Challenge brewing

A man tries Budweiser beer at a press conference by Anheuser-Busch and Crown International presenting Budweiser and Armstrong beers across southern and western India in Mumbai, India. Bloomberg news

Brewer SABMiller, challenging state governments in India to loosen the rules on beer sales, said profits in the country may double if it wins a court case.

"India is still not a very big market per head, but the market could easily be 10 times bigger within 10 to 20 years," Jean-Marc Delpon de Vaux, managing director of SABMiller India, said in an interview.

The world's second-largest brewer, whose local brands include Haywards and the 8-percent alcohol Knock Out, is fighting pricing controls and a monopoly wholesaler in Andhra Pradesh, where a court will indicate whether it will hear the suit by December 22. De Vaux says a legal "domino effect" could force states with two-thirds of India's people to liberalize.

Brewers say regulation and taxes keep India's $2.3 billion beer market from becoming their next, and possibly last, great growth region as developed markets stagnate. SABMiller and Carlsberg struggle with a myriad of other rules not found elsewhere, including bans on beer commercials that have led to TV spots featuring young Indians partying with bottled water.

De Vaux, speaking in an interview in New Delhi, said reforms would lift Indian volume growth fourfold within five years to around 5 liters per person a year, which would still be less than a quarter of the global average. Without changes, he said the market will still double as incomes rise and the ranks of young people with liberal attitudes to alcohol grow.

SABMiller's Indian profit was $27 million, about 1 percent of the company's $2.02 billion total, for the year ended March.

'Control consumption'

Economists expect growth will withstand last month's terrorism, which killed more than 160 people in Mumbai. Even with an "immediate-term impact on both the inflow of foreign investment and tourists, "the violence won't hurt local demand " or SABMiller's plans to continue growing," the brewer says.

SABMiller's joint suit, filed last month with local rival United Breweries Ltd, faces a battle from politicians seeking to preserve traditional cultural mores and tax revenue. Andhra Pradesh's ruling Congress party favors the alcohol restrictions.

The regulations are "to control consumption, especially among the youth," TS Prasad, deputy manager of state-owned Andhra Pradesh Beverages Corp, said in a telephone interview from Hyderabad, the biggest city in the state of 75 million people. "It is an effort to curb drinking habits. Liquor is also a product which earns revenues for the government."

Special labels

De Vaux estimates that fixed wholesale prices alone in Andhra Pradesh, where beer sales taxes are 70 percent, have cost SABMiller around $50 million in profit over the last 10 years. The state hasn't raised the price it pays brewers for more than a decade, even as brewers' energy and raw-material bills soared.

SABMiller controls over a third of the Indian market. It trails the 45 percent held by Kingfisher brewer United Breweries, which is 37.5 percent owned by Heineken.

The brewer must stop and start its production line in Rajasthan to put special labels on bottles of beer, depending on which state they're destined for sale. SABMiller wants taxes and excise set by the 28 states replaced with a national system, enabling centralized production at fewer, larger plants, and an increase in the number of outlets where beer can be sold.

Ad bans have led to innovative, if not subtle, marketing tactics. SABMiller's television advertisements feature Bollywood stars slaking their thirst with a Hayward's soft drink, or relaxing with friends in a bar over Foster's bottled water.

Tax revenue

While victory in Andhra Pradesh would be a "significant" step toward liberalization, brewers looking to speed the pace of change face an uphill battle, according to Ashit Desai, an analyst at B&K Securities India Ltd in Mumbai.

"Deregulation will take a long time to come - most likely not within the next 10 years," Desai said. "States like Andhra Pradesh want to protect their revenue stream from alcohol sales without appearing to encourage an increase in its consumption."

Beer sales in India rose 17 percent last year to 12.4 million hectoliters, or 1.2 liters per person, making India the world's 28th-largest market, Canadean and Euromonitor data show. By contrast, the Chinese, targeted by brewers in the past decade as Europeans consumed less beer, drink an average 25 liters per person. The global average is 22.1 liters.

"India has the highest growth potential of any beer market in the world in the short, medium and long term," Jesper Madsen, head of Carlsberg's Asian operations, said from Copenhagen, where the company is based. "We expect inter-state duties will gradually disappear and taxation will be normalized, and with that will come rapid expansion."

Besides Haywards and Knock Out, SABMiller imports European brands such as Peroni, which sells for up to 450 rupees ($9) a bottle in New Delhi bars. Indian average household disposable income is expected to triple by 2025, according to McKinsey & Co, if economic growth stays higher than 7.3 percent a year, less than the central bank's 7.5 percent estimate for 2008.

"Beer is more sociable and more acceptable than whiskey to drink in public- it's for youngsters and professionals," says Oswal, a metals exporter, quaffing a 300-rupee Carlsberg at Delhi's QBA bar. While he's 37, he wouldn't give his surname, as he doesn't want his conservative parents to know he drinks.

Agencies

(China Daily 12/22/2008 page11)