HOME WORK – 3

COURSE TITLE: MARKETING MANAGEMENT

TOPIC- BEER INDUSTRY

Submitted To: Submitted By:

KRISHAN GOPAL SIR Kshitiz Rajanwal

ROLL NO – B33

REG NO - 11002576

Industry analysis: Beer Industry

1. General Features

A Competitive Industry

The market size of the beer industry is incredible. The wholesale volume in
the beer industry is approximately $13.7 billion. The industry employees
almost 40,000 people. The average worker is paid about $18.27 an hour. As
you can see, this is a very large industry which provides many jobs to the
different workforce. The market consists of many competitors, some being
very large and some operating on a very small scale. The competitive rivalry
is broken up into three segments, National, Regional, and Microbrewers.
National competitors have a wide market coverage and generally a large
company. Regional competitors are smaller than National in the fact that
they only distribute in certain regions. Microbrewers are the smallest of the
three because their size and capacity limit them to only distribute to small
geographic areas.

Growing Industry

The market growth rate of the beer industry is perplexing. In domestic

brands, from 1983 to 1984 there has been a decline in consumption of -1.2%.
In the imported section there has been an increase of 14.3%. The total
industry as a whole declined .7% from 1983 to 1984. As a result of the
decline in consumption of beer a similar result in production occurred with a
decline of 1.2% The estimated forecast for 1985 will continue along the same
trend as did 1984. The long term outlook for the industry is that sales will
remain flat for the next 10 to 20 years. There are many companies in the
industry. Through the years the industry has slimmed down quite a bit.

Four Broad product categories:

There is some product differentiation in the market with the broad product
offerings that the national brewers can give.
Light beer, Amber beer, Low Alcohol, and Malt Liquor. Imports
are perceived to be better quality: when in fact, they are really not. Because
of this perception, Import beer costs more than domestic beer does. Imports
are differentiated by taste and packaging. Small brewers offer a super
premium product that is not very differentiated. The main differences can be
attributed to the brewing process, price, and packaging. Scale economies is
high among national companies due to their large size. Their ability to
distribute fixed costs is easily done because of the large volume that is
produced. There is also an economy of scale in product extension and brand
proliferation. Regional companies have moderate economies of scale.
Regional do not produce as much as larger national companies but, they can
still spread some of there costs over their moderate volumes. Local brewers
have low economies of scale. Production is so small that it is very difficult to
distribute costs. A local brewer cannot spread the cost of advertising over
their product without having to raise the price of their product considerably.
Capacity utilization in the Indian Beer industry is between 75% and 85%. The
beer industry is suffering from overcapacity. Despite this, a few companies
are still expanding while others are closing down some operations. Because
of flat sales, their is no need to overproduce. Industry Profitability is
decreasing due to heavy taxation and a declining market. Beer is one of the
most heavily taxed consumer products. There largest cost in the price of beer
is the tax that is placed on it by local and state governments. The industries
profitability is also changing due to changing lifestyles, stricter laws, and a
declining 18-34 age group.

Category wise Share in beer sales—1995-1996

Category Share%
Light beer 14.88
Strong beer 34.21
Low Alcohol 15.34
Malt Liquor 35.57
 Category wise shares

Strong beer the major category: It is the largest category in beer industry
with a market share of 56%, in which 35% share is of King fisher.

Light beer share has also improved: In india in recent years, sales of light
beer has increased significantly in terms of sales and production.

Low alcohol and Malt Liquior: Malt Alcohol is the largest selling in india
according to its market share, it has a turnover of more than 500 crore.

2. Industry Environment

The Indian Beer Industry can be classified as a growth industry. It can also be
classified as a emerging industry. It is actually under transition from an
emerging industry to a growth industry. It can also be described as a
fragmented industry. For, there are now more than a dozen players in the
organized sector and a large number of unorganized players. In contrast, in
countries like US or Canada, which are much bigger markets for Beer, there
are just four or five players accounting for the whole market.

