India: United Breweries and AB InBev don’t expect revival in the industry this year

United Breweries and Anheuser Busch InBev that together control three-fourth of India's beer market don't expect a revival in the industry and expect it to grow in low single-digit dragged by increasing taxation and regulations, the Economic Times reported on March 4.

“We anticipate the year 2020-21 to be flat like last year. Even a minor subdued growth will be dampened by the likely impact of higher taxes in many states facing a drop in revenue share due to the overall economic slowdown,” said Shekhar Ramamurthy, managing director of Heineken-controlled UB that sells Kingfisher beer.

Late last year, Andhra Pradesh introduced a new bar policy, which includes cancellation of existing bar licenses, issuance of new permits from January 2020 and reduction in the number of bars by 40%. The state government has started implementing its plans of total alcohol prohibition in AP in a phased manner that resulted in beer market shrinking 63% in the quarter ended December.

In fact, three states — Kerala, Karnataka and AP — that together account for a fourth of industry's sales, declined 20% during the quarter. “With Andhra in the base, we look at a 1-2% growth and that is only because of the size of AP in the beer category. Without AP, it will be 5-6% because the rest of the markets still continue to have a very positive trajectory,” said Kartikeya Sharma, South Asia president at AB InBev, which sells Budweiser and Corona.

The beer market grew 6.9% in the past year compared with 5.7% in 2018, according to Global-Data Plc, a UK-based research firm. However, the year had remained challenging and the pace was significantly slower than the pre-demonetisation period in 2016, when sales increased 10% annually on an average.

Also, last year saw disruptions such as Lok Sabha elections in April-May that also coincided with the Indian Premier League cricket tournament and crucial summer months, which have both historically boosted demand for beer in this warm, tropical country.

However, the beer industry has not recovered due to consumers cutting down on discretionary spends across categories, companies said. Despite a weak volume growth forecast, companies expect higher value growth due to price hikes.

“We are currently taking two steps back after three steps forward in 2018. Indian market needs to adapt to the new reality, especially in pricing. And in that respect, we think that further in 2020 we should be able to continue our growth trajectory,” Cees ’t Hart, global chief executive officer of Carlsberg, said on an investors call last month. The maker of Carlsberg and Tuborg grew only 1% in volume last year, although value grew in high single digits.

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