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Beer war hots up in India
Govindkrishna Seshan & Sumana Guha Ray | December 04, 2007
Pints of Budweiser beer find their way to tables in a Mumbai restaurant that's not necessarily upscale. The recently introduced international brand is priced at a premium to other local offerings. But that does not deter middle-class customers.
Encouraged by similar aspirations, several international beer brands, including the big three -- Budweiser, Carlsberg and Heineken -- have entered India in the last 12-15 months.
In February this year, Anheuser-Busch, makers of the legendary Budweiser, that calls itself the king of beers, announced its India entry through a 50:50 joint venture with the Hyderabad-based Crown Beers.
Three months before that, Carlsberg, the beer brand for soccer fans, announced operations in India through its venture, South Asian Breweries. Last year, the Singapore-based Asia Pacific Breweries picked up a 76 per cent stake in Aurangabad Breweries, paving the way for the launch of Heineken into India.
There are others like NRI entrepreneur Karan Bilimoria, who created waves in UK's Indian restaurants by marketing Cobra, a less-gassy beer, also eyeing the market.
Even the big three brands have siblings. Apart from Heineken, Asia Pacific Breweries (APB) sells Canon, Baron's and Tiger; Crown Beers India unveiled Armstrong; while South Asia Breweries has introduced Palone.
International beer companies have a good enough reason to tap markets like India. That their main markets, North America and Europe, are either flat or in a state of decline is no secret. Early this month, Carlsberg, for instance, said it could look at closing select European breweries due to a slump in demand.
In contrast, beer is flying off the shelves in India. A recent report by global beverage consultants Canadean states that consumption of beer in BRIC countries (Brazil, Russia, India and China) increased by almost 50 per cent during 2002-2007.
In India, beer sales grew at nearly 90 per cent, compared to a less than 60 per cent growth for other alcoholic drinks. Industry sources estimate that the Indian beer market is expected to nearly double to 23.3 million hectolitres by 2012 from 12.5 million hectolitres at present.
But the market is difficult to break into. More than 80 per cent of the market is controlled by the two players, UB and SAB Miller. While UB with brands like Kingfisher, Zingaro and Kalyani Black has a 48 per cent market share, SAB's bouquet of acquired brands-- Haywards, Royal Challenge, Knock Out and Foster's deliver a combined market share of 37 per cent.
"International brands have made little impression in India," says the Canadean report, adding that the only exception is Foster's.
The newer entrants are not unduly worried. "The beer market in India has just started evolving. There is scope for growth in terms of volume, categories and variants," says Joakim Sande, marketing director India, South Asia Breweries. Rob Newman, director-marketing and sales, Crown Beers India, adds, "India presents a huge growth potential."
A cut above
Brands such as Budweiser, Heineken and Carlsberg are well-known among discerning Indian consumers. Hence the new entrants are looking at encashing equity with a premium pricing strategy. Carlsberg, for instance, sells a pint bottle (330 ml) at Rs 35 in Delhi, where market leader Kingfisher sells at roughly Rs 20.
"We target a 40 to 50 per cent price premium above mainstream products like Kingfisher and Foster's," says Sande. Even APB sells Heineken for Rs 120 for a pint-sized bottle and Tiger for Rs 85 a bottle, while Budweiser is sold at Rs 10-15 higher than Kingfisher.
Consultants are not impressed. "This is a classic mistake multinationals make. Indian consumers are very price sensitive and will not shift loyalties to higher priced beers," says U B Bhat, director, UBB Management consultants, whose company boasts of clients like Crown Beers and Beck's.
However, Heineken, Carlsberg and Budweiser cater to only 30 per cent of the market --the mild beer segment. For the remaining 70 per cent of the volumes in strong beer, the new entrants have launched multiple brands that are priced competitively.
Canon, Baron's, Palone and Armstrong are priced in the Rs 67-72 range compared to Rs 65 for Kingfisher Strong.
"Consumers in the strong beer segment are extremely price sensitive. In the mild beer segment, most companies are trying to explore if they can claim a premium," says Vivek Chhabra, regional director, South East Asia, Asia Pacific Breweries.
However, consultants say that getting market shares for these lesser-known brands in the strong beer segment will require significant brand-building exercises.
