Beer is at the beginning of an era of growth in India: Heineken CEO

Dolf van den Brink, chairman of the executive board and CEO of Heineken.
Dolf van den Brink, chairman of the executive board and CEO of Heineken.

Summary

An expanding middle class, growing urbanization, and higher disposable incomes promise to boost beer consumption in the country.

New Delhi: United Breweries Limited (UBL), the maker of Kingfisher beer, displayed a remarkable turnaround in its third quarter of FY24. Revenue grew 12.28% year-over-year in the three months through December. It recorded 85.34 crore in profits, against a small loss in the same period last year. 

In an exclusive interview with Mint, Dolf van den Brink, chairman of the executive board and CEO of Heineken, UBL's Dutch parent, said India escaped a major impact from geopolitical issues like raw material cost inflation because of its local sourcing. 

Van den Brink said the company plans to expand the Heineken brand further nationally. While some markets like Delhi and Kerala faced temporary setbacks, UBL's performance remained strong, with an overall volume growth of 8% and revenue growth of nearly 20% in Q3. Edited excerpts:

Geopolitical tensions really disrupted the beer market for over two years, mainly because most of the world relied on barley from Ukraine. Has that issue gone away now?

The worst of the effects is behind us. For sure, that's not an impediment at this moment in time. The war in Ukraine triggered a huge increase in energy costs and food cost, and particularly in grains. Barley prices, our main ingredient, were an issue and were faced by a huge explosion in our cost structure. We have worked our way through it now and the main impact of that was in 2022 and 2023. In 2024, we see a normalization in our cost structure and consequently, a normalization in the category with more healthy volumes and top line growth. However, India was less affected by some of the issues in Europe.

Do you mean you were less impacted in terms of the raw materials or consumption of beer?

On the consumption side, we didn't see a slowdown in India like we saw in a couple of other places. Also, we are sourcing almost all our ingredients and inputs locally here in India. We are working together with the farmers in India and are procuring huge amounts of locally-grown barley and rice for our ingredients. We are also procuring glass bottles and cans from local suppliers and that has insulated us here somewhat.

How has the beer business changed from before the pandemic to now in India?

It's hard to see one consistent theme. There has been a lot of disruption due to the pandemic, war and also inflation. But in India, I really believe that the overall developments of recent years are pushing us towards an inflection point of an acceleration in the category. 

We are putting massive investments into the Indian market and have already invested over 8,000 crore in the recent past to build more capacity. While I cannot give an exact capacity size, I can say that on a global scale, the Indian market is still very underdeveloped.

India is on a strong growth path, but beer still has a perception problem as a category. Its growth has been nearly stagnant for the last decade and most consumption has only been in the strong category. Is this an issue Heineken faces as well?

It's notable—the difference in the country from when I used to visit earlier to now. The growth momentum the country is having right now is something I read about it in the international press, but to really see how the country is building, reforming, raising standards and investing in person is another thing. We see a lot of growth in our industry and many other industries, too.

Does it translate into any immediate positive impact on your company's sales in any way or is it still some time in the making?

Yes, we have observed that historically in different markets. With all the growth and development happening at the local level, hundreds of millions of people are getting added into the middle class. There is higher disposable income and new social habits are formed. We see a huge inflection point for the industry right now and it is already transforming, upgrading and becoming more premium so there is also more moderation now.

Higher-quality consumption also means people want more premium experiences and drinking is also becoming more multi-gendered in India. We really believe that we are at the beginning of an era of growth for the category here. So many more people are moving to the cities, living a more urban lifestyle, they want to go out for meals and there are more occasions that are well suited for beer overall. This is what we have seen since last year or so, the growth in the category starting to pick up.

A quick look at the beer numbers in India will tell you that from, say, a decade ago to now, the beer market universe hasn't grown tremendously at all—stagnating around the under 350 million cases a year mark. Your views?

There have been historical reasons for that, including regulation and state-to-state duty problems. But again, I think the biggest thing that will drive a future growth is the development of the Indian middle class in the big metropolitan areas. There are also a lot of smaller entrepreneurs launching local craft brands which is a very good thing. This is going to really propel the category.

Is Kingfisher ever going to be an out-of-India brand or will it always remain a local brand for you?

When beer is talked about in India, Kingfisher is always mentioned - it's iconic and legendary. Its historic journey over the decades has led it to be a global leader. The bulk of our revenues are generated by local brands in their respective countries, like Kingfisher in India, Tecate in Mexico and Tiger in Vietnam. 

Beer should be locally relevant and in a country the size of a continent (India), we are really excited about giving more opportunity to this brand in our global footprint as well. However, at the same time we also see that in India itself, we're just scratching the surface and there's so much potential for the brand. It is continuously reimagining and revitalizing itself and that remains the biggest opportunity.

Is Heineken being left behind in some ways, then?

We're kind of in the early stages of a big momentum wave for premium beer and we're participating with different brands. Our biggest, most important global premier brand is, of course, the Heineken brand, which is already available in certain states in India, but it's far from being a national brand. So we're really investing now in making that possible. We have other premium propositions like Amstel, Ultra and Ultra Max too.

Overall, across the globe, our most important markets are large countries like Mexico, Brazil, South Africa, Vietnam, or developing countries with large growing populations where disposable income levels are rising. These are places where beer typically tends to do very well. In more developed markets like in Europe, we see premiumization being of the most importance.

Some of the local markets you operate in, like Tamil Nadu, Telangana, Odisha and Maharashtra, did well till Q3 of FY24 but there was a decline in business in Delhi and Kerala. What caused this disruption?

Delhi as we know is going through a lot of change in policy and so is a bit stagnant because the number of outlets has gone down. We are still working through things like launching the right portfolio or getting the right value proposition. In Kerala, we are looking to expand our portfolio as well. In Q3, we actually had growth and almost 20% revenue growth.

How will the beer category, and your overall business, look like in the next 3-5 years in India?

I think it's safe to say that we would expect that the Indian market and our UBL company here will outpace global beer market growth. That's what we're setting ourselves up for. And we're putting our money where our mouth is in terms of investment levels to enable that kind of growth.

How is your non-alcoholic beer category doing in India?

That's a pretty hot category, but has a very low penetration in India. So, Heineken 00 is the largest 0% beer on the planet and this category is a very big global trend. Outside of this, we are also investing in a broader flavour and taste profile and also sweeter, more flavorful propositions globally in our 'beyond beer' category.

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