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United Breweries hit by govt moves in Tamil Nadu | Kalyan Ganguly

The UBL MD speaks about the return of strong growth in beer and the impact of Tamil Nadu govt decisions on the firm
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First Published: Tue, Jan 22 2013. 08 29 PM IST
Bihar has been a star performer for UBL this year as the government has allowed some price increases and the business has been normal, says Ganguly. Photo: Aniruddha Chowdhury/Mint
Bihar has been a star performer for UBL this year as the government has allowed some price increases and the business has been normal, says Ganguly. Photo: Aniruddha Chowdhury/Mint
Updated: Tue, Jan 22 2013. 10 22 PM IST
Bangalore: After years of double-digit growth, beer sales in India increased less than 6% in the year to March 2012. Growth has picked up this year so far, said Kalyan Ganguly, managing director of United Breweries Ltd (UBL), maker of Kingfisher beer. Over the past year, Vijay Mallya’s United Breweries, which controls more than half the beer market in India, has grabbed share from its nearest rival, SABMiller Plc. In an interview, Ganguly spoke about the return of strong growth in beer, how UBL has taken a hit from regulatory changes in Tamil Nadu and the company’s efforts to control costs. Edited excerpts:
How has growth been like this year? Which states have done well and what is the outlook for the rest of the year?
The industry is growing around 12-13% this year. Maharashtra and Karnataka have grown well. Andhra Pradesh has grown very well. Bihar has been a star performer for us because this year, the government has allowed some price increases and business has been normal. Plus, Bihar’s economy is doing well too. All markets barring Tamil Nadu and West Bengal, which did well in the first half of the year but which are on a steep decline now, look very promising. For the year, the (volume) growth will be in double digits, definitely more than the 6% we saw last year.
You ended the last financial year with a 54-55% market share in India. Has there been a change in your share?
If you remove the artificial situation in Tamil Nadu, it still continues to be 55%. But Tamil Nadu is a large market and the overall impact will be seen. We will probably end up losing 1-2% share of the market.
In Tamil Nadu, the government seems to have made changes in retailing of beer. You have taken the biggest hit. Can you elaborate?
In Tamil Nadu, the business is very different now. The ordering is now not based on consumer demand, it’s on quota. The new players that have invested in a brewery there, whoever has had the good fortune of having a licence, willy-nilly they are given orders, probably to justify their investment in the state. The move is aimed at putting a cap on demand for popular brands like Kingfisher and Kingfisher Strong. We’ve been hit very severely by this. We were the biggest brand there and obviously if the ordering is not based on consumer demand it is inevitable that we would have the biggest impact. We had nearly 70% of the market there which is now down to 25-30%.
Does it look like it may improve?
The entire supply in Tamil Nadu chain is being controlled by the state government. So, unless there’s a change in the attitude, approach and policy, how can it change, because the wholesale and retail sale of liquor is controlled by the government and the people have no choice but to buy whatever is available.
Input costs have risen sharply. What steps are you taking to shield your profits?
Rice, sugar and power prices have gone up. Barley is not easily available, water is a problem. So, it’s been very challenging. We are working on efficiencies to contain costs. Through process improvements we have cut down on wastages of various input materials, especially water. It used to take 7 litres of water to brew a litre of beer; we’ve now been able to bring it down to 4.5-5 litres. We should be able to contain (the increase in) costs below 10-15%.
A few months ago, there was a severe water shortage in Aurangabad, which is a brewing hub. Has your production there been affected?
It’s been challenging. Because of water shortage there’ve been some curbs on commercial use of water. But we have maintained our production and haven’t had to cut down. We’ve had to buy water from other sources.
India differs from most other beer markets in one aspect: strong beer accounts for a majority of the market. What has been the growth in the two segments this year?
Strong beer, which constitutes 84% of the beer business in India, has grown at around 21%, whereas mild beer has declined by 5% so far this year. The overall beer market has grown and the preference is clearly for strong beer. I don’t think that’s going to change anytime soon, because people like the taste of strong beer.
You launched Heineken in late 2011. How has it performed?
We got off to a slow start because we were making it in only one brewery, which is in Mumbai. We’ve not been in a hurry to roll out the brand, but in the last nine months, the growth has been very steady and it looks very promising. But currently we don’t have any plans to brew it in another brewery.
You had plans for building a brewery in Bihar. What’s the update on that?
In Bihar, we are finalizing our plans. The land is almost ready and we will start construction soon. I expect the production will start by the end of 2014 (financial year).
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First Published: Tue, Jan 22 2013. 08 29 PM IST