Budweiser-maker Anheuser-Busch InBev (AB InBev India) is stepping up investments in the country, putting more money behind states where policy changes are making the economics of selling beer more attractive. The world’s largest brewer has invested an average of over $25 million a year in capacity expansion in India, including faster canning lines and brewery upgrades, as it bets on markets offering greater flexibility on pricing and more affordable beer.
The brewer has also invested about $10 million in localizing production of Corona and Hoegaarden, while its latest investment in Rajasthan is expected to be about $20 million, Kartikeya Sharma, president, AB InBev India, told Mint. Overall, the company says it has invested $1.5 billion in India since AB InBev acquired SABMiller in 2016.
But where the next round of capital goes will increasingly depend on state policy. Sharma pointed to Maharashtra and Karnataka as examples of how changes in taxation, retail and pricing can improve the economics of beer and encourage brewers to invest ahead of demand. “The investment climate plays out organically when a state’s policy towards beer consumption is stable and predictable,” he said.
The Belgium-headquartered company last month restarted its brewery in Rajasthan, which it had shut seven years ago after struggling with “unfavourable taxation, poor bottle returns (for recycling) and other policy issues”. The company has now made fresh investment in the state, including on capacity to produce its popular Budweiser beer. India is now the third biggest market for Budweiser, competing with China and the US.
AB InBev now sees Rajasthan as a growth market after three consecutive years of what it considers more favourable beer policies. On the other hand, markets such as Uttar Pradesh and Odhisha have been unfavourable for beer sales with the states actively discouraging companies from taking price hikes on the beverage.
UP remains one of AB InBev's five top beer markets by volume, but it said the company has not got a price increase there for three years, even as costs have risen. “If states don't allow companies to take price increases, how do we make an investment even when we want to?" Sharma said.
Growth brimming over
AB InBev estimates that India consumes about 36.7 million hectolitres of beer a year (about 446 million cases of 12 bottles per case with 650 ml per bottle), and puts its own share at about 20%. Market leader, Kingfisher-maker, United Breweries Ltd (UBL) commands about 50% share.
Like its rival, the company has also been gaining from the shift towards premium and super-premium beer, which now accounts for more than a fifth of the overall market, according to its estimates.
It holds about 60% of the premium and super-premium segments (brands such as Corona, Hoegaarden, Budweiser, and Budweiser Magnum) and expects this part of its portfolio to account for about 75% of its India business over the coming three-to-four years.
Corona and Hoegaarden continue to have room for expansion, with their distribution still significantly smaller than Budweiser's, Sharma said, adding that it could benefit from 330 ml cans.
In May this year, Karnataka made changes to its alcohol taxation structure, with the tax depending on the amount of alcohol in it, rather than per bottle. The company has since seen an increase in sales of its mild beer contribution from about 9-10% to nearly 20% in three months, Sharma said.
AB InBev has introduced 330 ml cans across its portfolio, including lower-priced offerings, to improve affordability. A smaller pack, Sharma said, can reduce the absolute price barrier for a first-time beer consumer and also competes with non-alcoholic sodas. Earlier, the benchmark was 500 ml cans and 650 ml bottles.
The brewer is accelerating its shift towards cans. About 40% of AB InBev's beer sold in India is now in cans, compared with about 28% for the overall industry, according to the company. Competitor UBL said cans account for about 20% of its beer sales in the country.
The move was initially driven by economics and the difficulty of recovering returnable glass bottles. This is now being reinforced by consumer demand, as younger drinkers prefer cans since they are easier to carry, chill and store.
AB InBev sees cans as an important part of future capacity expansion. The company has been adding faster canning lines at its breweries and expects the share of cans in its business to continue rising.
Sharma said about 22 million people reach the legal drinking age in India each year, with startes having varying thresholds from 21 to 25 years. Even if 10% of them consume the beverage, he said, India could enter the top-five beer market league over the next two decades.
The pace could be much faster if more states adopt policies similar to Karnataka and Maharashtra. “If four or five additional states make comparable changes, the beer industry could potentially double over the next five years,” he added. That would also change the scale of investment available to brewers.
"For us, the next mission now is to make India the second-largest beer market," Sharma said. The country is currently among the top 15 beer markets.
This story has been updated to reflect Kartikeya Sharma’s correct designation as president, AB InBev India.