PACRIM's SUMMARY FOR BEER IN INDIA

HEADLINES

• Government classification of alcoholic drinks as non-essential during lockdown is likely to lead to a steep contraction in volume sales of beer in 2021.

• Beer sales grow by 8% in 2020 to reach 2,689 million litres.

• Beer taxed on volume and price rather than ABV making the category uncompetitive.

• Imported premium lager records the highest total volume growth of 12% in 2020 to reach sales of 3.8 million litres.

• Unit prices of beer contract by 2% in total value terms in 2019 UB Group retains its outright lead holding a 54% volume share in 2020.

• Beer sales are expected to register a CAGR of 1% over the forecast period to reach 2,714 million litres in 2024.

PROSPECTS

Complex Indian tax regime for beer makes beer more expensive than alcoholic drinks with a much higher ABV

In India, the treatment of excise duty in 2019 was decided by states which follow a policy where beer is taxed not on alcohol content but is determined by volume and price. As a result, beer is much less accessible to consumers than Indian Made Foreign Liquor (IMFL). The excise duty/policy is also set by each individual state resulting in complex pricing policies, while also making beer with an ABV of between 4% and 6% subject to 60% higher taxes than hard liquor with an ABV of over 48%. The country’s tax treatment flies in the face of global tax practices, where taxes on alcohol are based on pure alcohol content. Globally, products with a higher alcohol content are subject to steeper taxes, which in turn encourages consumption of alcoholic beverages with a low or moderate alcohol content.

Non/low alcohol beer offers new product development possibilities.

During 2019, industry players continued to investigate the huge opportunity for non alcohol beer in India, especially in states such as Gujarat, Bihar, Nagaland and the union territory of Lakshadweep, where consumers do not have access to alcohol. Such products not only target Indians who do not consume alcohol or have no access to it, but also provide existing consumers with an additional lighter option. Towards the end of the review period, UB Group launched Kingfisher Radler, a non alcohol beer, with Anheuser-Busch InBev India following in 2019 with the launch of Budweiser 0.0 and Hoegaarden 0.0.

These launches were also driven by a consumer move away from sugar laden carbonates to cold non-alcoholic beverages that offer refreshment. Brewers are also seeking to tap into changing consumption trends and rising demand from young consumers of legal drinking age. It also targets consumers who do not consume alcohol for reasons of religion and those who abstain, with non/low alcohol beer likely to appeal to these consumers.

By the end of 2019, a few Indian craft drinks manufacturers launched non alcohol beer variants while Coca-Cola Co also launched Barbican, a non alcohol malt-based drink in 3,000 outlets in metro cities after acquiring a 50% stake in Middle-East based Aujan Industries’ beverages division.

UB Group retains dominance in beer

UB Group continued to hold an outright lead in beer in 2019. The company was present with 23 of its own breweries and nine contract units spread throughout the country, enabling it to achieve a national distribution network. The company has a portfolio that contains a varied mix of domestic and imported brands that cater to all major consumer groups.

The company focused on innovations during 2019, launching Kingfisher Witbier and Ultra draught launch in Karnataka. It also expanded the reach of these launches, with these brands now being available in 19 and 7 markets, respectively.

COVID-19 impact

On-trade volume sales of beer are expected to fall by 37% in 2020 in light of the impact of COVID-19. This compares to an expected 4% rise forecast for 2020 during research conducted in May 2020, ie before the spread of COVID-19.

During the COVID-19 lockdown in India, alcoholic drinks including beer were deemed as non-essential, which meant the production was banned, as was their sale via both the on- and off-trade. Beer was particularly badly affected as it has a limited shelf life, making existing stock unviable, with beer lying in the taps in on-trade establishments during lockdown becoming unfit for human consumption. Beer manufacturers had to write-off inventory of finished goods which impacted their bottom line. Moreover, the peak selling period for beer comprises the months of March and April, during which the country was in lockdown, making the impact of COVID-19 particularly severe.

The category suffered a further blow from the implementation of a Corona Cess tax applied when food/drink/tobacco specialists were allowed to open as lockdown restrictions began to relax. The tax ranged from 10% to 75% across the relevant states putting beer, which contains a moderate alcohol content, well outside the financial reach of most consumers. States that imposed the harshest tax increases witnessed the sharpest drop in revenues. For instance, the capital Delhi, which was the first to implement a COVID Cess of 70% on the retail price to earn additional revenue had to reverse its decision after one month as this move proved to be counterproductive. In other states, the price of beer also increased heavily such as 50% in Odisha, 35% in West Bengal and 25% in Puducherry (15% to 250% for brands registered in Tamil Nadu).

