United Breweries, India’s largest brewing company and a part of the UB Group, has been in the thick of the action with its impending strategic pact with Heineken, one of the world’s best-known beer brands. Various comments from the management of the UB Group have also indicated that United Breweries may be interested in acquiring the UK-operations of Cobra Beer, an Indian-cuisine focused beer that has strong presence in Britain.
While these negotiations are going on at majority shareholders level, the company is fine-tuning a strategy to stay ahead in the Indian market, its Managing Director Kalyan Ganguly tells Raghuvir Badrinath in an interview.
How is the beer industry coping with the current economic downturn?
Today, I do not see any signs of a slowdown in our industry. There have been some adverse developments like smoking ban in pubs and bars, resulting in them losing business, but I do not have reasons to complain. My personal take on the downturn in the economy is that this may not be a pan-India phenomenon. For example, if there is some impact on the Bangalore and Hyderabad markets — where young people employed in service sector are forced to take pay cuts — the same may not be true in Bihar, West Bengal or Rajasthan.
Since we have high market shares across the country, I do not anticipate the impact to be as devastating as many are forecasting and I do not feel alarmed. In fact, we are also going ahead with our capital expenditure plans and are not deferring it.
So far so good, but there are clear indications that the downturn will be more severe going forward...
We will have to wait and see whether the downturn will be of a long-term or not. However, I would like to add that beer is not a costly proposition and is almost like an FMCG (fast moving consumer goods) product. You do not require deep pockets to buy a bottle of beer at around Rs 55.
However, there are some clampdowns on the night life, leading to apprehensions that there may be thinning of crowds at various watering holes. We are gearing up our strategy towards addressing this and are increasing our focus on addressing the home needs, where friends gather and have a good time instead of getting into pubs and bars.
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How has been the year so far and what problems do you anticipate going forward?
During 2008, we would have sold almost 100 million cases of beer, a growth of around 18 per cent over last year. The only pain point is in Andhra Pradesh, which is our largest market in India. We haven’t been able to grow there at all during this year as the Andhra government is taking an unreasonable stand on the pricing. The more we sell and more we expand, we tend to lose more.
We are in constant dialogue to sort the issues out. The other issue, which is a long-standing one, is the clubbing of beer and spirits in the same tax bracket. The All-India Brewers Association has been talking to various governments to de-link beer from spirits in the taxation structure. The taxation structure is hurting the affordability of beer in the country. The high cost of beer is also driving less affluent segment to go in for cheap and poor quality spirits, which are turning out to be harmful for the society. If the move to de-link beer and spirits from the same tax bracket happens, then sky is the limit for the beer indusry.
What have been the results of your efforts in taking UB global?
I would say that we have been fairly successful. We are not a mainstream player in select global markets like in some European countries. Our niche is driven largely by Indian cuisine and I think that across these countries, we have achieved what we set out to achieve. The numbers are not significant enough, but we have never looked at that part of the business as top line-driven but as more of a strategic one.
Having said that, I have to put this in context that the mass market is fairly unexciting and stagnant in Europe. The niche market is growing and we do not want to chase a stagnant market. It becomes costly, may not be logical and may not be the wisest thing to do.
During the past few years, UB had a strategic pact with UK-based Scottish & Newcastle and now there is an impending engagement with Heineken. How did that help and how do you intend to take the next step forward with Heineken?
We will have to wait and watch on how the relationship with Heineken develops. There are discussions going on at various levels and only after that gets concluded we will figure out how to take the pact forward. With any global strategic partner, it gives us a window to the world. There is a good scope for closer interactions across marketing practices, distribution, technology, packaging which are all important factors. The fact that we are the leader in the Indian market does not mean we have stopped learning.
It’s a great opportunity to see the world through the eyes of the strategic partner. There may be certain things which we can improve on or bring new things which we haven’t thought of. As regards to our pact with Scottish & Newcastle, they were helpful in many areas. We benefited to an extent from their manufacturing practices and they acted as a sounding board for several of our strategies. We were in discussion with them for extensive network in the UK, when everything changed and they got acquiredby Heineken and Carlsberg combine.
If discussions with Heineken fructify and if UB has to sell that brand in India, don’t you think it will cannibalise Kingfisher sales?
To be honest, I haven’t applied my mind on those issues. I am sure we will find a way out and we will cross the bridge when we have to. It is not difficult. In marketing, portfolio management is an art and there is always scope for fine tuning and addressing different sets of customers. It’s not impossible and it can be quite exciting. It all boils down to on how we address those issues.