DELHI MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

1.1 INDUSTRY PROFILE

Indian liquor and beer industry share common characteristics arising from a similar policy framework. Country Liquor, Indian Made Foreign Liquor (IFML) and beer are state subjects, with each state controlling the duty structure and distribution. Incidence of inters state movement, which has resulted in each state having attributes of a separate market.

The country liquor segment at more than 150-mm cases per annum has distinct characters of its own and forms the largest component of the industry. This unbranded highly potent alcohol drink is produced by distilleries though sold through separate distribution channels. There is a thriving market for illicitly made country liquor. A major portion of state liquor revenues accrues from the country liquor segment. Lately bowing to pressure from women’s organisations several state governments have banned country liquor while effecting hefty increases in the excise duty for IMFL and beer.

IMFL INDUSTRY

The Rs.60 bn IMFL industry can be broadly classified into products based on Extra Neutral Alcohol (ENA) and Rectified Spirit (RS). The better quality ENA based products, spanning across a number of market segment, is the operating area main players like UB group and Shaw Wallace.

The industry has been witnessing a compounded annual growth rate 15% over the past three years. A slow maturation and sophistication of the

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

market have accompanied the growth. The current market size of the IMFL industry is estimated at 58 mn cases (12 bottles containing 650 ml liquor each). The IMFL market could be categorised into (accounting for 53%), Rum (27.5%), (15%).

Manufacture of IMFL is subject to government licensing while levies on sales are a state subject. The state earns a significant portion of the revenues from liquor. Such duties (including special levies at inter state sales), have resulted in a distributed manufacturing base and unique market characteristics of each state.

The government of India has in principle, decided not to allow new capacity for molasses a by-products of sugar mill and currently the predominant raw material for alcohol production in the country based potable alcohol. However potable alcohol production in the country has been increasing with the state allowing enhancement of capacities of existing distilleries certain international manufactures like IDI have been given the permission to manufacture using molasses as raw material.

Grains, which can be used to substitute molasses, provide higher yield of alcohol and better quality ENA but require higher capital investment. While cost of grain based ENA is higher than ENA produced through molasses route. For Potable alcohol manufacturers raw material forms a small part of total cost (major portion being excise duty) and increase in cost are passed on to relatively price in elastic consumers.

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

MODE OF DISTRIBUTION

IMFL sales in different states classified on the basic of the distribution channel accessible to the manufacturer is given below: -

TYPE OF MARKET STATES

Open Market Maharashtra, , J&K, Goa, Orrisa, Assam, Meghalaya, Tripura, Arunachal Pradesh

Auction market UP, Rajasthan, MP, Bihar, Punjab, Chandigarh.

Government Controlled Delhi, Tamilnadu, Karnataka, Kerla.

Prohibition State Gujarat, Manipur, Mizoram, Nagaland.

In case of distribution through government channels and distribution rights through the auction mechanism, strong distributors exert influence on the margins of the IMFL manufacturer. However brand pull from the consumer plays an important role forcing companies to spend efforts on surrogate advertising and promotional efforts.

MARKET DYNAMICS The estimated market share of different players in the IMFL industry are as follows: - UB Group - 34% Shaw Wallace - 14% Jagatjit Industries - 10% Mohan Meakins - 7% Others - 35%

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

The UB group (Comprising MC Dowell & Co, Herbertsons and United Breweries) is the undisputed leader, with four brand with one 1 mn case sales, whiskey, alone selling near 4 mn cases, Shaw Wallace and Mohan Meakin also have strong brand such as Director’s Special (regular whisky segment) and Old Monk (rum segment) respectively.

Last couple of years witnessed the entry of international majors like united Distillers, Seagram and IDI into the Indian market. Seagram entered on its own, while united Distilleries and IDI have tie-up with UB group and Polychem respectively. Entry of the foreign companies was initially in the high premium high margin segment (for example, ), demand for which is currently met through imports.

