Monday 19 August 2013, Amsterdam
Whilst the Indian beer market no longer enjoys the double-digit growth exhibited until 2010, 2012’s growth of almost 9% represents a marked improvement on the previous year, where tax increases precipitated higher prices.
The Indian market continues to be dominated by strong beers, which are steadily surpassing the growth rate of regular lagers, and leave virtually no market for other types of beers such as stout, pilsner and white beer. Indeed, a telling theme in the premium segment is that the producers in this segment originally offered regular beers, and have subsequently launched stronger, premium products, such as Carlsberg’s Elephant and Budweiser’s Magnum.
The beer market, according to consumer specialist Canadean’s new report – India Beer Market Insights 2013 – is set to continue steady growth from a low per capita base, driven by the trend amongst younger generations of consuming alcoholic beverages as social restrictions ease.
MARKET CONTEXT
For organizations that have a stake in the Indian beer market, a proper understanding of the broader context of life in India, and beer’s place in it, is paramount to successfully capitalizing on the opportunities the market presents.
Economic Slow-down
The Indian economy is under stress as GDP growth has slowed to a record low, whilst the country is suffering with a high fiscal deficit, adverse exchange rates, and high costs of oil. This has led to current account deficit and inflation. Despite this, GDP growth is a still-respectable 6%, and although the manufacturing sector may be experiencing a slowdown, the rural sector offers some stability.
Early rains in 2013 could affect sales, as whilst India is predominantly tropical, its north does suffer cold in winter, and this could have a detrimental impact on beer sales during the colder months. Heavy rains can also plague the west coast and north-east, and so beer sales may suffer here as well.
Despite these factors, growth in per capita beer consumption is almost inevitable thanks to its currently low levels.
Tropical Palate
The tropical climate demands a diet rich in salt and starch mixed with fluids for rehydration, and in many parts of tropical India, rice, spices and salt are staples. In the colder north however, where there is significantly less rainfall, there is greater dependence on wheat.
The dominant combination of salt and spice in the consumer palate does not encourage sweet and syrupy beverages as accompaniment to a meal, and consequently, beverage brands must cater their flavors to local needs.
Beer is seen as exotic to Indian consumers in comparison to spirits, which have a local history. Moreover, as beer should ideally be chilled, its popularity suffers in rural areas where this is difficult. Interestingly, in India, the alcohol content tends to take precedence over taste in light of its emerging as an alternative to spirits; beer is expensive in this respect – relative to spirits – and so beer consumption has shifted to strong beers.
Taxes
Whilst legislation on beer is made and implemented at the local state level (with the exception of legislation giving approval to foreign investment in the industry), beer companies must cope with a plethora of rules and regulations in India, none of which follow a uniform pattern. With the exception of two states, this has seen relentless year-on-year tax increases on beer across India, with the resulting high prices having a direct impact on sales.
Beer companies are subject to state-imposed controls, which serve as an entry barrier: because of the strict and complicated system of regulation in the Indian beer industry resulting from the patchwork of laws brought about by differences at state level, very few companies can successfully enter the industry. This therefore protects existing players from competition, with Carlsberg the only company to have entered the market and managed to cope with the environment.
The rate of excise duty on beer in India varies by state, but typically varies from between 20% and 70%. However, there are exceptions: in 2011, the excise duty for strong beer in Maharashtra rose from 150% to 175%, and from 125% to 150% for regular beer. Sales taxes also tend to lie between the 20-70% band, and overall, taxes account for around 200% of the cost of beer manufacture – but this does not include collections on other sources, such as the licensing of shops and bars.
Import duties are set at a prohibitive 150% of CIF (Cost Insurance and Freight), and is collected by the central customs; states also levy charges, so imports are low.
MARKET TRENDS
With the challenging cultural and economic environment for Beer in India, brewers must be highly sensitive to current and emerging trends in the market in order to capitalize on revenue boosting opportunities.
Strong Beer Drives Growth
Indians are customarily spirit drinkers, with beer only being introduced to the country by the British a few hundred years ago at most. Until quite recently – a decade or so – beer was an urban and fairly exclusive beverage, drunk by the higher income population groups; the launch of strong beers has, however, seen beer consumption spread to non-urban areas. The high levels of tax have acted as a serious impediment to growth however, and per capital consumption is extremely low.
Resistance to New Beverages
Indian flavor preferences are difficult to change, and this change is apparent in the beer market: SABMiller has been unable to position any of its international brands within the market, whilst multi-national entrants are having to launch strong beer brands in order to build business. These include Budweiser, Heineken and Carlsberg, but they have been driven to enter the economy segment as well to sustain business.
New Investment in Breweries
Recent developments in the beer industry are rooted in the Indian government’s liberal policy towards foreign investment. Whilst SABMiller had to take the route of acquiring a series of Indian breweries, newer entrants such as AB-InBev and Carlsberg have invested in ‘greenfield’ (newly constructed) breweries. Meanwhile, a number of regional brewers are investing in capacity expansion.
