regulations would boost up the growth of the beer industry tremendously.”
Another obstacle blocking the path to success in India for SABMiller, United Breweries Group and even foreign companies are state policies that severely restrict transportation of beer across state borders. As a result, Indians who want to purchase beer must travel many miles just to find a retailer that carries it. According to Kumar, India has one point-of-sale for every 21,000 people, whereas in Indonesia, the ratio is approximately one retailer for every 3,000 people.
“The growth of the [Indian] beer market largely requires lower retail prices, a better retail environment and sales-force development,” Kumar said. “Good beer selling practices and better point-of-sale promotions, along with the freedom to pursue modern methods to provide consumers with value for money-quality products, would be additional triggers to growth.”
SABMiller has recently begun running ads in India for its beer, Indus Pride. Photo courtesy of SABMiller
Unlike in most Western nations, there is nothing glamorous about drinking a beer, particularly in public. Advertising is prohibited, which provides little incentive for beer drinking to move into the mainstream, and thus, socially accepted. As a result, SABMiller India has made no effort to market its products to Indian women because so few of them drink alcohol. In an effort to raise cash elsewhere, brewers have diversified into other beverages, such as mineral water, soda, and in the case of United Breweries’ Kingfisher brand, an airline.
But SABMiller India is looking to change the public perception of beer among Indians. In recent months, the company has unveiled to the domestic market a variety of brands produced in India and other countries, as well as new labels, with the goal of dethroaning Kingfisher from its perch as the most popular beer in India. The list includes Foster’s, the Australian lager that is popular among Americans and distributed around the world; Peroni, an Italian beer that is gaining popularity in the United States, and Indus Pride, a new, low-alcohol beer developed and brewed by SABMiller India that targets the wealthier Indian drinker.
Accordingly, Indus Pride’s launch – which took place last Oct. 7 – was accompanied by a promotional campaign that featured Bhangra, cricket and Bollywood – all of which Kumar said “appeal to Indian sensibilities.”
“Our latest offering, Indus Pride, is designed specifically for the Indian palette,” Kumar said. “It is a 100 percent malt beer developed by a special brewing process and reflects Indian passions – hence its promotional strategy is built around this theme.”
Produced at SABMiller India’s Rochees brewery in Rajasthan, Indus Pride is a mild beer (4.8 percent alcohol by volume) that features a “rich aroma and taste,” according to an Indus Pride fact sheet supplied by SABMiller India. It takes aim at so-called “strong beers” – those with a higher alcohol percentage – which currently dominate the Indian beer market.
“Sixty-five percent of the Indian beer market is strong beer; this figure confirms the fact that in India, what matters is ‘kick for buck,’” Kumar said. “Strong beer drinkers also consider themselves macho. In India, people used to drink primarily to get drunk. Hence, strong beers dominated over lagers and draught, although that is changing – the rapid economic growth and globalization is fueling a demand for brands that cater to a diverse consumer palette.
“The brand best complements the contemporary Indian identity – it mixes the best of a global outlook with the flavors of traditional India,” Kumar added. “The beer in its complete package is unmistakably rich Indian and is inspired by how Indians live their passions. This is in line with SABMiller’s efforts to give the Indian consumers a portfolio of brands to address varied consumer needs.”