COVER STORY
UNITED BREWERIES LTD:
TAKING CHARGE IN INDIA
In the minds of many, India remains tomorrows market with brewers thoughts filled with volumes
to come from this untapped market. Yet on the ground today, United Breweries Ltd is distancing
itself from its competitors, growing market share in an expanding market. UBL deputy chairman
Shekhar Ramamurthy tells editor Larry Nelson about a remarkable success story
A
s markets for beer go,
India could be described
as the industrys final
frontier a complex
country with extremes of poverty
and wealth, yet one with emerg-
ing economic might, resulting in a
middle class that numbers in the
hundreds of millions.
And while brewing and beer have
been present for decades, centu-
ries, really, per capita consumption
today is placed by beverage market
researchers Canadean at 1.5 litres.
Thats nothing in the context of global
markets for beer, yet it is triple the
estimated per capita figure for India
at the dawning of the new Millenium.
So theres a huge market for
uality and
goods that offer quality
brands that offer status,
atus, and
beer fits that description.
scription.
Multinational brewers rs have
piled into the market, t, acquir-
ing established local al com-
petitors and building capac-
ity at breakneck speeds.
peeds.
SABMiller acquired the
assets of Shaw Wallace lace
and has established itself
self
as a national force. A-B
InBev is in the market ket
thanks to the Anheuser- er-
Busch transaction, with
production capacity in
Hyderabad. Carlsberg erg
came relatively late ate
to the party, but is an
emerging force at five ive
breweries and counting.ng.
But the story in the
Indian market today day
is United Breweries es
Limited, which is not
12
only growing volumes but actually headache not just for UBL, but for extensions, and two recent entrants
gaining market share at such a the entire industry. deserve mention Kingfisher Ultra
surprising rate that it is putting and Kingfisher Red.
space between itself and its pursu- The fisher king Ultra, a mild beer, was launched
ing competitors. If you had to explain UBLs suc- two years ago and is positioned as
Lets set the stage: during finan- cess in a hurry, boil the explanation a premium offering, with a unique
cial year 2009-10 ending March down to a single-word answer to suit bottle shape, twist-off cap and a
2010, UBLs annual report stated the mood of this info-titbit, Tweet- price index of 125 compared to
that its beer volumes surpassed 100 driven age, its this: Kingfisher. It is Kingfisher Premium at the 100 index
million cases for the first time, and the clear market leader; even UBLs base. Ultras price point is roughly
that market share surpassed 50%, annual report for 2010 describes level with that of Carlsberg.
making it twice the size of its near- the brand as ubiquitous. Its a brand for the future, says
est competitor. There are numerous brand exten- Ramamurthy. Its a brand targeted
And this market leadership sions for Kingfisher, crucially in both at emerging, urban affluent young
has since become even more pro- the mild and strong segments. The people who are willing to pay a little
nounced. According to UBL deputy distinction between mild and strong more for their beer who are looking
president Shekhar Ramamurthy, in beers is perhaps unique to the Indian for some distinctiveness and yet
2010-11 beer volumes increased market. Strong beers are around 7% for whom Kingfisher by itself is an
25% to 125 million cases, equating abv, certainly above 5% abv;; mild extremelyy aspirational
p brand.
to close tto 10 million hectoli- beers are below 5% abv. bv. Kingfis
Kingfisher Red is an unex-
tres. Mark
Market share has contin- Thanks to Kingfisher
ngfisher pected d development, with it
ued to grgrow, with Ramamurthy Premium, the familiarr green- intended to be served warm,
o
estimating UBLs slice of the bottled beer, UBLs share of at about 13-14
1 C. Ramamurthy
pie at b between 53-54%. He the mild segment is well ell over describe
describes the beer as akin to
notes, wweve been ahead of 60%; with Kingfisher Strong
ong the warming Belgian ale, with the
the indu
industry year-on-year for strong segments leader, er, UBL target market those chilly
severa
several years now. has a market share that is winter months in Indias
Su
Such growth brings very close to 50% among northe
northern states for people
chall
challenges capacity is the higher strength beers.
rs. who w want a beer but dont
bein
being added constantly, Interestingly, consumer
umer want a chilled lager.
and this just to keep tastes are trending in W
We were tempted to
up with demand. The favour of strong beers. ers. crea
create a beer which is
pro
production platform Ramamurthy estimates the goo
good even when its not
now numbers 30 brew- mild v strong split as 20:80
80 chill
chilled. Its got a fuller
eri
eries, both owned today; four years ago it bod
body, he says. Its to
ou
outright plus contract was 30:70. The strength gth cat
cater to a segment of
bre
brewing arrangements. of UBLs portfolio is thathat peo
people who would like to
An
And Indias complex we are leaders in both mild drin
drink a beer even when
arr
arrangements of state- and strong, he notes. its cold outside but dont
con
controlled duties on There have been a wan
want to drink something
alco
alcohol are an on-going number of Kingfisher brandand whic
which is cold.
K
Kingfisher Red is
New product development: Kingfisher Red is
intended to be enjoyed warm; Kingfisher Ultra
bei
being trialled in a cou-
offers premium cues ple of markets in two
Advantage Publishing Ltd Brewers Guardian, November/December 2011
 COVER STORY