The sales figure of alcohol over the various years for entire Northern
part is given below:

Year Sale of beer in Sale of Sale of country liquor

bottles IMFL

1994- 18,797 29,784,767 15,304,848

95

1995- 26,753,113 31,100,383 17,813584

96

Year Sale of beer in Sale of Sale of country liquor

bottles IMFL
 1996- 28,852,880 39,999,614 27,470,904
97

1998- 3,657,063 47,567,740 31,920,975

99

1999- 32,111,134 44,707,386 33,513,108

00

Source: delhigovt.nic.in website

Main Players in the Indian Beer Industry(organized sector)

• Kingfisher • Corona

• God Father • Golden Eagle

• London Pilsner
• Foster
• Smirnoff
• Haywards

3. Industry Structure

Under industry sector, the structural features of the industry, are to be

discussed. These are:

• Number of Players

• Total market size and relative shares of the players

• Change in industry structure in recent time, if any

• Demand-supply scenario

• Demand drivers in the industry

 • Barriers in the Industry

• Differentiation practiced by the various players

• Forces shaping competition in the industry

No. of Players/Main Players in the Industry

It is difficult to pinpoint the total number of players in the industry as there

are countless players who are operating in the
unorganized sector. As for the organized sector to which main players
belong, currently, it consists of 8 players listed in the above chart.

Total Market Size

Currently, the total market size of Beer Industry is Rs. 2200 Cr with IMFL
contributing to around Rs. 8000 Cr. In terms of number of units, the
market size is of order of 3.2 Cr. units in the case of BEER.

Industry Structure is changing in Recent Years

Some significant changes as shown below have taken place in the

structure of the Beer Industry in recent years.

• No single market leader

• Many MNCs enter the industry

• IMFL accounts for only a third of the total liquor consumption in India

• From a luxury product it has now become a regular consumable

product

No Single Market Leader

There is no single market leader in the industry, across all the products
categories. Kingfisher is trying for such a leadership position, in the light
 and strong beer it has a market share of 62%. But it has been slipping
from the position in recent years.

Many MNCs enter the industry

A significant factor in recent times is the aggressive entry of many MNCs

into the industry. In view of the increasing attractiveness of the industry,
many MNCs including US players—Smirnoff, Haywards have entered the
industry. This has increased the competition and has also generated a lot
of retail interest.

From a luxury product it has now become a regular

consumable product

Another change that has occurred in the industry in recent years relates
to the shift in the way the product is perceived and marketed. In the past,
the government had labeled Beers as an item which is for luxury people
and levied heavy excise duty on it. This resulted in high prices of Beer,
but now government has put some control in its taxes so it has now
become easier for middle and low class people to consume it.

IMFL accounts for only a third of the total liquor

consumption in India

Most IMFLs are cheap and are priced below Rs. 200 per bottle. Alcohol
sales proceeds account for 45%of the total revenue collection in the
country.

4. Industry Attractiveness

Industry attractiveness actually forms part of industry structure. And we

have also listed it as one of the items under industry structure which we
have just covered. With a view to providing a more focused treatment to
the topic we had reserved it for discussion under a separate section.
 We can recall from the previous chapter that the main determinants of
industry attractiveness are:

• Industry growth

• Industry Potential

• Industry Profitability

• Likely future pattern of the industry

• Industry Barriers

• Forces shaping competition in the industry

Industry Growth

The Indian beer market was estimated to be 6.7 million hectoliters (hl) in
2002-03. As seen in figure 1, beer consumption has been growing rapidly at a
CAGR (Compound Annual Growth Rate) of 7 per cent over the last 9 years,
while growth in 2002-03 was 11 per cent.

Indian growth rates compare favorably with the global beer industry, which
grew by about 2.6 per cent in 2001-02 Apart from providing strong growth,
India also provides attractive profit margins due to the consolidated nature of
the industry – a comparison between China and India. In China there are
about 400 brewers, of which the top 10 account for only 45 per cent of the
market. This has resulted in low profit margins for the Chinese beer players.
In contrast, the top two beer players in India account for about 75 per cent of
beer sales in India and the industry stands a chance to see more
consolidation in the near future. The effect of this consolidation can be seen
in the fact that beer prices in India rarely go down with the competitive
pressures of new product or brand launches. In the past, whenever beer
prices have gone down, it has been due to either the lowering of duties by
 the government or the deregulation of distribution (leading to lower margins
for the distribution channel partners). In neither scenario have the margins or
revenues of beer manufacturers been affected.

The beer industry is finally witnessing a relative slowdown after three straight
years of growth and it is not necessarily because of recession.

There was an industry growth for 2008-09 was 8.5 per cent while for 2007-
08, the industry grew 14 per cent. For the first six months of 2008-09, the
gap was larger with the industry registering a growth of 6.9 per cent
compared with 16 per cent same period last year.