The Scotch whisky market initially projected at 1 mn cases has been disappointing with sales of around 60,000 cases. International player with deep pockets have already moved into low priced segment of the market IDI has introduced Gilbey’s in the regular segment, which is the main market of liquor majors UB and Shaw Wallace, while Seagram has introduced Royal Stag in the prestige segment. Industry leaders like UB and Shaw Wallace could find it increasingly difficult to retain market shares against new competition.

Government policy plays a critical role in determining the fortunes of the industry. The spectre of prohibition continues to haunt the industry. The imposition of prohibition in Andra Pradesh and Haryana resulting in sudden shrinkage of a sizeable market is a good example. However, poor state finances, coupled with the high contribution of the potable alcohol industry to the state exchequer, usually result in a situation where

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

the industry is allowed to operate. Kerla and Orissa banned country liquor while substantially increasing (upto 200%) the excise duty on IMFL and beer. Maharashtra, one of the biggest markets, has also increased the excise duty on IMFL and beer. Advertising is also prohibited in key markets much as Maharashtra and Delhi.

BEER INDUSTRY

The Indian beer industry is quite large at around 65 mn cases (12 bottles of 650 ml each) and in the last 3 years has grown at 14% annum is the unrestricted markets. The per capita consumption stands at a low 0.5 litre. Beer manufacturing requires a license from the centre, which is ratified by the respective state. Till 1989 licensing was restricted, in 1989, the central government relaxed the policy and accepted 460 applications for new projects. Only a few were cleared and fewer still have actually come on ground, on account of the low and uneconomical capacity of 5,000 kilolitres per annum licensed by the government. However the capacity is released to 15,000 kilolitres per annum for NRI proposals with 100% foreign equity, of which minimum 51% has to be on a non repatriable basis.

UB, Mohan Meakins and Shaw Wallace are the only companies with a national presence. Companies such as Associated Breweries have built up strong regional brands while operating only in the beer business UB’s is the market leader followed by Hayward 5000, which has emerged as the second largest selling brand in the market share of the various player are as follows :

UB Group -40% Shaw Wallace -14%

Mohan Meakin -20% Others -26%

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

MANUFACTURING PROCESS (THE TECHNICAL ASPECT)

Malt & Dry Boiling Malt Sugar Soluble Work Kettle Beiling Ingredients Dextrin

Adding Adding

hops enzymes

CO2 Charging Second Fermentation Finding & Priming

The market for is estimated at about 65 mn cases of 12 bottles each (equivalent of a little over 5.0 mn hectolitres), worth about Rs. 22 bn ($500 mn). It is estimated to be growing at 14% and may soon catch up with 15% rate. Another estimate of future growth puts it at 14%.

Per capita consumption of beer in the country is as low as half–a–litre as against 128 litres in Germany, 129 litres in New Zealand and 116 litres in Denmark. Even China has a per capita consumption of 20 litres. Against India’s 5 mn HL, China’s market is 165 mn HL. The Indian industry has a capacity of a little short of 7 mn HL.

Beer producers, other than Carlsberg, have either set up operations in India or are expected to do so soon. Stroh Brewing Co of the US and Henninger Brua AG of Germany have already launched their products and include Fosters Brewing Group of Australia, San Miguel Corp of the Philippines, Anheuser-Busch Cos. Inc of the USA, South African Breweries and Kirin Brewery Co of Japan, Winsome Breweries tied up with Henninger Brau for the brand of Henninger Kiser Pilsner.

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

Haake Beck, entered India through a technical tie-up between Brauerei Beck & Company of Germany and Indian Him Neel Breweries Private Ltd, through a 0.15 mn HL plant at Himachal Pradesh (at an investment of Rs 550 mn). Haake Beck is selling in non–returnable, lightweight, takeaway 65 ml and 330 ml glass bottles, an innovation where recycled bottles has been the norm.