Consumer demand plunged, causing a significant decline in overall beer volumes with dramatic falls being reported across West Bengal, Odisha, Telangana, Rajasthan, Karnataka and Puduchrry compared to the same month in 2019. The drop in demand caused by the high prices also had a knock-on effect on the whole supply chain including farmers, barley malt suppliers and logistics partners, leading to a loss in revenue, employment and impacting the overall economy at large. The cost burden on consumers could not have come at a worse time with many already having to cut back on their discretionary spending. Industry players also believe that these draconian measures could also increase a move towards harder forms of alcohol, low quality and even illicit alcoholic drinks, which could be damaging to the health. Inaccessibility due to high pricing is also bound to stimulate bootlegging practices.

Affected products within beer

The reopening of food/drink/tobacco specialists nationally brought about some much needed respite after a 40-day lockdown. However, this was short-lived due to the introduction of the COVID tax ranging from 10% to 75% in different states, which had a particularly adverse effect on the beer sector. The surge in prices consequently resulted in a slump in demand, with industry estimates showing a decline in overall beer volumes of between 60% and 90% in comparison to the same period in 2019.

Aside from the tax, all companies had supply issues as the manufacture and sale of beer were banned during the lockdown due to the pandemic. Moreover, the extended closure of on-trade outlets could pose significant problems for the longer-term sustainability of these establishments and could lead to job losses. Events and celebrations are also likely to be considerably reduced after lockdown restrictions ease and for the remainder of 2020 and until the virus is contained.

Moreover, the severe impact on discretionary spending means consumers are likely to seek products that offer greater value for money. This could lead to a move out of the category or to a switch to e-commerce. Although this channel has traditionally been banned in India for alcoholic drinks, a few states relaxed their laws given these unprecedented circumstances and began allowing online ordering and delivery. Ecommerce players such as Amazon, Swiggy, Zomato and Big Basket began delivering alcoholic drinks such as beer to consumers from stores for a fee.

Recovery and opportunities

Beer sales growth is likely to bounce back to pre-pandemic levels in 2021 due to a release of pent-up demand. However, growth rates will slow from 2022 until the end of the forecast period as the high prices of beer will put this category outside the financial reach of consumers concerned over the devastating impact of the virus on the country’s economy. The trend towards premiumisation that was being seen over the review period is likely to suffer a major blow, as will more expensive unique craft beer offerings as diminishing disposable income will encourage consumers towards larger, less expensive brands.

Industry players are also likely to put their expansion plans on hold for the time being until the virus comes under control and the economy begins to rebound. Industry players such as BrewDog, which was planning to open 35 pubs in India over the course of next few years, and Ab InBev, which was planning to open high end microbreweries in India, could delay these plans until the situation with the pandemic becomes clearer. Industry players are also calling for Fair Beer Trade, such as the fair tax imposed by the Haryana Government, which introduced a policy that taxes beer and wine based on alcohol content. This takes into consideration not only alcohol content but also the implications of consumption of beverages with a higher alcohol content on health.

Many industry players will continue to push for a fairer playing field in beer trade encouraging state governments to take into account the way in which tax reforms influence consumption patterns in the country and introduce policies that moderate consumers’ drinking behaviour. According to industry players, this can only be achieved through clear demarcations between drinks with a low and high alcohol content.

CATEGORY BACKGROUND

Most beer brands in India fall either in the mid-priced or premium segments. Total volume sales of lager are most robust for premium products, but many premium beer brands are subject to downward price pressure and aggressive promotional strategies through off-trade channels. Kingfisher and Foster’s Lager are domestic premium brands while others, such as Corona Extra, Amstel and Beck’s, are included under the imported premium segment.

For lager, typically, price and alcohol content correlate. Lager with higher alcohol content is usually expensive. In the off-trade channel, imported brands also tend to carry a higher price.

Kingfisher Strong, and brands such as Foster’s and Tuborg, represent the mid-priced band which is also the largest band by volume. Heineken, Kingfisher Ultra and Carlsberg. Elephant represent the premium Band. There are very few brands in lager that are present in the economy band because beer is not taxed in India based on pure alcoholic content, making it an expensive product.

• Premium - INR250 and above per litre

• Mid-Priced - INR180 – INR249 per litre

• Economy - INR179 and below per litre