Industry Potential

Per capita consumption in India is hovering around a measly 0.5 litres per
annum. These figures pale into insignificance if one compares them with
those of Czech Republic that has the highest per capita consumption of 156.9
litres per annum (see box)
Per capita consumption is directly related to the taxation, according to an
industry observer. For instance, in Maharashtra there is a direct 100% excise
duty on Beer. An equivalent 650 ml bottle is available for approximately Rs 8
in China. Which is why the per capita consumption in China is a high 16 litres
per annum.

The Indian beer market has been growing rapidly over the last 10 years, due
to the positive impact of demographic trends and expected changes.

Categories 1995 1996 1997 1998 1999 2000

Beer 0.5 0.5 0.6 0.6 0.7 0.7
Bottled Water 0.1 0.1 0.1 0.2 0.3 0.5
CSDs 1.0 1.2 1.2 1.5 1.6 1.8
Coffee 2.0 1.2 1.3 1.3 1.3 1.2
Distilled Spirits 0.3 0.3 0.4 0.5 0.6 0.6
Fruit Beverages 0.1 0.1 0.1 0.2 0.2 0.2
Milk 41.2 41.7 40.2 40.7 40.1 40.5
Tea 49.7 50.9 49.2 52.5 48.2 44.2
Wine 0.0 0.0 0.0 0.0 0.0 0.0
Subtotal 94.8 96.1 93.1 97.4 93.0 89.7
All Others* 631.9 630.6 633.6 629.3 633.7 637.0
TOTAL 726.7 726.7 726.7 726.7 726.7 726.7

Industry Profitability

In Profitability, the beer industry can be rated as reasonably rated as

reasonably attractive. Profit margins in the industry vary depending on the
categories. The company gets main profit from the sales of its strong beer.
The Margins range between 20 to 30 percent, depending on sizes. The
company who are producing everything by themselves they earn a greater
rate of return comparing to the industries that purchase several things from
several places.

Factors deciding profitability

In the Strong Beer category the main factors that govern profitability are
taste and price integration. Since customer look for convenient access and
reasonable price so by seeing all these variables company can enhance its
profitability. Similarly distribution network is also a big factor because if your
product is not easily available than customer will shift to any other brand. So
companies should always see these things so that their profitability could
increase.

Seasonal nature of the demand, a dampener of profitability:

We have already seen that demand for beer is for 9-10 month mostly in
summers because in winter people prefer Rum or Whisky, because it helps in
warming body at winter time whereas Beer is like a cool drink which people
like to drink when it is chilled. In summers the sale for beer is about 75%
compared to 25% in winters.

Analyzing Competition

Forces Shaping Competition

1. Threat of new entrants:

• As we know that Entry and exit of the new competitor is easy in this sector.
• Economies of scale in manufacturing, distributing, and marketing to create
barriers to the national and global markets.
• The capital needs to build beer manufacturing facilities and the cost
associated with this highly controversial industry seek high level of sales,
thus making the industry more and more prohibitive for new comers .
• There is strict rules and regulation from the government to control this
sector which makes this industry quite unattractive.
• Tax rate is high in this industry.

2. Bargaining power of customers:

• Buyers switching cost of the brand is very low. That makes buyers in the
higher position and gives advantage in bargaining power.
 • A decline in disposable income shifts the consumer preferences away
from premium priced brand name products in favour of lower priced
brands i.e. switching cost is low.
• The quantity of alcoholic beverages that a nation consumes tends to be
unaffected through recession and prosperity while the quality of the
products purchased is directly related to the disposable income.
• Buyers are in advantage when they are buying in bulk especially in peak
season and time of celebration and occasions.

3. Bargaining power of suppliers:

• Products used to brew beer are inexpensive and suppliers are numerous.
Because of this suppliers are in disadvantage in terms of bargaining
power.
• If there is no scope of backward integration or forward integration from
the manufacturer, the bargaining power of the supplier increases. But in
the beer industry manufactures may opt for the backward integration as
manufacturing their own facility for packaging.

4. Rivalry and jockeying for position among existing players:

• There is slightly higher than moderate kind of competition because

industry is refrained from advertising there product publicly.
• Because of the high legal and regulatory burdens, manufacturers tend to
merge in order to lower the competition.
• As there is much competition among the competitors and high intensity
of the substitute product the level of competition and survival of the
company is tough.
• There are few big brands like Kingfisher, Foster, Hayward, God father,
etc that control the market has enjoys larger market share.
 • Though the competition is tuff, the Kingfisher brand is the one of the
largest supplier of beer and the third largest producer of distilled spirits.