Building brands, particularly for alcoholic beverages, is easier said than done. In the mid-1990s, the Indian government banned advertising of alcoholic beverages. By then, existing brands such as Kingfisher, Foster's and Haywards had already built their brand without any surrogate branding efforts.
In contrast, the new entrants will have to rely only on surrogate advertising. For instance, Cobra is now advertised on television as sparkling water with the tag line "so smooth, anything goes down well".
Shekhar Ramamurthy, deputy president, United Breweries [Get Quote] says that the key is to be seen as a lively brand. Kingfisher, for instance, successfully extended the brand and its positioning of "king of good times" to its airlines and entered into a five-year sponsorship deal with a lifestyle television channel, Goodtimes. Also, UB's promoter Vijay Mallya has recently acquired a Formula One racing team.
"We have gained from consistently associating ourselves with various sponsorships like sports, music and fashion," says Ramamurthy.
The newer players have already started adding their twist. Budweiser has launched its music property "Budweiser Clubbing" in India. Budweiser Clubbing will bring eight to 10 world-class DJs to India every year. "We will also look at other avenues for associative advertising and brand placement. Cricket is the most followed game in India. We might look at that avenue," says Newman.
Since Budweiser is internationally associated with soccer -- it is one of the official sponsors of FIFA (Football Internationale de Football Association) and the English Premier League -- the company plans to look at football in India. Carlsberg will also look at similar options.
The brand is also trying to reach more consumers at the point of sale. "We will soon be embarking on a strategy to get consumers to try our brand at the point of sale," says Sande of South Asia Breweries. Tiger and Heineken also plan to look at avenues like football, golf and tennis. Asia Pacific Breweries is also looking at music to promote both the brands.
Beer, beer everywhere
It's not just advertising where beer manufacturers are bound by rules. Each state in India has its own laws from taxation to transportation of alcohol. Some states like Tamil Nadu, for instance, do not allow sale of liquor manufactured in other states. Gujarat does not permit sale of alcohol at all.
Hence, the new entrants need to have a separate strategy to deal with each state and build manufacturing capabilities in multiple locations. "In India you are playing a low-volume, low-margin game. It's important to be present across states, otherwise you end up incurring very high taxes," says Chhabra.
"Our operations and capacities are built across the country to suit such a strategy," says UB Group's Ramamurthy. UB has 16 company-owned breweries apart from nine contract breweries in 20 different locations across the country.
The company is setting up two new breweries in Rajasthan and Orissa. SAB Miller also has 10 breweries in nine states and has contract manufacturers in two other states. "We really don't need 10 breweries, but that method will never work in India. In India, you need to diversify your production across the country," says a SAB Miller spokesperson.
As setting up a greenfield brewery takes 18-24 months, companies are looking at joint ventures or acquisitions. In contrast, upgradation takes only 6-8 months. In India, even SAB Miller made six acquisitions in five years.
While Carlsberg is building a greenfield brewery in Rajasthan and Maharashtra to produce 4,50,000 hectolitres each, it acquired Himneel, another brewery in Himachal Pradesh, to access a capacity of 1,50,000 hectolitres. It also acquired a stake in Parag breweries in Kolkata.
Cobra has four licensing agreements with Mount Shivalik Group of Rajasthan, Impala Breweries in Goa, Manav Breweries in Uttar Pradesh and Iceberg in Bihar. It is also setting up four new plants in the country, one in each region, with an investment of $15 million (Rs 60 crore) per plant.
Asia Pacific Breweries, the makers of Heineken, first acquired Aurangabad breweries in Maharshtra and then entered into a joint venture with Jaipuria Beverages and Food Industries to set up a new brewery in Hyderabad.
The first acquisition gave the company a capacity of 2,50,000 hectolitres and the new brewery shall deliver 5,00,000 hectolitres. Apart from that the company is also upgrading a brewery in Goa.
However, not everybody is adapting the be-every where strategy. Crown Beers, the makers of Budweiser, is looking at consolidating its presence with a single brewery in Andhra Pradesh to serve four states -- Maharashtra, Karnataka, Goa and Andhra Pradesh. The company claims that its premium pricing builds in the impact of taxation.
At least in the Mumbai restaurant, customers are not complaining.