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Digging Deeper: What's brewing? India's craft beer market's growing pains and growing consumers

On this edition of Digging Deeper, we will sample the different flavours of what appears to be a burgeoning beer market in India.

May 27, 2019 / 08:41 PM IST

Rakesh Sharma | Rima M

When a microbrewery pub opens in an erstwhile sleepy, traditional Bangalore neighbourhood of JP Nagar and on a weeknight, you see families, complete with saree-clad grannies and grandpas taking in the beer-quaffing youths, you know India's pub capital has truly expanded its reach.

If we were to just talk about the democratisation of beer from the time, Bangalore was only known for the United Breweries Group and its flagship brand Kingfisher, the consumer palate has now become truly adventurous.

Kingfisher, launched in 1978, still has the largest market share of over 36% in India and remains one of the most trusted brands but the upstarts have started making their presence felt. And the bigger guns are not far behind either. Sample how Anheuser-Busch InBev, the world’s biggest brewing company, took a swipe  at the country’s top-selling beer brand recently. The ad, launched online, shows a kingfisher  spilling a fish after catching it, and goes on to say, “Kingfisher is just not that smooth” but Beck’s Ice is super smooth.

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On this edition of Digging Deeper, we will sample the different flavours of what appears to be a burgeoning beer market in India. Specifically, how crafty have the craft beer makers been? And are these beers earning them money?

Catching the pulse

Beer in the end is not just a beverage. It is a proclamation, as the ads would have us believe, of good times, of freedom and youth and nobody knows that better than Kingfisher which has allied its brand appeal to whatever the young  seem to aspire to. Cricket heroes. Glamorous  calendars and now even Gully Boys's defiant , aspirational chant of, "apna time aayega."

The rap  song in the recent hit Gully inspired  India's largest beer maker to change its  tried and tested hit  jingle,  'Oo La La La Le O'  which has been used to great effect since 1996 to a new version  in 2019.

The company knows something that few other beer brands have understood and we quote what it told Forbes India, " The company is just the custodian of a brand. The consumer is the owner."

Why Kingfisher has succeeded for so long is by tapping  not just what a consumer wants to taste but what she/he wants to feel and the Forbes reported how  the brand has now assembled local artistes from cities like Mumbai, Delhi, Bengaluru, Kolkata and Chennai, and crowdsourced words and thoughts that are contextual to these cities. The  company said and we quote, “We are talking to the local audience in their language, and in a context and manner that they would understand and enjoy."

That contextuality is  the secret of success in any business, and especially for King Fisher which is now looking over its shoulder to see newer players inching closer.

Fresh entrants, new flavours

Beer drinking is now not just a youth oriented indulgence , but is being pegged as a family beverage with  AB InBev all set to launch Budweiser and Hoegaarden non-alcoholic beers in the country. But it is also a fact  as a report in Quartz said, that stressed out urban millennials are proving to be a boon to India’s restaurant industry. And by default, we may add, the growth of pub culture.

Some entrepreneurs have already read the portents and taken the plunge.  Another piece in  Quartz in 2017  profiled  Ankur Jain, the founder of Bira 91, who got into the craft beer business even though, in his words, it was a little like going on a first date. “You don’t know if you will find love or not, " he said.

This piece by Suneera Tandon came two years after  Bira 91’s light white ale and blonde brews made inroads into urban India and the brand eyeballed  premium variants sold by global giants like AbInBev and SABMiller. We quote, "Buoyed by $25 million in funding from the likes of venture capital fund Sequoia, among others, Bira 91’s parent company B9 Beverages currently sells around 200,000 cases every month. That’s still small for now (India is a 270-million cases-a-year market) but its rapid pace of success shows that the company is doing something right."

And now we come to the fundamental tenet of a successful business. Contextuality and finding the pulse of the consumer, in this case , India’s hipsters.

Bira added cleverly, India’s country code to its brand and added options like Bira 91 Light, a low-calorie beer with a reduced alcohol content for health-conscious consumers, and Bira 91, a strong,  wheat variant with an alcohol content of 7%.

Jain believed then that while Bira was speaking  the urban consumer’s  language,   the largest beer companies,  were failing the consumer as far as India was concerned.

