United Breweries Ltd (UBL) expects its premium beer business to grow 20-25% annually over the next three to five years, nearly three times the pace of India’s broader beer market, as the brewer steps up investment in premium brands and expands its canning capacity.
Premium products, including Heineken, Heineken Silver, Ultra, Ultra Max, account for about 10% of UBL’s total business and are growing at more than 20% in volume, managing director and chief executive Vivek Gupta told Mint.
UBL, which sells Kingfisher Strong, Kingfisher Premium, Heineken, Amstel and other brands, in an exchange filing on Tuesday, announced a ₹110 crore investment in a new canning facility at its Ellora brewery in Maharashtra, its second such investment this year after a canning line announced at its Nizam brewery in Telangana in July.
The Ellora line is expected to start production by the end of September and will initially make cans of Kingfisher Strong, Kingfisher Premium, Bullet Strong and London Pilsner.
UBL currently gets about 20% of its sales nationally from cans, with the rest coming from bottles, Gupta said. Cans are growing faster than bottles in some states, helped by both premiumization and affordability. “A smaller can can offer a lower price point than a larger bottle, while also being easier to chill, store and carry,” he said.
The shift towards cans, however, is not simply a packaging change. Bottles remain more profitable because they can be collected and reused five or six times, while cans become relatively more attractive in markets where returnable bottles are difficult to collect, Gupta said.
Bottles account for close to 80% of UBL's business, with cans making up the balance. The mix swings hard by state, though in a market like Uttar Pradesh, cans are 70-80% of the business.
Cans are also growing faster than bottles in several states, driven by both premiumization and affordability, since a 500 ml can is a cheaper entry point than a large bottle. “With the new can lines in Telangana and Maharashtra, we expect the national can share to move up to 22-23%.”
The company is also dealing with higher aluminium costs, which have increased 10-15% amid the West Asia crisis, according to Gupta.
In the June quarter earnings call on 5 August, UBL said price increases across most states and its internal cost-recovery programme had begun to offset some of the pressure.
Premium play
It also said premium volumes rose about 17%, excluding deliberate cuts in some markets to protect profitability amid higher costs.
The bigger question for brewers is whether India’s beer market can move beyond its relatively modest growth rate. Industry estimates peg the market for beer in India at 440-460 million cases a year, with UBL accounting for about half of the market. The company expects the category to grow 7-8% annually.
Karnataka’s beer category is growing at more than 35-40% following changes to its tax structure and retail model, he said. Maharashtra has grown more than 20% over the past two years, while other states have also seen stronger growth following policy changes.
Maharashtra is an important market for UBL, with more than 20% of the state’s alcohol retail outlets located there, Gupta said. Some outlets are also dedicated to beer and wine. The company expects demand to continue growing as new consumers reach the legal drinking age, provided the reforms remain in place.
The price gap between beer and entry-level spirits remains a key determinant of beer demand, Gupta said. Where the gap narrows, beer consumption tends to increase, making taxation a critical factor for the category.
“Beer has to be affordable. It has to be available. It has to be accessible,” Gupta said, pointing to Karnataka as an example of how policy changes can influence consumption.
Premiumisation is nevertheless becoming an increasingly important part of UBL’s growth strategy. Heineken Silver, which the company has launched in three states, is growing over 40% nationally, Gupta said. The company is also expanding its Kingfisher Ultra portfolio.