14-11-2012, 05:04 PM
Indian Beer Industry
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History of Beer Industry in India
Beer began to be exported to India in days of the early 1700s- during the british Empire.The demand for beer in the hot climate of many parts of India by the British administrators and the troops was so great that it led to creation of a new style of beer by George Hodgson in his London brewery — “India Pale Ale” also known as IPA.
As of today no brewer in India makes India Pale Ale. All Indian Beers are either:
Lagers (4.3% alcohol)
Strong lagers (15 % alcohol) [1]
Market Overview
Indian beer market is valued at INR 35 bn with volume sales of 172 mn cases for FY 2008-09 and at the current trend the market is expected to grow at an annual rate of 17.2% till 2011. Foreign brewers are eyeing the Indian beer market which is largely untapped and has huge growth potential.[2]
International beer companies have a good enough reason to tap markets like India. That their main markets, North America and Europe, are either flat or in a state of decline is no secret. Carlsberg, for instance, said it could look at closing select European breweries due to a slump in demand.
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.
Challenges
Bottling shortage
What often happens is people have more bottles at home than they drink on a weekly basis because they tend to buy regularly and bring them back irregularly. SABMiller, which manages Shaw Wallace Breweries Ltd, has warned that the country could face a beer shortage in the approaching summer, the peak consumption season.
Mr.Richard Rushton, Managing Director of SABMiller India Ltd, told Business Line in an interview that he feared industry would not be able to adequately service the demand in the summer months on the back of "an inefficient bottle pool management" in a market that is heavily dependent on recycled bottles. MrRushton said, "The route which the bottle takes to the trade and ultimately to the consumer should be the same it takes back to the brewer through the value chain. But in India, it gets fragmented and dispersed to spend a lot of time in the trade and results in high incidence of breakage," he added.
The 650 ml beer bottle is common to all companies and only the 250-300 ml bottle has proprietary designs and logos on it. Thanks to breakages and diversion to other unorganized players, only around 60-65% of bottles are actually returned to the company, says liquor industry consultant, UB Bhat.
Till about a year and half ago, bottles were being returned to companies at an average of Rs 3.00 to Rs 3.50 per bottle. Taking advantage of the shortage, second hand bottle traders hiked prices from the normal Rs 3.00 to Rs 3.50 to Rs 7.00, almost equal to the price of a new bottle! Not to be left out of the party, glass manufacturers sharply increased prices too.
Beer Highly Taxed
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.
Restriction of Movement of Beer
For the movement of beer from one state to another, an export license and an import license is required. Export fee is imposed in the state where beer is manufactured and import fees on the State where it is sold. In some states only beer manufactured in that state can be sold. Few states like Tamilnadu have strict rules of selling only beer manufactured within the state.
Consumer choice and preferences:
India is predominantly a hard spirits market and beer is a minority preference for those who consume Beverage Alcohol. Beer makes only 4% by revenue of the total alcoholic market. It would be pertinent to mention that while per capita consumption of spirits in India is 65% of global average, in the case of beer it is a mere 3% of global average. (See Exhibit 4 to compare beverage consumption across the world)
World over it has been identified that policy focus should not as much be on controlling consumption but more importantly on reducing harm. Therefore, beer and wine dominate the alcohol market in most countries. It is considered to be common man’s drink and in many countries is even priced in parity with soft drinks. But in India things are different in India. The per capita consumption of beer in India is just 1 liter per person per year as compared to the world average of 22 liters. This is one of the lowest in the world.