SABMiller optimistic about the growth of the Indian Beer Industry

Global brewer SABMiller expects the beer consumption in India to increase 5 times over the next 3 years. The company which enjoys a 34.8% share in the Indian beer market in just 8 years of operation is hopeful that the per capita consumption levels in the country would grow. Currently the per-capita consumption level in India is at a dismal 1 litre compared to the world average of 22.1 litres. This seems all the more meager compared to the per-capita consumption levels of some big European drinking nations where it’s over 100 litres. India, therefore which has a population of over 1.1 billion people seems to be a very lucrative market and has been recently thronged by a number of giants like Inbev, Carlsberg, Heineken.

The primary reason cited for the low consumption of beer is taxation. Taxation in India is on volumetric basis and not on the alcohol content basis. The tax on the beer is twice the international average and four times on the Indian Spirits Industry. Also each state is India is considered as a separate country and hence the Inter-state beer taxes paid makes the beer taxes one of the highest in the world. Another disadvantage of separate excise duties and non uniform excise policy is that the benefits of economies of scale cannot be realized. For example, the total beer consumption in India stands at 12.3 million hectoliters( 1 hectolitre= 100 litres) this beer capacity is catered to by 65 breweries spread amongst the 65 states, however, in European countries the same beer capacity could be met by 3-4 breweries. The complex taxation structure forces the major brewers to own a brewery in each of the major beer consuming states and hence results in a larger small number of breweries rather than a few larger breweries.

Taxes almost contribute to 49% of the beer retail’s price compared to the global average of 33.6% and hence the beer makers realize a profit of only 35% of the retail price compared to the global average of 55.4%, hence the operating margin of the companies are very low and to the tune of 2-3%. Another problem which the Indian Beer companies are facing is the distribution set-up. Mainly, the state governments control the distribution set-up with the state owned depots responsible for the secondary sales to the retailers. This further refrains the beer makers from having control over the sales, distribution and the pricing of the beer.