Indian Beer Market

An Oligopolistic Market

Submitted By
Rajeev P Nair
Section A
Roll no : eMEP -023

History of Beer in India:

Beer began to be exported to India in the early days of the British Empire,
including porter and India Pale Ale, also known as IPA.
The first brewery in India was set up in Kasauli, in the Himalaya mountains,
near Shimla, in the late 1820s by the Englishman Edward Dyer. Dyer's brewery
produced Asia's first beer, called Lion. The brewery was soon shifted to nearby
Solan (close to the British summer capital Shimla), as there was an abundant
supply of fresh spring water there. The Kasauli brewery site was converted to a
distillery which Mohan Meakin Ltd. still operates. Dyer set up more breweries at
Shimla, Murree, Rawalpindi and Mandalay.
Another entrepreneur, H G Meakin, moved to India and bought the old Shimla
and Solan Breweries from Edward Dyer and added more at Ranikhet, Dalhousie,
Chakrata, Darjeeling and Kirkee. In 1937, when Burma was separated from
India, the company was restructured with its Indian assets as Dyer Meakin
Breweries, a public company on the London Stock Exchange. Following
independence, in 1949 N.N. Mohan took over management of the company and
the name was changed to Mohan Meakin Ltd. The company continues to
produce beer across India to this day and Lion is still available in northern India.
Lion was changed from an IPA to a lager in the 1960s, when due to East
European influence, most brewers in India switched from brewing Ales to
brewing lagers. Today no brewer in India makes India Pale Ale. All Indian beers
are either lagers (4.3% alcohol — such as Australian lager) or strong lagers
(15 % alcohol - such as Australian Max super strong beer

Indian Beer Market Overview

Indian beer market is valued at INR 35 bn with volume sales of 172 mn cases for FY 2009-10 and at
the current trend the market is expected to grow at an annual rate of 17.2% till 2011. With Global
beer market being stagnant,the focus of international firms is on untapped potential in India 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.(See exhibit 6 for Market share)
In the last 9 years beer consumption has been growing rapidly at a CAGR of 7% .Looking from the
industry perspective,the Indian beer industry has been witnessing steady growth of 10% per year
over the last ten years. With the average age of the population on the decrease and income levels on
the increase, the popularity of beer in the country continues to rise.

Drivers and Challenges

Drivers:
➢ Huge Market Potential:
 “Increase in purchasing power and growing popularity of beer makes India a market of high
potential, with 15 per cent to 30 per cent annual growth," says Joakim Sande, Marketing
Director, India, Carlsberg.
The beer market in India is pegged around 12 million hectolitres and is expected to double in
the next five years or so.
➢ Rising Income Levels:
India is one of the most attractive consumer markets in the world with about one-sixth of the
global population. The rising income levels has a direct positive impact on beer sales in India.
Also, urban consumers who are more exposed to the western culture socialize with beer. The
growing income levels particularly in the urban earning class is a potential market for beer
manufacturers in India.

➢ Entry of International Brands:

Many foreign beer manufacturers have entered or plan to enter the Indian beer market with
their product line. The market is set to flourish with 15 new breweries and 10 international
brands in the next 3 years. With the global markets experiencing low or stagnating growth
and focus shifting to India, the Indian industry is expected to witness fast growth in the
coming years.(see Exhibit 02 for the major brands available in India)

Challenges:
➢ Regulatory Environment:
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". [7] As the advertisement of liquor is banned
in India, Carlsberg has cashed its international image to boost its sales in the domestic market.
They have targeted the public houses and discotheques for their promotion which is very apt.
Kingfisher employs the style of surrogate advertisment, where it try to gain cutomer attention
by advertising about its mineral water,etc. But with government banning even indirect
advertisements of wine, alcohol, liquor and any tobacco products forthwith in the interest of
public health, the brand building is going to be a great challenge.(See exhibit 14)

➢ High Tax Structure:

Minority preference for beer in India and high tax structure are the major challenges for
Indian beer industry. One of the reasons for the low preference for beer is high taxes imposed
on beer consumption. On absolute alcohol basis, beer is taxed higher than spirits in most of
the states in India. There are about 26 different alcohol specific taxes that constitute 50% of
the consumer price which is among the highest in the world. In India, beer taxes are levied by
individual states and taxes are also paid between states.[9](See Exhibit 5 for comparison of
tax rates) Beer, which is a softer form of alcohol consumption, is taxed higher by most states
compared to Spirits on absolute alcohol basis. This is primarily because 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% of hard liquor whereas in India,
 beer is actually taxed 60% more than hard liquor. (See Exhibit 8) The Indian beer industry is
plagued with myriad taxes & levies that vary from state to state. In fact no two states or UTs
have a same or even a similar policy. The inconsistency in the state policies leads to fostering
an environment of mismanagement & lack of focused strategy to manage state finances.
States usually do not adopt policies based on scientific management or by considering the
social aspects of managing this trade. The policies are generally short term in their outlook,
with little or no
thought to long-term interests of all stakeholders, including the general public. (See exhibit 3
for Sample duties table)

Trends:
➢ Growing demand for barley and evolving contract farming:
Barley accounts for one-sixth of the cost of making beer. Increase in domestic consumption
and export demand has pushed the barley prices up by 20% from Jan 08 - June 08. Moreover,
Increase in barley prices has let to 10% increase in cost of beer. The protein content in barley
crop in India is 13-15% compared to 7-10% in developed nations and this high protein
content in Indian barley is not suitable for making beer. Rajasthan is an ideal place where
barley can be grown under suitable climatic conditions for having lower protein content
required by the beer industry. SAB Miller India is encouraging farmers in Rajasthan to
cultivate a type of malt barley required by the industry. The company launched a programme
called Saanji Unnati for educating farmers to sow the right type of certified seeds and
practices. [10] (see exhibit 11 & exhibit 12 for growth of barley prices and its consumption in
2008)

➢ Premium Beer market on the rise:

Premium beer segment is outpacing the mainstream beer market touching a growth rate of
between 40-50%. The Indian beer industry is moving towards premium category of beer.
Lifestyle changes and increasing western culture in India are some of the factors driving the
premium segment. Many domestic and foreign premium brands are finding the interests of
young urban working class. Premium beers are priced about 30% higher than regular brands.
(See Exhibit 9 & Exhibit 10)
Some of the premium brands in India are:
✔ UBL - Kingfisher Premium, UB Premium,Ice, Kalyani Black Label Premium
✔ SABmiller India- Foster’s, Peroni, Royal Challenge
✔ Other Premium Brands- Cobra 5.0% Premium, Budweiser, Carlsberg, Stella Artois,
Tiger, Beck’s

➢ Emerging new sub-categories of beer with consumers in India open for experimenting:
New sub-categories of beer are emerging as consumers in India are now open to
experimentation. With Indian consumers open to experimentation, many multi-national firms
are introducing alcohol-free and flavoured beers in the market. Craft beers, which are
available in unique flavours, is expected to penetrate the lager dominated Indian beer
industry. Craft beers are expected to attract women consumers and these new sub-categories
are estimated to cut 25-30% of market share of regular lagers.
Cobra beer is bullish on alcohol-free beer and flavored beer in India. It has rolled out:
✔ Cobra LightLow calories and low carbohydrates.
 ✔ Cobra Bite: Flavored beer (Includes Lemongrass, Blood Orange, Sweet Lime and Fresh
Ginger flavours)
✔ Cobra Zero %: Alcohol free
The UB group also sees an opportunity for new beer sub-categories and segments in India.
The company plans to cater to different consumer segments in the industry and will launch
three new varieties of beer including fruit flavored and low alcohol brands

Competition:
Currently more than 80% of the market is controlled by two major players United Breweries
Limited (48%) and SABMiller India (35%).Strong beer is predicted to grow faster as it is perceived
to offer value for money alternative to spirits. With InBev acquiring Anheuser-Busch, it has
potential to emerge as the third major player in the Indian beer market. The future of beer market in
India looks positive with the entry of many international players. Beer sales will increase along with
increasing number of brands and sub-categories in India. Existing players like UBL and SABMiller
are planning to expand their range of [Link] players like ABInBev, Carlsberg are bringing
their internationally renowned brands to India.[14] (See Exhibit 6 & Exhibit 7)