As the piece informed in 2017, beer then accounted  for less than 8% of all alcoholic beverages consumed in the country but local and foreign heavyweights had been battling it out for years to boost sales. We quote, "India’s beer market is dominated by strong brews such as Kingfisher Strong (sold by Bengaluru-based United Breweries) and Haywards, but with millennial consumers looking for something new and different, Bira’s entry has changed the game, offering what Jain called “a trendy, unorthodox, fun and smart brand of beer.” Bira 91 was initially launched as an alternative to the international brews imported to India with quirky and contemporary packaging—the brand’s mascot, for instance, is a monkey. In its early days, the brand tied up with trendy bars and restaurants in the country’s big cities that were frequented by a younger clientele to gain visibility."

Jain had said then, "If I look at our competition, I think at some level they’ve stopped caring about the consumer; they have expat CEOs and all they care about is getting a higher market share within a two-three year horizon. When you work with that mentality of gaining the highest amount of market share in the shortest span of time, you replicate what the incumbent is doing because you do not want to take that risk of bringing in something new."

Did he speak too much, too soon? We will find out in a bit but Bira did tweak the way the beer industry operated and the brash new upstart hired its  sales and marketing hands from the tech industry, digital marketing and from other consumer good makers and within two years of its inception, found its way in the US, in markets such as New Jersey and more.

The success of the brand undoubtedly inspired nascent, more adventurous, indigenous craft beer brands that are are springing up now in India, but as Sonam Saini reported in Financial Express in April this year, it is not a lucrative business yet. Her piece said and we quote, "Craft beer brands are still in an investment and cash burn phase." Even those brands that began much before Bira   to reinvent the way beer was consumed in India.

Too much , too soon?

The FE piece recounts how it all  started with Doolally, India’s first microbrewery that launched in Pune in 2009 and, a few years later, in Mumbai with The Doolally Taproom. We quote, "Several other microbrewery chains opened up ever since in the tier I markets — Striker Pub and Brewery, Toit Brewpub, District 6 and The BrewMaster, to name a few.  The popularity of craft beers soared and soon they were available in bottles. After Ankur Jain launched Bira 91 in 2015, the bottled craft beer segment has seen Simba, Kati Patang, The White Owl, White Rhino, Brewbot and Medusa Beer, among others, enter the market."

Yes, the business may be fuelled by the young and thirsty consumer but as the piece informs,  it’s probably not enough to bring in profitability yet.

It has undoubtedly made the consumer more experimental with  brewpub culture growing in cities like Pune, Mumbai, Bengaluru and Delhi . The piece quotes  Shantanu Upadhyay, co-founder and CEO, Kati Patang, who says that in the US, there are several craft beer brands, whereas in India the market is just opening up. There is a lot of headroom to grow, says he.

The piece reports and we quote, "The India Beer Market Outlook 2023 report states that the Indian beer market is expected to grow at a CAGR of more than 6% during 2018-2023. In this period, the report states, consumers will shift from standard brands to premium brands, spurring the launch of niche beer brands.

Take the case of The White Owl, a brew pub that is moving into the premium bottled beer business with three variants — Spark, Ace and Diablo — priced at `110-130 for 325 ml. Meanwhile, Bira 91 comes in five variants including Light Lager, White Ale, Strong Ale, Blonde Lager and The Indian Pale Ale, priced between Rs 90-200 for 330 ml.

Then there’s Simba, which, since its launch in 2016, has released four variants: Simba Wit, Simba Stout, Strong and Lager; the first two variants are for the metros and tier I cities, while the other two are for tier II and III cities, available at a starting price of Rs 110."

The beer market, expectedly is led by United Breweries’ Kingfisher, while Budweiser and Carlsberg, available at a similar price point of Rs 100-150 for 650 ml, are also significant players.  Upadhyay says in the piece, craft beers that are sold at a 50% premium will claim 10-12% of the Indian beer market by 2025.

But is it all fizz and no substance?

Says the piece, "Launching a craft beer brand, according to industry estimates, requires an initial investment of around Rs 70 crore. Marketing is a crucial function for new brands and commands around 10% of the initial investment.

Since these craft beer brands lack deep pockets, marketing usually implies partnering with events such as Lakme Fashion Week, India Art Fair, and food and music festivals. These brands also tie up with fine dining restaurants, small chef-owned restaurants, five-star hotels and millennial hotspots.

