India: Beer sales see 4.6% growth in 2018

After a year of declining demand, beer sales in India grew 4.6% in 2018, helped by the fading impact of a highway ban, although companies expect sales to taper off this year due to an increase in taxation and liquor curbs during the general election, the Economic Times reported on April 23.

Growth last year was still slower than in the previous years, when it ranged from 5.2% to 18% between 2009 and 2016, according to Global-Data Plc, a UK-based research agency.

“In the last couple of years, we have had highway bans, demonetisation and excise duty hikes in Maharashtra and West Bengal, which had depressed the industry. Going forward, all these weak comparators will go away,” Shekhar Ramamurthy, managing director of Heineken-controlled United Breweries, told ET last month. The owner of Kingfisher beer said it grew in double digits last year, ahead of the overall market.

Both beer and Indian-made foreign liquor (IMFL) declined 3% in 2017. While India’s IMFL market recovered and grew 10% last year, the most since 2012, the beer category hasn’t seen a similar surge. A key reason was lower demand in two crucial states.

A year ago, West Bengal increased duty on beer to 45.5% from 30% in January and then reduced it to 42.7% in March after initial supply disruptions, leading to tipplers shifting from beer to lower-priced spirits. In Maharashtra, excise duty on beer was increased by 17% and the revised pricing structure was obtained only after mid-December 2017, leading to a shortage of beer as manufacturers cut back on supplies.

“We are upbeat about industry growth. However, there are existing challenges, particularly in terms of accessibility and steep taxation. There is a huge opportunity for states to adapt taxation policies that are based on alcohol content and not absolute volume,” said Ben Verhaert, President – South Asia, AB InBev, which sells Budweiser, Corona and Haywards beer. “India is not among the top 10 beer markets in the world, but is the second-largest consumer base globally.”

Analysts expect the number of dry days during the ongoing seven phase general election, which coincides with the label registration cycle this time, to affect operations and supply chains for brewers.

“Election-related disruptions can affect the crucial summer season sales in 1QFY20. While United Spirits is also likely to be affected due to elections, the impact should be significantly lower as beer consumption is more skewed towards summers, unlike spirits,” Krishnan Sambamoorthy and Vishal Punmiya, analysts at Motilal Oswal, wrote in an investor note.

In India, the liquor market is regulated, with high levels of taxation. In many parts, the state government controls wholesale or retail distribution. Over the past two years, West Bengal, Chhattisgarh and Jharkhand have changed policies to allow liquor sales only through government-owned corporations, similar to states such as Delhi, Rajasthan, Kerala and Tamil Nadu.

Heineken, Anheuser-Busch InBev and Carlsberg, the world’s top three brewers that together control about 90% of India’s beer market, have been betting on premium brands to drive sales in the warm, tropical country with promising demographics and increasing affluence.

DBS-Emkay said in a recent report that beer volume trends across the top five regions that account for half the market indicate continued strong growth momentum. For quarter ended March, reported growth should be marginally lower due to the high base of trade restocking in Maharashtra a year earlier, but at the same time, benefit from lower comparables in West Bengal, which had a supply discontinuation a year ago, it said in the report.

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