Top players
➢ United Breweries
United Breweries crossed milestone of 100 million cases. It enjoys a 57 per cent share in the
estimated 200 million cases domestic beer market. Its total volume of sales increased by 20% while
the revenues increased by 18%. The company also saw huge rise in its net profits- by 51%.
UB Group today controls 60% of the total manufacturing capacity for Beer in India. The company,
which sold
over 100 million cases of beer in 2009-10, expects a sales growth of 30-35 per cent in the current
fiscal.
For FY 2008-09-The Company reported a net turnover of INR 17475.7 mn and profit after tax of
INR 624.9 mn
Brands: Kingfisher (Premium, Strong, Strong fresh, Draught, Ultra, Blue, Red, Bohemia), Zingaro,
UB Export, Londer Pilsner Premium strong, Kalyani Black Label strong, Bullet, Marco Polo, Guru
Strong, London strong.[15]
Business Strategy: UBL has a manufacturing network of 22 breweries across India. The company
enjoys a market share of 48% in the industry and plans to expand its share further. Kingfisher
Strong is the single largest selling beer brand in India, while Kingfisher Premium continued to
outperform in its [Link] plans to set-up two new green field breweries at Mallepally in
Andhra Pradesh and Nanjangud in Karnataka in order to support the revenue growth. UB Group
firm United Breweries Ltd today said it is planning to locally produce Dutch beer brand ''Heineken''
by next fiscal besides launching a refurbished ''Tiger'' brand in India this year.[16]
➢ SABMiller
SABMiller India is a subsidiary of SABMiller PLC registered in India as SKOL Breweries Limited.
For FY 2007-08 the company reported a net turnover of INR 10860 mn and profit after tax of INR
344 mn.
Brands: Haywards 5000, Haywards 2000, Haywards Black, Foster’s, Indus Pride, Peroni, Royal
Challenge, Knock Out
Note on Foster’s:
Foster's Lager is a uniquely international beer, brewed with the finest sun-dried malted barley, the
purest water, and Foster's own specially bred 'Pride of Ringwood' hops imported directly from
Australia to give the beer an authentic flavour. Its crisp, clean flavour won it immediate
international acclaim when it was first brewed in Melbourne in 1888. Today, more than one hundred
years later, it is still recognized as one of the world's best beers. Foster's Lager is a uniquely
international beer, brewed with the finest sun-dried malted barley, the purest water, and Foster's
own specially bred 'Pride of Ringwood' hops imported directly from Australia to give the beer an
authentic flavour. Its crisp, clean flavour won it immediate international acclaim when it was first
brewed in Melbourne in 1888. Today, more than one hundred years later, it is still recognized as one
of the world's best beers.[37]
Business Strategy: SABMiller has 10 breweries located strategically across India to serve the beer
markets efficiently. The company has a market share of 35% and stands in the second position. The
company has invested about INR 1250 mn in the past two years for upgrading the breweries to
global standards. SABMiller has leveraged its global expertise in packaging, pricing, occasion and
product gaps which were improved based on consumer [Link] it plans to bring the iconic
Dutch premium beer Grolsch to India. SABMiller Plc has acquired the brand for USD 1.2 bn in
2007. [17]
Other players
➢ InBev India
Brands: Tennents Super, Beck’s, Stella Artois, Hoegaarden, Leffe
Anheuser-Busch (AB) was acquired by InBev in 2008 and formed ABInBev India; currently
operates using trading name InBev India. InBev operates in India through a 49:51 joint venture with
soft drink bottler RKJ
Group. AB started operations in India through a 50:50 joint venture with Crown Beers International
initially but later AB purchased the remaining ownership from Crown Beer India Ltd.
Business Strategy: InBev India has a production capacity of 1.9 mn cases a year through two
contract brewering arrangements in Regent Breweries in Madhya Pradesh & Dasappa and Sons
Bangalore. InBev plans to introduce Tennents brand in North India either by finding a contract
brewer or by setting up a brewery. ABInBev India launches Budweiser beer in North India in
August 2009. It has received a good response in the Southern states and Maharashtra. The company
expects to cross 2.9 mn cases in sales of Budweiser beer by December 2009. [18]
Carlsberg
It entered Indian market in 2006 & operates here through a joint venture named South Asia
Breweries and positioned itself as a premium mild beer. With the launch of its flagship brand, the
company is trying to create a premium, all-malt beer category. In 2009 Carlsberg was the 4th largest
brewery group in the world. Its products are sold in more than 150 markets. In 2008 the Group sold
more than 120 million hectoliters of beer, nearly 100 million bottles of beer a day. Their major
consumers are in Southern India. Howsoever, it consciously chose the north, east and west regions
of the country to set up its breweries
Strategy adopted by Carlsberg is to concentrate on to the untapped market of north and west India in
the initial stage of the production. Moreover, since it has positioned itself as a premium product, it is
only catering to the urban cities of India.