“The niche market may pick up after five years, but till then every player has to have a foot in the mass market as well,” says Harish Bijoor, founder, Harish Bijoor Consults Inc."

Bira 91 seems to on surface doing everything right and is  currently available, as the piece says,  in 10 markets including Chandigarh, Delhi, Goa, Hyderabad, Jaipur, Gurugram, Kolkata and Karnataka, and plans to expand to another seven markets soon. It has launched a new variant, Boom, priced at`130-180 for 650 ml, specifically to tap the mass market.

But going mass means building a different kind of distribution network, redesigning the strategy and redeveloping the manufacturing system, states the piece.  The writer quotes Saurabh Uboweja, CEO, Brands of Desire, who says that although brands would want to “monetise the equity they have created in the niche markets by tapping the mass market”, such a foray does not guarantee a profit.

Distribution  remains the biggest challenge for the new entrants and Harish Bijoor says that  most craft beer brands have weak distribution models and instead of investing in distribution directly, companies are launching more sub-brands to improve sales.

Going mass would also mean maintaining a premium and mass positioning within the same brand, says the piece. That is why Simba has preferred to stay in the premium zone.  And Prabhtej Singh Bhatia, founder, Simba Craft Beers says in the article,  that his brand's packaging is very millennial-oriented in order to stand out and believes  that this strategy will help the company achieve a turnover of Rs 130-140 crore in the current fiscal, and reach Rs 200-250 crore in the next fiscal.

On the other hand, factors like breweries having to import barley at a premium spikes beer prices and this may complicate things for new players.

A Money Control piece recently stated that Indian breweries may have to shell out up to 10 percent more for the imported barley compared to the domestic produce

Variables abound in the beer industry

The piece states that Indian breweries are likely to import barley this season to offset the shortfall in domestic production of the cereal.  Money Control cites   a report in The Economic Times, to say that barley production in India may take a hit, with experts suggesting that domestic production may fall about 1.92 million tonnes from the previous year.

Pramil Jindal, MD of Barmalt Malting Company told the daily and we quote, "Looking at the barley crop arrival in the mandis (markets), we expect it to be a less crop. It can be 7-10 percent less. Also, we feel that with prices of maize and millets very high, the cattle feed industry is buying more of barley. This is leading to firm prices.”

"On an average, imported barley at the company gate is being quoted at Rs 1,950-2,000 a quintal, while the Indian variety is available at Rs 1,875-1,900 a quintal," said Jindal.

The report added that 60,000 tonnes of barley has already been imported from Argentina and more contracts are in the pipeline.

The piece also quoted a Delhi-based grain trader Rajesh Paharia who said, “Duty-free imports are meant for actual users and imports in such high volumes is only being done by the malting industry."

Major breweries, says the report,  including Barmalt, United Breweries, Glencore, Cofco, Louis Dreyfus among others are currently on a buying spree in barley growing states such as Haryana, Rajasthan and Madhya Pradesh.

However, trade experts suggest that five or six more vessels of 50,000-60,000 tonnes maybe contracted by Indian companies by the next quarter.

A resilient market nevertheless?

Another May 2019  report in ET indicated that nothing however seems to be deterring the micro breweries from thinking big and about half a dozen microbreweries plan to launch bottled beer brands to cash in on the rising demand for India’s craft beer in a market that grew largely at the expense of mass-produced brands by Heineken and Anheuser-Busch InBev.

Their craft beer, originally made in small batches for consumption at brewpubs, will be initially launched at retail stores in markets such as Goa, Bengaluru, Pune and Gurugram. Smita Balram writes that  so far, India has seen just a few craft beer brands such as Bira, White Owl and Simba, sold off shelves despite nearly 170 microbreweries that opened over the past decade.

Ajay Nagarajan, cofounder of Bengaluru-based brewpub Windmills Craftworks said that the company will start producing cans of craft beer from their newly-acquired 2000-litre production brewery in Goa. "Karnataka government does not allow brewpubs to distribute in-house beer and we are permitted to produce a maximum of just 1000 litres a day,”  he said and added that the company will sell the brand in markets such as Mumbai, Pune, Goa and Hyderabad.