states, Uttar Pradesh and Bihar and is said to be

doing reasonably well.
In a market where advertising is banned, achiev-
ing awareness amongst consumers is no small
accomplishment, but Kingfisher isnt just a beer
brand. Thanks to UBL chairman Dr Vijay Mallyas
many and varied business interests that are vested
in his parent company UB Group, the Kingfisher
name adorns not just beer bottles but has given its
name to an airline, amongst other ventures.
And while advertising per se isnt permitted,
sponsorship of sports is, and here the Kingfisher
name is closely aligned with the sports that mat-
ter. The brand sponsors five of the eight teams
in crickets Indian Premier League and for an
outsider, its perhaps difficult to understand the
importance of this sport to the nations psyche.
(Think Canadians and ice hockey, or virtually
everywhere else and football.)
Ramamurthy notes that Kingfisher is able to
use these sponsorships to great advantage. It
gives us tremendous value because we are able
to leverage player images, team associations,
etcetera. Cricket, as you know, is extremely pop-
ular and most of the stars are household names.
Beyond sports and not forgetting Dr Mallyas
ownership stake in Formula One team Force India,
which Kingfisher branding on the cars, as well as
a fillip in the form of the inaugural Indian Grand
Prix this autumn Kingfisher is also positioned as
an accompaniment to food, and as a supporter
of fashion. While various fashion events are spon-
sored around the country, Kingfisher is best known
in this regard for its annual swimsuit calendar,
which will celebrate its 10th anniversary in 2012.
It all goes back fundamentally to the fact Ramamurthy: sponsorships add to the aspirational value of Kingfisher
that beer in India is expensive to the consumer,
so therefore we have consciously built an ner and competitor? was ultimately resolved associate themselves with premium products,
aspirational image around Kingfisher and weve many months later, when Heineken transferred across categories, explains Ramamurthy.
used sponsorship platforms which consistently stakes elsewhere in southeast Asia to APB, and And Heineken fits very well into that because,
build and add to the aspirational value of the bundled APBs brewing assets into UBL, thereby and we genuinely believe this, that Heineken is
brand, Ramamurthy explains. solidifying joint control, with three Heineken nomi- arguably and probably the most international
Whilst we make [Kingfisher] available every- nated appointees to the UBL board of directors. beer brand in the world.
where and acceptable to the consumer at every The upshot is that Heineken is finally coming As for Heineken, the Dutch brewer seems
touch point, the image is driven to build it as a to market in India, with the roll-out beginning more than satisfied with how its Indian venture is
premium aspirational brand, and fashion actually this past summer, with initial availability in a progressing. Chief executive officer Jean-Francois
fits that very well. few key markets including Mumbai, Delhi and van Boxmeer is nothing if not bullish about the
Bangalore. The brand is being positioned as a prospects generally for the market, and specifical-
Working with Heineken super-premium, at a 170 price index, marking it ly for United Breweries. Speaking at a road show
The details are fresh enough in the memory well above both Carlsberg and Kingfisher Ultra. presentation to financial analysts in London in
to not need belabouring here, but it wasnt so Ramamurthy notes that the Heineken pack- September, he noted that the per capita consump-
long ago that UBL was partnered between Dr aging is superb, with the new K2 bottle that is tion of 1.5 litres was where China was 30 years
Mallyas UB Group and Scottish & Newcastle, being rolled out worldwide in place in India from ago, and characterised the market as a reser-
each with 37.5% stakes. With the Heineken- day one. But the question need be considered voir of growth for beer and for United Breweries.
Carlsberg evisceration of S&N in 2008 and will such a high price point restrict the ability to Van Boxmeer continued, There is a huge
Heineken claiming S&Ns Indian assets, there grow Heinekens volumes? potential for growth for the next coming 20 years.
was initial unhappiness from Dr Mallya in regard It goes back to the Indian consumer, the We will perhaps take some ups and downs but
to Heinekens pre-existing presence in the Indian evolution of the Indian society where there is a intrinsically there is a growth opportunity which is
market via its stake in Asia Pacific Breweries. small though very visible segment of consumers larger than life. I think that in 20 years it wouldnt
This dilemma could Heineken be both part- who are willing to pay more, or would like to surprise me that United Breweries will be the single

