Opportunities in the Indian beer market

Beer is the third largest ingested drink in the entire world, falling behind only tea and water. The
Indian beer market has developed swiftly over years. As per Fernando Bustamente, the CEO of
Mahou India, the beer market grew by a CAGR of 8.2 per cent during 2010-2017, reaching 25
million HL in sales. The future growth projections are for the market to reach 33 million HL
(Hectrolitre. 1HL= 100 litres) by 2020 growing by a CAGR of 9.6%. (Sakshi, 2017).

Past Growth in the Indian Beer Market

Indian Beer Market by Volume (HL)

25.00
22.95
21.07
19.34
17.75
16.30
13.74 14.96

2010 2011 2012 2013 2014 2015 2016 2017

Year

Future Growth projections

Indian Beer Market by Volume

33.00
30.06
27.42
25.00
(HL)

2017 2018 2019 2020

Year

However the above figures do not show the complete story. India, ranks at the bottom in the list
of the countries by beer consumption per capita, with a per capita consumption of 2L (List of
countries by beer consumption per capita, Wikipedia, 2017).
 Consumption per capita(litres)
INDIA 2
CHINA 32
Country

UK 67.7
USA 75.8
CZECH REPUBLIC 142.6

0 20 40 60 80 100 120 140 160

Caosumption per Capita (litres)

Key Factors

The principal factors for low consumption per Capita for beer in India are:

1. Indiscriminate laws: Beer in India confronts the obstacle of indiscriminate taxation. For Beer,
the alcohol content varies from 5 to 8%, which is lower than 11.6% ABV (Alcohol by volume)
of wine and 37% ABV of hard liquor (Rum, Vodka, Whiskey). Now all over the world alcohol
drink is taxed as per its ABV, for example in France, you are expected to forgo five times more
on taxes on the purchase of hard liquor than on beer. On the contrary in India, alcohol drink
is taxed on the volume basis and not on the ABV (Alcohol-By-Volume) basis, and thus beer
faces the very norms as the hard liquor. This makes beer more expensive and alcoholics opt
for hard liquor as they give them a bigger bang for their buck.

This has led to beer contributing only 30% by volume to the Indian alcoholic beverages
industry (The Times of India, 2016). This is far below when compared with the developed
 countries where the contribution of Beer sales by volume to the total alcoholic beverages
industry sales by volume is as high as 80%.

2. Narrow Targeting: Since Based on alcoholic content, hard liquor is taxed at rates much more
economical than Beer making hard liquor much more affordable. Hence, beer is targeted at
the middle-to-high income segment only, consequently reducing the possible consumer base
for beer in India. (A case for consuming more beer, Brewer World, 2017)

3. Availability: Obtaining License for a liquor store in India is a difficult and complex process.
The complicated, multi-layered tax systems coupled with bureaucratic troubles have resulted
in there been only one licensed alcohol outlet for 18,000 Indians versus one licensed alcohol
outlet per 300 Chinese. This has amplified the significance of channel management to
maintain relations with the channel members such as Distributors and Retailers and trade
marketing practices to manage retail advocacy. (Unnikrishnan, 2013)

4. No single common market for Beer after GST: Alcohol has been exempted from GST resulting
in the continuation of the old practices of each state acting like a different country with its own
set of regulations and tax structure. These practices make it very challenging for beer
businesses to adjust to various state markets and establish their dominance.
Further, before GST, the raw materials for the production of beer were taxed at about 12-15%
under different VAT regimes. Now, under GST, most of these attract a GST rate of 18%,
driving to a rise in input cost. (Oberoi, 2017)

Segmentation:
The Indian beer market can be segmented on the following basis:

a) ABV (Alcohol-by-Volume) content

 Strong beer: with alcohol content above 5% ABV strong beer has historically dominated the
Indian beer market. This is quite in line with facts such as price sensitiveness and the ‘bigger
bang for buck’ approach which we saw earlier in the report.
Consumer insights have revealed that unlike people in the west who drink beer as
refreshments the Indians are more focused on getting high. Strong beer accounts for 83% of
 the Indian beer market by sales. (Dalal, 2013). All major players dominate this segment such
United Breweries with Kingfisher Strong, Carlsberg with Tuborg Strong.
 Mild beer: having alcohol content between 3-5 % ABV has always played second fiddle to
the strong beer in India. However, among the urban population, there is a growing inclination
towards Mild beer which is treated as a refreshment and consumed for its taste. They perceive
them as endeavoring a premium experience plus correlate it with a particular style quotient,
while holding the urge for drunkenness at bay.

b) Price index

 Economy Beer: The economy beer segment contributes 8% to total beer sales in India and
has been in a slump with the growing affordability of the Indian middle-class.
 Mainstream Beer: The Mainstream beer segment provides for more than 87% demand for
beer in India. It consists of both mild and strong beer brands, with strong beer dominating.
The segment is growing at about 8%.
 Premium Beer: Although the premium segment provides for only 4% of the total beer sales, it
is growing at a fast rate of 41% (SABMiller India Business Case Study Competition, 2013). It
has been the increasing disposable income among Indian youth along with a general
inclination towards premiumization in the country which has led to the immense growth of the
segment. It principally constitutes of mild international beers like Stella Artois (by AB InBev),
Hoegaarden, Peroni (by SABMiller) and Corona who have grown popular in urban centres,
chiefly accounting to their 'imported' image.

c) Geographic segmentation
There is a significant regional variation in demand of Beer with the states of Karnataka, Tamil
Nadu and Andhra Pradesh accounting for about 50% of sales and Madhya Pradesh and
Maharashtra estimating for another 20%. The Demand in the Northern and Eastern part of
India fluctuates seasonally, and consequently, the traditional players focus on intensifying
distribution of beer in above mentioned the top five states.
 Regional variations in demand of Beer in
India

AP/TN/Karnataka(Warm throughout)

10%
Maharastra, MP (Seasonal)

20%
Delhi-NCR, Punjab, Haryana, Rajasthan
50%
(Seasonal)
West Bengal, North East (Seasonal)
20%

Craft Beer: The new sensation

The latest bent in the Indian beer market has been put by the growth of microbreweries. Appealing
to the urban affluent by catering to their sophisticating taste, they first emerged in Bangalore City
in 2011. Since then they have grown to become a major force in Bangalore, Hyderabad and Delhi
(Economic Times, April 6, 2016). Radically selling mild beer having a 'premium' taste and feel,
less intense or mildly flavored than a strong beer, Microbreweries have gained popularity readily.
The success of craft beer also a testimonial of the fact that beer drinking in India is progressing
from a source of intoxication to a relaxed evening experience drink.

How Bira91 took advantage of situation

Bira91 was launched in 2015 with the aim of becoming a mass-producer and distributor of craft
beer. It took advantage of
 Rapidly intensifying interest in the premium mild beer segment
 Growing prevalence of the craft beer, with no craft brewery enjoying a complete national
distribution and brand awareness
 A sharp price gap between Indian beer brands and expensive imported beer brands