Hard Beer Market To Crack

Given the consumer dynamics in India, the beer industry could have been expected to take off in a big way over the past decade. Incomes in the country have increased strongly, and in many emerging economies the middle-class consumer has propelled the global beer industry just as Western markets have started to cool down. India also ticks a lot of boxes in terms of its demographics, namely its huge population. However, perhaps more so than any of the other BRIC countries of Brazil, Russia, India and China, India has posed real challenges to multinational beer companies. Per capita beer consumption is estimated at just 1 litre in India, compared with well over 20 litres in China, for example. Although India's spirits industry has boomed, the same has not been seen in the beer segment. We highlight a number of reasons for beer's underperformance below.

  • Culture: Beer consumption is not widespread, and advertising is not without its regulatory hurdles. It is difficult to advertise beer through conventional channels such as television; United Breweries Group has advertised its Kingfisher brand on its namesake airline, for example.

  • Taxation: India generally taxes beer heavily, which prices out much of the potential consumer market.

  • Low Consumption Per Person
    India Beer Sales - Historic & Forecast

Given the consumer dynamics in India, the beer industry could have been expected to take off in a big way over the past decade. Incomes in the country have increased strongly, and in many emerging economies the middle-class consumer has propelled the global beer industry just as Western markets have started to cool down. India also ticks a lot of boxes in terms of its demographics, namely its huge population. However, perhaps more so than any of the other BRIC countries of Brazil, Russia, India and China, India has posed real challenges to multinational beer companies. Per capita beer consumption is estimated at just 1 litre in India, compared with well over 20 litres in China, for example. Although India's spirits industry has boomed, the same has not been seen in the beer segment. We highlight a number of reasons for beer's underperformance below.

Low Consumption Per Person
India Beer Sales - Historic & Forecast
  • Culture: Beer consumption is not widespread, and advertising is not without its regulatory hurdles. It is difficult to advertise beer through conventional channels such as television; United Breweries Group has advertised its Kingfisher brand on its namesake airline, for example.

  • Taxation: India generally taxes beer heavily, which prices out much of the potential consumer market.

  • Access: It is not easy to buy beer across much of the country. Permits are needed in some states, and in many cities on/off trade outlets are often not readily accessible.

  • Price: Beer is relatively very expensive in India. As mentioned previously, it is taxed heavily, which means taxes comprise a large chunk of the commercial price of beer. Without the scale that one would assume for a market of India's size, it has been difficult for companies to generate strong profit margins.

  • Low Profit Margins: Because of the high taxes, lack of real scale and high operating costs (including distribution and power outages), profit margins on beer are generally relatively low in India.

Despite all this, the sheer scale of the Indian consumer market is so tempting that we expect foreign beer companies will continue to view the country as a major opportunity. United Breweries, which is 37.5% owned by Heineken, and its Kingfisher beer dominates the market. Somewhat uniquely, Kingfisher is successful across the market, from low- and middle-income consumers to high-income Indians drinking beer in expensive hotels.

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This article is tagged to:
Sector: Food & Drink
Geography: India
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