The Danish brewer, Carlsberg A/S, planned to enter the beer market in India in March 1998 in association with its joint venture partner, United Breweries (UB), on a 50:50 basis. UB–Carlsberg was only marketing company and the investment would be raised. The initial investment is of the order of Rs. 60 mn. Carlsberg is planning to come in only 330-ml bottles and later in cans. It would be interesting to witness how it copes with the industry’s preference for the 650-ml bottles, which account for close to 85% of the entire beer sales in the country. Cans, which account negligible volumes might however, come sooner than later. Shaw Wallace is launching its beer in cans. Kingfisher beer from UB is already available in cans. Associated Breweries is also planning cans for its London Pilsner brand.

UB is India’s largest liquor group and two of its beer brands, Kingfisher and Kalyani Black Label, enjoy one – third of the market. Kingfisher alone commands 25% of the market. UB has captured a 40% share. Mohan Meakins, the next player claims half that share. Shaw Wallace is a close third at around 15%. Mysore Breweries has a 6.5% share followed by Interia Industries and Associated Breweries.

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

Interia Industries had suffered wing to the prohibition in Haryana, being located at Gurgoan. Sandpiper was virtually absent on shelves today. With the lifting of prohibition, Intertia should well be out of its temporary setback.

Draught beer (fresh, unpateruised, on tap) continues to be an urban phenomenon, being served from 270 – odd pubs concentrated in cities. It accounts for less than 5% of the overall beer market.

Of the foreign brands Associated Breweries & Distilleries Pvt. Ltd. (ABD) is in negotiations with the Philippines – based San Miguel to bring in San Miguel beer. Mohan Meakins is to launch Canadian Judge beer; Foster Brewing Group, with its famous Fosters beer, is in a tie – up with Chennai based Kothari Industrial Corp. Ltd. Anheuser Busch’s with SWC for Budweiser. South African Breweries Castle and Lion lagers and Carling beer, in a tie–up with Som Dutt Breweries, are yet to get off the ground.

Demand : Past & Market Growth Rates Future 1990-91 – 1996-97 12.6% Year th Kls 1996-97 – 2001-02 1990-91 201 14.0% 1991-92 208 2001- 02 –2006 – 07 1992-93 224 12.1% 1993-94 305 1994-95 272 1995-96 366 1996-97 410 1997-98 460 1998-99 520 1999-00 600 2000-01 680 2001-02 790 2006-07 1400

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

MNCS IN BEER INDUSTRY IN INDIA

S. No. Company Brands Collaborations

1. Foster’s Brewing Group Victoria Bitter, Foster’s Ice, Kothari (Australia) Foster’s Light Ice, Carlton, Industries Strong Beer, Foster’s Extra Corporation Ltd. (Chennai based)

2. Brauerei Beck & Co. Haake Beck HimNil Breweries (Germany) Pvt. Ltd. (Himanchal Pradesh)

3. Carlsberg -- Joint venture with U.B

( Bangalore)

4. San Miguel (Phillipines) --- Collaboration with ABD (Mumbai based)

5. Anheuser – Busch’s Budweiser Shaw Wallace & Co. (Talks are going on)

6. South African Breweries Tie–up with Som Castle and Lion Leger Dutt Breweries and Carling beer

7. Heineken and Miller Heineken ---

8. Phillip Morris Inc. ------

9. Judge Beer(Canada) --- Mohan Meakin Ltd.

10. Hofbrau (Germany, --- Cool Breweries Munich) (Haryana, Daruhera)

MANOJ / EMPI / APRIL ‘99 DELHI BEER MARKET & ALTERNATIVE WAYS FOR PROMOTION OF LIQUOR PRODUCTS

1. CONSUMPTION PATTERN OF IFML

GinVodka Brandy 2 0.3 8.75

Whisky 31 Rum 16.2

(Mn cases)

2. REGION WISE SALES OF BEER

North 10.4 West 19.6

South East 21.0 4.5

(Mn cases)

Source : IRIS

MANOJ / EMPI / APRIL ‘99