Toit,  one of Bengaluru’s first brewpubs which makes about 1500 litres of craft beer each day,  is setting up a 4-acre production brewery outside the city to launch four variants of packaged beer, informs Smita.

India’s craft beer industry, she says,  accounts for 2-3% of the country’s beer market which is largely skewed towards the stronger version. The surge of interest in craft beer has been driven by millennials, many particularly interested in this form of beer that is more authentic, premium and has a complex flavour compared to regular lager sold by MNCs. She quotes Gaurav Sikka, officer of Craft Brewers Association of India (CBAI) and MD of ArborçBrewing Co, which started the trend a year ago in Goa with three variants in can- format. He says, "Brewpubs make good experience centres that help scale a brand,” adding that the   company will add two more variants in the next quarter and will enter Bengaluru market in the next four months.”

Yes, the business aspect is not as easy as brewing an ambitious plan.  As Smita says,   making and selling craft beer at a larger scale isn't easy. “Besides licenses and distribution, brewpubs have to wrestle with cold chain supply infrastructure, short shelf-life of craft beer and smaller budgets compared to United Breweries, Ab InBev and and Carlsberg that together control 90% of the market. As a result, many are planning to roll out variants such as hefeweizen, stout and light golden ale - that can survive better in these tough conditions. And some are opting for pricier cans to package their products instead of glass bottles."

Shailendra Bist, cofounder of Independence Brewing Co, a 5-yearold brewpub based in Pune says and we quote ET,"Cans are lighter, unbreakable, carry more branding information, have little oxygen uptake and do not allow light to enter easily, unlike bottles."

The renewed aggression of launches, says Smita, comes at a time when existing players such as Bira, White Owl and Arbor Brewing are expanding, many in regular beer segment. Bira Jas we said before has launched Bira Boom recently, while Simba will add two more variants after July this year.

Beer evangelist John Eapen noted in the piece, that investors also want to move away from the hassle of running food and beverage outlets and prefer a large industrial production unit.

Eapen said and we quote ET again,“International craft beer brands, one from Finland and another from UK, are looking to collaborate and set up bottling plants in India to retail now. Big commercial beer brands are also waiting, and will hop on the craft brewery segment in the next two-three years. This is just the beginning of the next wave."

But  large-scale production remains a challenge for smaller players and a case in point is Bira.

Challenging times ahead?

Sagar Malviya wrote in a 2019 ET piece how B9 Beverages, the maker of Bira craft beer, almost doubled its losses to Rs 101 crore in FY18 as it bolstered nationwide marketing to boost sales five-fold in a crowded market dominated by mainstream brands such as Carlsberg and UB’s Kingfisher. Sales at B9 Beverages climbed to Rs 161 crore from Rs 32 crore in FY17, in which the company had reported a net loss of Rs 55 crore, data sourced from research platform Veratech showed, according to the piece.

We quote, "Since its launch about four years ago, the company has managed about a 5% share in key markets despite the dominance of Kingfisher, AB Inbev’s Corona and Budweiser, and Carlsberg. “We expect to break even in India business in FY21," said Ankur Jain. The beer segment expanded 6% to 2771.5 million litres in 2018, according to GlobalData forecast. But India still favours strong beer brands that have an 80% share, and global companies have been producing stronger variants of their flagship beer brands, a segment where Bira has no presence at all.

B9 sells in a dozen top cities, and Bengaluru and Delhi are its best-selling markets. The company has launched in the US and Singapore."

B9, informs Sagar, wants to expand geographic footprint to cash in on rising popularity of craft beer and quotes Jain who says, "We are still not active in many geographies, but we expect to expand in the upcoming fiscal on the back of new capacity and a mass market product that we will be launching this summer." Unquote.  While Bira has a 30% higher price tag compared to Carlsberg and Budweiser, its ale or blonde lager still costs less than half of the imported brands, we learn.

Still the optimism and vision of the brand has shown the potential of new ideas in a beer market that had few surprises to offer and as Rahul Singh, founder, The Beer Cafe, concludes in the piece. “Bira’s growth has shown the potential in the Indian beer sector….It is worthy to see an indigenous home-grown brand shaking the might of established behemoths."

The winner in this  battle for primacy is the Indian consumer who now has more choice and is being wooed like never before.
Moneycontrol Contributor
first published: May 27, 2019 08:41 pm

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