Advantage Publishing Ltd Brewers Guardian, November/December 2011 13

 COVER STORY
largest operating company within the Heineken
world. And the results so far have been excellent.
Of course, its a malfunctioning multinational
brewer if beer doesnt flow in both directions.
Kingfisher will be developed with Heineken
beyond India, says Ramamurthy, but for now
the emphasis is in the home market. UBL has
Of suppliers in India
As a growth market, one where forecasts
for beer volume increases are embodiments
of optimism, Indias brewers are busy adding
capacity, often as greenfields. Its not just
UBL in this respect; Carlsberg, for instance,
numbers three greenfields amongst its five
breweries in the north of the country.
As such capital is being expended, on new
breweries and on expansions to existing brewer-
ies. Well-known suppliers with global reach have
reacted by beefing up their presences in the coun-
try opening offices, situating technical support
staff and parts supply and, in some instances,
cutting the ribbon on manufacturing facilities.
For Shekhar Ramamurthy and UBL, being
able to work with suppliers with an in-country
presence adds value.
I think it makes the business much, much
easier to do, he explains. Even if they have
to, for example, bring in some of their equip-
ment from overseas from their other facilities,
but having technical support and having some-
body to talk to and discuss makes the whole
process much, much easier.
Ziemann has been in India in 2007, set-
ting up a manufacturing facility in Pune and
a wholly-owned subsidiary, Ziemann India.
Krones has an office in Bangalore, the heart
of the Indian brewing industry. In 2010 KHS
opened a production facility in Ahmedabad.
Others have partnered with Indian manufac-
turers, in particular Praj, in its own right a par-
ticipant in the global market for brewing exper-
tise. Praj has executed projects in more than
55 countries across five continents. Today it
partners with Meura for mash filters; Filtrox
for filtration and beer recovery systems; and
Holvrieka for cold cellar tank requirements.
Meuras first project in India was in 1997,
supplying Barmalt, a malting company, with a
Meura2001 filter for malt extract production.
(Meura sales & marketing manager Jeroen
Vandenbussche notes that Indian breweries
were then too small for Meura2001 technol-
ogy.) At the close of 2006 Meura entered into
partnership with Praj, with their first project in a
Blossom Industries brewery. Today Praj manu-
factures on behalf of Meura process equipment
14
developed Kingfisher in other markets, as with
UK-based Kingfisher Beer Europe.
The production network
Due to a tax structure for alcohol duties that
is administered on a state-by-state rather than
federal level, and given relatively low levels of
such as stainless steel tanks. From Belgium,
Meura supplies the engineering requirements,
critical equipment, automation, start-up and
commissioning services.
Even without the complex situation in
India import taxes, taxes between states
and heavy administration we would have
looked for a partner and would have arrived
at Praj, says Vandenbussche. In our opinion
it is not a sustainable business to supply from
Europe, for example, stainless steel vessels,
that could be produced locally. Sooner or later
the increasing transport costs will make such
business economically uninteresting.
Filtrox supplies its Swiss-manufactured equip-
ment to Indian breweries via a partnership with
Praj that dates back around 15 years. The
advantage is that Praj is local, says Filtrox chief
executive Jrg Zuber. It is a big engineering
company with its own manufacturing capabilities.
We supply the filters and they buy the valves,
pumps, do the piping and all the things that can
be done locally. This is cost-effective for us.
Filtroxs sales in India are stable, with a
market share of around 80% thanks to Prajs
strong position, says Zuber. Filtroxs only limit-
ing factor is Indian regulations which restrict
