Breweries launch spate of strong beers unfazed by SC ban, likely GST impact
Bengaluru: United Breweries Ltd, Carlsberg India Pvt. Ltd and B9 Beverages (Bira 91) have launched strong beers in the past three months even though the Supreme Court’s move to ban liquor sales near highways from April has hurt demand.
Strong beer, in particular, has taken a bigger hit after that ruling since it gets sold more than other alcoholic beverages along highways, according to industry executives. And come July, another risk looms large: the impact from the implementation of the goods and service tax (GST). Alcohol has been kept out of GST while raw materials used by liquor companies fall under the purview of the tax.
But launching new products in such uncertain times could prove to be a bold move if the market stabilizes by October as analysts and companies expect. “This could be a proactive strategy to beat the industry because in tough times those investing in new products can gain market share,” said Abneesh Roy, senior vice-president of institutional equities at Edelweiss Securities.
Liquor companies expect most retailers to relocate stores by October since they will not want to sell their licences. By then, these new brands will likely be well established.
United Breweries launched Kingfisher Storm– a beer with an alcohol by volume (ABV) rate of over 6%—at the end of April. When the new beer was being unveiled the company termed it as its biggest product launch initiative in years. In mid-April, Danish brewer Carlsberg launched its new premium strong beer with scotch malts made especially for the Indian market— Tuborg Classic. B9 Beverages launched its first strong beer, Bira 91 Strong, in May.
“Right now we are positioned as a brand that is largely urban and millennial but if our strong beer works, which we are expecting that it will, we would have created something which could potentially be unstoppable,” Ankur Jain, founder of B9 Beverages, said in an interview.
Strong beer—or beer with an ABV over 5%—still makes up a majority of the market in India. It accounted for 80% of the total volume sold in India in 2015, according to Euromonitor data. But the strong beer segment has declined so far this year while mild beer grew marginally.
“The ratio between strong and mild is more or less flat in percentage terms. However, we are beginning to see growth in the mild beer business,” an executive at a leading beer firm said. “This year, the strong industry has declined so far because of the highway ban. Mild beer is typically more popular in bigger towns with a more affluent segment of customers,” the executive added.
B9 Beverages launched Bira 91 Strong in a nod to India’s penchant for strong beer. Until May, the handcrafted beer brand only had milder beers in its portfolio. Even American brew-pub Arbor Brewing Co. is planning to bottle and sell its honey and lavender-flavoured strong beer. Arbor’s head brewer Logan Schaedig also said there is a growing customer base who want to experiment with milder beers, but added that the brew-pub has two types of beers with 8% ABV on tap.
Indeed, while growth in the strong beer industry has declined this year, it is mostly due to the highway ban and will bounce back once most retail outlets relocate, according to some executives. But there are significant risks to that expectation and to the success of these launches.
“Growth could come back but there is a GST issue and that will impact margins. And if there is an impact on margins, companies will cut back on advertising and promotions. FMCG companies are delaying launches to the second half. If a beer company is doing it now it has its own risk because normally any new product needs time to stabilize. This is not a good time to launch,” said Edelweiss’s Roy.
- Narendra Modi government sabotaging winter session of Parliament: Sonia Gandhi
- Egg prices up 40% on tight supply
- Siddharth Parekh’s Paragon Partners raises $120 million for its first PE fund
- Fans will drive the media business: Sudhanshu Vats of Viacom18
- Union Bank of India starts roadshows abroad to raise Rs2,000 crore through QIP