ADVERTISEMENT

Future ‘Interesting’ But Don’t Anticipate Exponential Growth, Says United Breweries MD

The future of India’s largest beermaker is interesting, but one without exponential growth, says United Breweries MD.

A reveler holds a mug of beer. (Photographer: Michaela Handrek-Rehle/Bloomberg)
A reveler holds a mug of beer. (Photographer: Michaela Handrek-Rehle/Bloomberg)

The future of United Breweries Ltd. in India’s beer market is interesting, but one without exponential growth.

That’s according to Shekhar Ramamurthy, managing director of the country’s largest beermaker by market share.

The brewer is hampered by growing taxes, tariffs and restrictions in states across India, Ramamurthy told BloombergQuint in an interview, adding that a 5-10 percent year-on-year increase in taxes every year leads to a continuing rise in beer prices.

There are only 75,000-80,000 places across the country where one can buy or consume beer whereas any fast moving consumer goods company will have it in millions, he said.

The growing trend of microbreweries help in building beer culture, he said. “We are largely a liquor, spirits, whiskey country. So nominal rise in the number of brew pubs help in creating bigger buzz and activity in the beer space,” Ramamurthy said, adding that the firm is “reasonably confident” of its own prospects. “We too have launched many brands, we too have added our own wheat beer called Kingfisher Ultra Witbier.”

Watch | United Breweries’ Shekhar Ramamurthy On The Growing Competition In India’s Beer Market

About a year-and-a-half ago, you said that no matter what, United breweries will maintain a larger market share because the large will get larger. There is a lot more competition right now, new entrants have come in. Are you still as sanguine about your prospects?

Yes, we’re still the market leader, still adding shares but as you rightly said, competition in the space is growing and competition is not just the big large international brewers, it is also at the top end, at the smaller level of competitors who are coming in and micro breweries are mushrooming across the country and it’s no longer just Gurugram and Bengaluru. It’s Pune, Hyderabad, Mumbai and many other cities. You also have the new entrants coming in the wheat beer category.

We see this as helping develop a beer culture in the country. We are largely a liquor, spirits, whiskey country. So nominal rise in the number of brew pubs all help in creating greater buzz and activity in the beer space. But we are reasonably confident about our own prospects. We too have launched many brands, we too have added our own wheat beer called Kingfisher Ultra Whit Beer. It’s currently available in Bengaluru and Goa and will get launched in other cities as we go along. Yes, we are quietly confident but we do acknowledge that the competitive space is far more hectic than it was earlier.

I see a number of statistics comparing the consumption number of liquor at large, not just beer, and how under-penetrated it is. Yet, quarter after quarter, we don’t see volumes expanding. If it is an under-penetrated country why is it that volumes are not expanding and will we see the J-curve effect come into volume growth at some point?

We are particularly hampered by the policy framework. As you know, alcohol and especially beer is highly regulated. We are subjected to state government taxes and tariffs and restrictions in every state. Prices keep going up, not because we put up prices, but because state governments keep increasing taxes. Year-on-year it’s almost a 5-10 percent increase in taxes. That’s a big dampener in the category. price of beer visibly is higher than price of comparable spirits brands are much higher because taxes are much higher. Plus the sheer availability. The total number of places where you can buy or consumer beers is merely a 75,000-80,000 places across the country whereas any FMCG will have it in millions. That’s a big dampener, but having said that, in the long term there will be growth. It will not be dramatic growth, we will grow along the country’s growth.

The future is interesting but it will not be exponential growth.

In the third quarter, volumes decline 7 percent but realisation surprisingly strong at 7 percent. How does that help gauge what could happen in quarter four or FY21?

All of 2019-20 has been challenging. Starting with the fact that overall economy has seen a slowdown, there are elections in quarter one which hamper our business and beer in quarter one is the largest part of the year. We are hopeful that going forward, there will be an easing in the overall industry in terms of growth coming back slowly. However, having said that we see overall 2020-21 growth again being reasonably muted largely on account of the fact that a large market like Andhra Pradesh has put in place a policy which is very adverse. They have reduced the number of outlets, they have reduced the number of hours in which an outlet can operate, the entire trade has been taken over by the government, prices have gone up by 20 percent and there is ordering pattern which seems to be biased towards local players. So Andhra is going to be a big dampener. We’ve already seen, starting October, the industry having declined over 50 percent in ANdhra and we see that improving. But outside Andhra we see modest growth in 2020-21. The comparable numbers vis-a-vie 2019 will be easier so we will see a little bit of growth in markets outside Andhra.

If I look at the next year, would it be safe to assume that at least what you showed in quarter three, which was the heartening part - the margin performance - can that be replicated or extended into the next few quarters? And because of the favourable bases, that would help your performance?

In terms of comparable numbers, it would. As you rightly said, the comparable numbers of 2019 for this Q4 and 2020-21 will be easier. In addition we don’t see such steep inflation in input costs over the next few months because this year we’ve had steep increase in cost of bottles and barley. So even the cost pressure would be less. So yes, all things considered, unless - in our business, you can never be sure - some really adverse policy is announced by key states, 2020-21 in terms of comparatives will be easier.