or tax inter-state beer shipments. Breweries
tend to be smaller than those in the rest of
the world, with filter lines correspondingly
reduced in size. Perhaps things will change in
the future, hopes Zuber.
Praj vice president Atul Mulay, who is in
charge of the brewing department, estimates
that 45 million cases of capacity have been
added by the Indian industry during the past
year, with Praj having contributed to 30 million
cases of the total. He adds that 60% of Prajs
business consists of repeat orders, testimony
to our undoubted leadership in India.
As for UBLs regular routine of suppliers,
in addition to Praj for brewhouse requirements
Ramamurthy lists Krones for packaging line
needs, with Lehui supplying some compo-
nents such as conveyor belts and from KHS
bottle washers and pasteurisers. Lehui is also
called upon for fermentation and conditioning
tank requirements.
Advantage Publishing Ltd
demand in each state, breweries traditionally
have been quite small as measured by brewing
capacity compared to markets elsewhere. UBLs
production network consists of 30 breweries, 18
owned outright plus another 12 that brew under
contract. Contract brewing capacity is tapped in
states where UBL has not been able to obtain, or
has not sought, a brewing licence.
Remember that UBLs total output is
approaching 10mhl today equivalent to the
capacity a single megabrewery and you get
a sense of the complexities involved in brew-
ing beer. Product consistency is a challenge,
agrees Ramamurthy, but notes that there is a
UBL quality assurance person attached to each
of the contract brewers, and that there is a cen-
tral lab which monitors quality on a regular basis.
The new-to-market premium brands, Kingfisher
Ultra and Heineken, are produced in a single
brewery located near Mumbai.
With volumes increasing at pace, capacities are
constantly being expanded and greenfield brewer-
ies are moving off architects drawing boards and
into construction. Ramamurthy says that UBLs
production capacity needs to be increased by
10-15% annually just to keep pace with demand.
There are two greenfield breweries being
built at the moment, in the states of Karnataka
and Bihar, both with initial one million hectolitre
capacities but of modular construction so that
production can be increased to four million hec-
tolitres as demand increases, or as interstate
tariff barriers that currently make cross-border
shipments prohibitively expensive are reduced.
UBL breweries occupy larger tracts of land
than one would expect, at least by standards else-
where in the world. It transpires that this is due
to regulations banning discharge of waste water.
Water is a very serious and important issue
in our country where typically government dont
allow discharge of water outside our breweries,
says Ramamurthy.
So UBL works to reduce water consumption
and waste water discharge. A pilot project is
underway in a brewery in Tamil Nadil that is work-
ing towards zero level discharge.
Essentially once we have it water will not go
out of the brewery but we will find ways to utilise
it or evaporate it, says Ramamurthy. The sen-
sitivity of the government is on what they deem
unclean water.
This is why UBL breweries have very large
tracts of land, so water can be discharged
within their own facilities, leaching back into
the ground. Recycled water is used for heating
(steam generation) and cleaning.
Despite the fact that we use second hand
bottles which require washing, our average con-
sumption of water is about 4.5, 4.8 litres per litre,
says Ramamurthy. Our best in case brewery in
Brewers Guardian, November/December 2011
 COVER STORY

Rajasthan it will be closer to 3.5. As we go forward

our objective is to bring our average down to four
across all our breweries, which make us pretty
much leader of all breweries across the world.
Theres capital being spent on modernising bottle
washers, acquired largely from KHS. Ramamurthy
says these machines ensure good quality cleaning
while minimising energy consumption.

