The craft beer story is going flat

Beer volumes, on the whole, declined 39% in 2020, as the pandemic forced retail outlets to shut and states placed restrictions on restaurants and bars. Breweries also temporarily halted beer production as demand and operations remained suspended.

In 2021, the beer industry reported an 18% year-on-year growth in volumes, according to data sourced from IWSR’s Drinks Market Analysis. While the research firm does not track craft beer volumes in India, market estimates suggest that India’s craft beer market is still minuscule—with an estimated 2% share of the overall beer market.

An estimated 60-70% of beer volumes rely on peak summer months starting March to June. For two consecutive years, the spike in covid cases also clashed with this seasonal demand, resulting in a loss of business.

“Covid was especially hard for new brands because they did not have the backup," said Prabhtej Singh Bhatia, founder and CEO of Simba Craft Beer. Everyone double-downed in markets they were doing well while cutting back on wasteful expenses, he said. “As a result, the market has consolidated in a big way, and you’re not seeing as many new players," said Bhatia. Simba is focusing on the markets where it has a greater play. It is currently present in 14 states.

Other founders concur with Bhatia. “Most of the bigger brands lost out on sales during that time. But in terms of craft beer, we lost more because most of the sales happen in restaurants and bars which were shut," said Anuj Kushwah, who launched the craft beer brand Witlinger in 2014. In 2020, the company entered into a strategic partnership with Carlsberg to brew the brand at the Carlsberg Brewery in Karnataka. However, both production and brand promotion of Witlinger have since been halted. Email queries sent to Carlsberg remained unanswered.

Just as the market was primed for recovery with consumers returning to bars, decade-high commodity inflation struck. Prices of malted barley and glass bottles—two key raw materials—have shot up 45-30% in the last six months, said companies. The conflict in Ukraine-Russia has wreaked havoc on supplies of key grains. However, unlike other consumer goods, liquor companies cannot pass on price hikes to consumers since the pricing of alcoholic beverages is a state subject. “We have seen inflation across raw materials and packaging material. It has been tough for all kinds of players. There is more demand than we can supply," said Shantanu Upadhyay, co-founder at craft beer brand Kati Patang.

Rahul Singh, chief executive and co-founder at restaurant chain The Beer Cafe, which pre-covid stocked nearly 80 global and domestic beer brands, said the pandemic has been hard for smaller craft beer brands as well as more popular imported brands. With breweries shut for long periods, several entrepreneurs had to halt production for months, leading to losses. Singh, however, also pointed to the emergence of new, more serious players in the market that he said are fast filling the gap left by incumbents.

Vinod Giri, director-general at industry body Confederation of India Alcoholic Beverages Industry, said products with a low volume base like niche liquor brands are more susceptible to inflationary pressure due to less ability to amortize fixed costs such as utilities, lower raw material inventory, less influence over vendors, and slower cash rotation. “It is, of course, much worse in the case of craft beer as margins in beer are low, to begin with. Commercial viability comes only upon large volumes, which some craft brands may find themselves short of," Giri added.

Beer brand Bira’s founder Ankur Jain said the summer of 2022 has been extremely promising for the brand. “As the market share of the premium beer category grows and consumers look to explore more flavours, it is certain the demand will only rise. To match it, we have ramped up our operations. Our manufacturing capacity is now at 2.4 million cases a month, which is a sixfold increase in comparison to 2019 and threefold compared to pre-covid," said Jain.

However, Jain said the beer industry has been “disproportionality" hit because of covid and the Russia-Ukraine war. In FY21, the company reduced marketing spending temporarily, which is now back to pre-covid levels, he said.

Samar Singh Shekhawat, an independent consultant and former marketing head at United Breweries Ltd, argues that the market and opportunity for craft brews in India have always been overstated. Two washed-out summers and the current inflationary environment have only caused more pain. “When the industry contracts, bigger brands tend to get bigger because consumers get drawn to more trusted brands; smaller players suffer," said Shekhawat. “Most craft beer brands are doing the same volumes they did 5-6 years ago; more brands are chasing fewer customers," he said.

Meanwhile, an investor who largely focuses on the consumer goods industry said craft beer has had little appeal for the firm given the distribution and infrastructure-related challenges. Founders like Upadhyay are also feeling the side effects of a funding winter. “If you’re looking for like a substantive fundraise, this is not the right time," he said. This also means a tightening of excessive trade discounts that help push beer volumes. Rishabh Ranjan, the founder of Brew King Beverages, which sells the Beor360 brand of craft beer, said that while the brand is close to raising funds, the directive from investors is clear—to avoid heavy cash burn. “You need to scale the business in a manner where unit economics makes sense," he added.