Oligopoly behavior of Indian Beer Industry:

➢ Barriers to entry [New firms]

✔ High Government Tax
✔ Highly Regulated Market Infrastructure
✔ Advertising barriers
 ✔ Consumer tastes not aligned with the consumption of beer vis-à-vis other beverages
✔ Preference to promote to higher alcohol content drinks after starting with Beer
✔ High-Capital Barrier
✔ Challenges faced in procuring raw materials like bottle & Barley
Although the market is equitable with respect to the brands, we see high concentration with
respect to companies. This is mainly because of aggressive acquisitions of relatively
successful brands by the biggies in the recent times.(Exhibit 6 & 7)
The potential for growth is equally enticing for Major brands to participate in Indian beer
industry. With Brands like Diageo & Victoria Beer venturing, we can expect dynamism in
this space.

➢ Few sellers and Many buyers:

Although there are more than 10 players in the market, two groups hold the maximum share
of the market. On applying Herfindahl index to get a feel of the competition in the Market.
(The Four Major players and their share is provided in Exhibit 6,
UB – 49% SABMiller – 38% Millenium Alchobov – 9% Mohan Meaking 4%)
Herfindahl index measures the degree of concentration in an industry.
Herfindahl index _ (S1)^2 _ (S2)^2 _ . . . _ (Sn)^2
where S1 through Sn are the market shares of firms 1 through n
If we apply the four-firm concentration ratio for beer industry
Herfindal index = 49^2+38^2+9^2+4^2
= 3942
An Herfindal index of more than 1800 represents a highly concentrated
market. With an Herfindal index of 3942, we can deduce that Beer market in
India is highly concentrated and dominated by few players.

➢ Firms produce and sell homogeneous or differentiated Product:

Beer is a homogeneous product produced in a oligopolistic market.
Economies of scale exist, which indicate that a few large firms would be more efficient that
many small ones. A high degree of capital investment required to create a Beer firm.

This market can be analyzed using Cornout Model. As per it, each firm must decide how much to
produce, and at the same time- taking its competitor in account. Also each player treats the output
level of its competitor constant when deciding as to how much to produce. Based on this model we
can draw the reaction curves of the 2 firms- UBL (49% market share) and SABMiller (38% market
share).
Reaction curves and Cournot Equilibrium

the graph drawn below depicts the market conditions. Q1’ and Q2’ represent production quantity of
UB group and SABMiller. R1R1 and R2R2 represent the UB groups and SABMiller’s reaction
curve. With UB group as the market leader the quantity output is OR1. With this condition
SABMiller selects various strategies to enter in to the market and capture the market share by
acquisitions and international branding and it produces an output. Since SABMiller has entered the
market the UB group will change it production by decreasing it along its reaction curve. Similarly
SABMiller reacts by increasing its production along its reaction curve. Then both the player reach
the equilibrium point (E) or try to attain the point such that the price is satisfactory, both of them are
able to sell the quantity which is exhausted and are able to maximize their production.
It is with this model the market leader UB group has moved to lower market share
of 47% and SABMiller to 37%. There will be further change in the market share to
attain the eqilibrium point (E). In the Cournot equilibrium model the two firms are
making the profits that exceed those that earned under perfect competition but less
than those that would be earned by monopoly. They earn less than a monopoly
would earn because of their joint outputs exceeds the monopoly outputs. They earn
more than perfectly competitive firms would make since each is aware that it
drives the price down when it increases its own output. Thus the above analysis
shows the duopoly market condition in Indian beer industry.
Looking it from a micro economic perspective, we can say that there has been an
increase in the demand. Hence assuming the same supply, the market would clear
at a higher price.
Exhibits:
Bibliography
[Link]
[Link]
[Link]
[Link]
UBL Annual report 2009; SKOL Breweries Annual report 2008; Bloomberg “SABMiller Fights
India’s Beer Rules in Court to Double Profit”, Dec 2008, TASMAC
UBL Annual report 2009; SKOL Breweries Annual report 2008
All India Brewers’ Association report, Nov 2008
[Link]
[Link]
All India Brewers’ Association report, Nov 2008
[Link]
Business Standard articles “Indian beer market ready for new fizz”, May 2008 & “Craft Beers
set to challenge 'Lager' territory”, Jun 2009
Company websites; Annual reports; Press articles; DNA article “SABMiller seeks bigger mild-
beer glug”, Mar 2009