The competitive landscape

Looking forward, Ramamurthy views competi-
tion in the Indian market for beer as a two, and
possibly three, horse race. And hes dismissive
of Molson Coors recent entrance into the market
with its acquisition of a brewery in Bihar that was
owned by Cobra Beer.
In India Cobra is a non-brand, its not
really relevant here, he argues. The majority
of the play is between UBL, SABMiller, and now
Carlsberg is making investments Im sure that
they have aspirations. But the Molson Coors
acquisition of the brand Cobra is really not going
to make a difference to India.
UBL is continuing to distance itself from
its competitors, as reflected in the companys
understanding of market trends. Recall that for
2010-11 UBLs volume increased by 25%, and
this against an overall industry performance that
Ramamurthy places at a 17% gain.
As for the current state of play, growth has
slowed somewhat. Ramamurthy has brewing
industry volumes as a whole increasing 7-8%,
with UBL at least 2-3% more than that.
But having said that, its still in growth and
we feel that next year the industry will bounce
back, he says. Itll go into double-digit growth.
UBL has an early lead on its competitors,
a lead that is increasing, with Kingfisher pos-
sibly becoming a dominant brand, hindering
the growth of competitors portfolios. Yet India
remains a market where competitive outcomes
are uncertain. There could be a degree of
consolidation, as some of the remaining smaller
national brewers succumb to the blandishments
of multinational brewing abilities and bankrolls, or
less well-established global brewers might quietly
fold their tents and fade away.
But if there is a certainty, it is that the market
will remain in growth. This is despite taxation levels
that make beer far more expensive than equivalent
servings in the China, the booming market of today
to which Indias prospects for tomorrow are so
frequently compared by market analysts.
Ramamurthy can be safely counted among
the optimists and given his vantage point its
an opinion that should be valued. Asked if he
remains bullish about future demand growth,
The world of Kingfisher sponsorships, and its fashion interests (from top): the brand benefits from chair-
he answers, Absolutely. I think long-term it will
man Dr Vijay Mallyas interests in Formula One racing; five of eight IPL sides are sponsored by the grow 10, 12 per cent year-on-year, which is very
brand; fashion sense from Kingfishers 2011 swimsuit calendar healthy. Now theres an understatement.

16 Advantage Publishing Ltd Brewers Guardian, November/December 2011

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 STATS SNAPSHOT

THE INDIAN BEER MARKET

The industrys excitement regarding the beers enormous potential in India
may be well-founded, to judge from volume growth over the past decade

Market highlights SHARE OF THROAT

Per capita (litres) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Shift to strong beer, and
new pack types drive beer Soft drinks 4.9 5.0 5.6 6.2 6.5 6.3 6.3 6.8 7.7 9.2 10.8
growth in India Milk/milk drinks 39.4 40.6 40.8 41.0 41.6 42.0 42.5 43.8 44.5 46.0 47.1

Hot drinks 55.7 56.3 57.6 58.3 59.3 59.0 59.8 60.4 61.3 61.7 62.2
High import duties impede
entry of foreign brands Beer 0.5 0.6 0.6 0.6 0.7 0.8 0.9 1.1 1.2 1.3 1.5

Wine 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
State governments have a Spirits 2.3 2.4 2.5 2.7 2.8 3.0 3.2 3.6 4.0 4.5 4.9
stranglehold on the Indian
beer industry
BEER MARKET GROWTH (000S HL)
Increasing beer taxation 20000
and high inflation may
dampen growth 15000

10000

5000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

LEADING BEER BRANDS

These brands comprise 76% of the beer market in India

RANK Brand Owner Brewer

1 Kingfisher UB Group United Breweries*
2 Haywards SABMiller India SABMiller
3 Knockout SABMiller India SABMiller
4 London UB Group United Breweries*
5 Thunderbolt Mount Shivalik Breweries Mount Shivalik Breweries
6 Carlsberg Carlsberg India Carlsberg
7 Godfather Divan Breweries Divan Breweries
8 Zingaro UB Group United Breweries*
9 Bullet UB Group United Breweries*
10 Kalyani Black Label UB Group United Breweries*

* Heineken and UB Group each hold a 37.5% stake in United Breweries.

Canadean is the world leader in beverage market research, producing more than All data printed on this page is copyright of Canadean Limited. No reproduction is
300 reports annually across all categories. For the brewing industry Canadean allowed without prior permission. Forecasts are indicative only and act as a guide to
delivers regular country and regional reports as well as its Global Beer Report, possible future volumes.
covering more than 200 markets, and its annual Global Brewer Handbook. For
more information, contact Kevin Baker on +44 (0)1256 394220 or by email:
kevin.baker@canadean.com

18 Advantage Publishing Ltd Brewers Guardian, November/December 2011