UB under attack
Kushan Mitra March 17, 2008Back 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.
“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.
“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.