A watershed year for beer industry

Boby Kurian

BANGALORE, Dec. 28

GLOBAL brewers have been eyeing the Indian beer market for over a decade, but stayed away from guzzling it. The $4.2-billion South African Breweries' (SAB) bold acquisitions in the last 12 months have steered the way for the entry of more foreign brewers into the local beer market. As 2001 ends, several domestic brewing majors are close to inducting foreign partners into their companies. Perhaps it is reasonable to suggest that 2001 may well go down in history as a watershed year in the local beer industry's growing integration with global market.

The year saw SAB's moves gain decisive momentum and aggression. After acquiring Narang Brewery in Uttar Pradesh last year, SAB continued gobbling up breweries in Maharashtra, Karnataka, Rajasthan and Himachal Pradesh. The world's fourth largest brewer snapped up Mysore Breweries Ltd (MBL) for Rs 108 crore, struck an alliance with Himneel in Himachal Pradesh and picked up a majority stake in the Rajasthan-based Rochees for Rs 9.7 crore.

SAB's most significant strike was the buyout of MBL, which has two breweries located each at Bangalore and Aurangabad. The deal, which brought Knock Out strong beer into the company's fold, also saw the brand make an entry into southern markets. Knock is a brand that sells 4.5 million cases annually. It gave the foreign brewer sizeable market shares in the crucial markets of Maharashtra, Andhra Pradesh and Karnataka, which together account for 45 per cent of the total annual beer sales in the country.

It is estimated that the deal provided SAB with seven per cent of the overall Indian beer pie. The majority stake in Rochees along with the takeover of Narangand and access to Himneel will give SAB enough capacities for an assault on the north Indian markets. The company kicked off commercial operations in September with the launch of an original India-specific brand, Three Lions, in the select markets of Lucknow and Chandigarh.

It will take a while to assess how far SAB has succeeded in turning its investments into commercial gains. SAB's international flagship brand, Castle Lager, is expected to foray into the country by summer next year. While SAB remained fast paced in the domestic market, Foster's the first foreign brewer to enter India, continued its rather sedate moves. This Australian beer giant came in three years ago when it hit the retail shelves in Mumbai and subsequently spread into the rest of Maharashtra. It claims to account for almost 30 per cent of the lager sales in that State, which is the biggest beer market in the country. The year saw Foster's, which was seen as stuck in the markets of Maharashtra and neighbouring Goa, tap new markets in New Delhi, Hyderabad and Pondicherry. Foster's India Ltd's expanding opeartions were serviced from its lone greenfield brewery at Aurangabad, set up at investment of over Rs 50 crore.

This move will see the company bear the burden of inter-State levies resulting in increased pressure on the bottonline. It is too early to comment on the differing approach of SAB and Foster's to the Indian beer market. SAB's quick moves were in contrast with Foster's abundant caution. The South African brewer looked at most of the small and mid-sized brewers as takeover targets and was not hung up on greenfield projects. On the other hand, Foster's, even with a headstart, found expansion tough. In the opinion of industry observers, Foster's lacked flexibilty with the potential Indian partners and was "too finicky" to touch local breweries, which lacked international standards.

The year again saw Foster's delay its entry into crucial States like Tamil Nadu and Karnataka after being in talks with local brewers there. Nevertheless, the company claims that it possess enough patience for a long haul in the domestic market.

SAB's quicksilver moves and Foster's perseverance emboldened other global brewers to renew their interests in the Indian beer market. Most of them, including Heineken, Interbrew and Miller, had studied the domestic market in the early '90s and retreated with a promise to revisit it later. Heineken, through its Sinagpore subsidiary, was active for most part of the year and visited several breweries in the country. Industry observers expect Heineken to make some definite moves in India after March next year.

The Belgium-based Interbrew, which like SAB is a significant player in developing markets, continued to look at India with heightened interest.

The increased activity of foreign brewers forced the domestic brewery majors like United Breweries (UB) and Shaw Wallace & Co (SWC) to recast strategies and scout for foreign allies. UB offered to divest 26 per cent of its stake and invited bids from global brewers. SWC followed suit and is likely to induct a strategic partner in the near future. The moves by UB and SWC prompted other smaller brewers like Chougule to think on similar lines. The willingness on the part of global players like SAB and Interbrew to join hands with local partners, instead of taking the greenfield route, made the work easier for some domestic companies, which had already spread their meagre resources thin.

However, beer sales did not keep pace with the frenetic moves of the foreign players. The industry closed the last financial year ending March 31,2001, with 72 million cases. Most states witnessed marginal growth during the course of the current year and the industry is likely to miss the target of 80 million cases by March 2002. Maharashtra continued to stagnate, while Andhra Pradesh reported modest growth of two to three per cent since April. Karnataka disappointed with a negative swing of almost 7.5 per cent. Tamil Nadu showed buoyancy in the last few months, but it came too late in the day. Uttar Pradesh was on the upswing even as the other markets in the north, Haryana and Punjab, showed between 20 to 30 per cent drop in sales.

The insipid market growth saw market leader UB's plans going astray. It is expected to end the ongoing financial year with sales of 32 million cases as against an earlier projected figure of 40 million.

The State Governments too offered no help and there was no industry friendly policies anywhere except in Tamil Nadu where more retail shops were allowed. The industry's lobbying to delink beer from the Indian-made foreign liquor (IMFL) tag failed to convince most governments across the country.

Still, the future outlook remains optimistic as global brewers turn on the heat in India and local companies re-work strategies. With the increased FDI flow into the brewery sector, the Centre may advise States to take a `progressive' view on beer.

The industry expects governments to delink beer from alcohol and cut tax resulting in a significantly lower consumer price. Clearly, the focus throughout the year was on foreign brewers and their moves in this country.

The significance of the year was summed up in the comment of a senior official with a transnational beer company: "What we saw this year was the beginning of the end for Indian brewers. There will be no local brewer left after five years." That sounds ominous.