Beer consumption to rise five-fold over next five years
Global brewer SABMiller expects beer consumption in India to rise five-fold over the next five years irrespective of 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. Even the attacks on the financial capital Mumbai in November are unlikely to halt growth.
India’s beer market is still tiny despite its 1.1 billion population. Per capita consumption is only around one litre a year compared to big beer drinking nations in Western Europe of over 100 litres.
According to SABMiller, which is currently the number two brewer in India,
the Indian market grew 14 percent in the year to March 2008 in volume terms outpacing China at 9 percent. In 2006/2007, growth was as high as 30 percent reflecting the easing of regulations in two northwestern Indian states.
Traditionally, India is a spirits drinking country and consumption there comes close to the global average, but India’s per capita beer consumption lags the world average of 22.1 litres.
The reason why beer consumption is so low is price – or rather taxation. 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, says SABMiller.
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 percent of beer’s retail price compared to a global average of 33.6 percent, which means that after the distributor and retail margin, brewers only see 35 percent of the retail price compared to a global figure of 55.4 percent, says SABMiller.
With taxes being high and brewers enjoying little control over distribution and price, SABMiller’s India business with an annual turnover of nearly USD 350 million makes only a small 2.3 percent operating profit margin on its sales, according to latest figures.
Although United Breweries (in which Heineken has a stake) and SABMiller’s 100-percent Indian subsidiary Shaw Wallace control nearly 80 percent of the market, other big brewers such as Anheuser-Busch InBev and Carlsberg have also entered the market.
India’s 65 breweries scattered across most of its 26 states only produce 12.3 million hl of beer, an amount which could be produced by two, three or four breweries if it was not for the complex state control of the market.
The trouble is that distribution is out of the hands of the brewers. In half of the states, the local governments control distribution, pricing and hence profitability, while distribution in the other states is often controlled by well-established players.
The easing of regulations in two states northwest of Delhi, Haryana and the Punjab saw national beer volumes jump 30 percent in the year to March 2007, while India’s biggest beer drinking state Andhra Pradesh with its capital Hyderabad (seven million inhabitants) has generally less strict rules.
SABMiller says its market share was 34.8 percent in the year to March 2008 against UB’s at 43 percent.
