India: AB InBev re-evaluating short and mid-term plans
Leading brewer Anheuser-Busch InBev has said recent duty hikes in form of COVID-19 cess by several state governments have resulted in a significant drop in beer demand, and the firm is re-evaluating its short and mid-term plans, Outlook India reported on May 31.
The world's biggest beer maker said the lockdown and subsequent developments like imposition of additional tax by several state governments have affected its growth this year, and is now re-evaluating product launches and capex plan, though its long-term plans are intact for the country.
The company houses brands such as Budweiser, Corona and Hoegaarden
"Due to the duty hike, early industry estimates show that most states are seeing a drastic decrease in the demand for beer to the tune of 60 to 70 per cent," AB InBev President South Asia - Kartikeya Sharma told PTI.
It is nudging consumers towards harder forms of alcohol, lower price and low quality products as well as illicit alcohol, he added.
The COVID cess has made beer expensive, in some states the price has gone up by Rs 100 and have dropped sales almost up to 70 per cent for the beer industry in the first three weeks of May, compared to the corresponding period last year, as per industry estimates.
Beer sales in states like Karnataka is down 65 per cent, Telangana by 80 per cent, West Bengal (95 per cent) and Rajasthan (65 per cent), while sales of spirits has grown by 45 per cent, he added.
"We were hoping that some consumption will improve or purchase levels will improve. We have not seen those purchase levels. So for us, the misery carries on because two months of lockdown... so far three weeks of data is telling us that the industry is down almost 70 to 75 per cent versus last year," Sharma said.
This has a disastrous effect on the industry and has also impacted the ancillary segments. "The farmers and the entire supply chain ecosystem with barley malt suppliers and logistics partners are also feeling the brunt of this hike," he added.
"This will not only lead to loss in revenue opportunities and jobs, but will impact the overall economy. Therefore, we hope the law makers will reconsider this decision in the larger interest of the community," he noted.
When asked if the development would affect the company's future plans in India, Sharma said, "Short term plans, where we were probably launching five innovations, maybe this is not the right time to launch. May be we select one. Automatically, that is a reduction in investment, because the launch of innovation comes with hiring more people".
The investment would be reduced by 75 per cent, because the environment is not favourable for innovation.
"We could have been enhancing capacity if we see greater demand. But now, what is the point of enhancing capacity if the demand is down by 70 per cent. So, then these plans are put off a little late till the situation gets better," he added.
However, AB InBevs long term plans have not been changed as the company sees India to emerge as one of its biggest markets for beer.
"Medium-term investments are rejigged but the long-term agenda which is India as a country where we want to bring the best people or make the best brands available, that commitment has not changed because that commitment has not been made for one year or two years.
"And commitment has been made because we see India becoming one of the world's biggest bear markets in the next 10 years," he said.
These 45 days or 60 days of a lockdown has come particularly for the bear category, which does not just affect AB InBev but other beer companies as well, Sharma said, adding that growth was also affected by high COVID taxes.
"Spirits tend to see the peak season in the winter, whereas summers between March 15 and July 15, contributes close to 55 per cent of portfolio volume," he added.
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