5. Threat from substitutes:

Competition from substitutes is a relevant issue for Beer. Rum or Whisky a

product category growing in popularity in recent years is a substitute. It
does offer some amount of competition to Beer. Though, the two products
do not serve for same purpose, being in the related category and
substantially cheaper, Whisky and rum do affect the sales of Beer. Recent
years have seen a spurt in the sale of whisky in the country. Consumers in
smaller towns in particular go for whisky or rum. For many years Johnny
Walker is the main player in Alcohol market. With recent entry of some
powerful players like Smirnoff, Bacardi, Spurf may grow the alcohol sector
and pose a greater threat to Beer in coming years.

Analyzing Competitors Proper (Existing Players)

Competitors in Beer industry

Last Price Market Cap. Sales Net Profit Total
Assets
(Rs. cr.) Turnover

United Spirits 1,056.90 13,823.72 4,959.89 400.89 8,301.84

United Brewerie 469.85 11,278.67 1,997.45 96.97 1,831.10

Radico Khaitan 130.4 1,728.56 835.55 41.54 1,042.61

Tilaknagar Ind 55.45 616.61 356.08 33.12 653

Globus Spirits 142.25 281.05 - - -

Empee Distiller 107.3 203.97 851.48 17.09 343.65

GM Breweries 104.5 97.79 219.69 6.65 74.67

Ravi Kumar Dist 37.05 88.92 - - -

Pioneer Distill 46.8 62.66 44.07 3.19 168.56

SWOT analysis of Beer industry

Strength

Beer is the world's most widely consumed and probably oldest of alcoholic
beverages; it is the third most popular drink overall, after water and tea. It is
produced by the brewing and fermentation of starches, mainly derived
from cereal grains—most commonly malted barley, although wheat, maize
(corn), and rice are widely used. Most beer is flavoured with hops, which add
bitterness and act as a natural preservative, though other flavourings such as
herbs or fruit may occasionally be included.Mostly people like to drink beer
because of its low alcohol and it is if drunk occassionaly then it is good for
health also. And as we all know that market share of beer have increased
from 30-35% and because of this foreign companies are also started selling
Beer in India.

Weakness

The Beer industry is highly competitive. Characteristics of the industry

include slow growth and maturity, a phase during which weak companies are
weeded out of the market by the strongest corporations. In order to stay
competitive, Beer companies must be able to offer their product at a low
price. A price that can at least match (or preferably, beat) a competitor’s
price will allow that product to enter into a consumer’s mental set of possible
brands to purchase. Because the pop industry produces a fairly standardized
product, competitors in the industry cannot entice the consumer to pay a
premium price for its product over another firm. Therefore, the ability to
produce soda at a low cost to the company is an extremely important
determinant of success. Secondly, the firm’s brand of soda must be available
for consumers to purchase easily. This means that the brand must be on the
shelves of everywhere where most wine shop are available. Although other
channels of distribution are available, once again it is important for the brand
to enter into a consumer’s mental set of possible brands to purchase, The

fact that there are no switching costs associated.

Opportunities
Overall, in terms of environmental threats and opportunities,
NationalBeverage Corporation comes out at a slight disadvantage. Although
it has strengths that will allow it to overcome most threats, the most
important threat that is due to the consolidation of grocery storechains is a
big concern. They can share sales staff and distribution channels with
existing brands. Another consumer trend that may be an opportunity is the
fact that the US market is consuming soda at a higher rate than other
countries worldwide. The National Beverage Corporation does not have the
financial resources to engage in large scale event sponsorships and
advertising to compete with Coca-Cola in this respect. It will not be able to
capitalize on opportunities in a way that will gain market share from its
competitors in a mature industry. The average US citizen consumes more
then two 8oz servings of soda everyday, while worldwide individuals only
average less then one 8oz serving each day. This strategy worked well
when grocery stores were locally and independently owned. Convenience for
the consumer is a very important consideration for successful firms in this
industry. Due to Coke"tms brand appeal, its annual report estimates that the
average consumer in North America has one serving of Coke products
everyday.

Threat
As already discussed, the trends towards consolidation of the Beer industry
and consumers increasingly seeking a one stop purcahsing experience that is
the largest threat to other companies. Softdrinks are now also the main
threat for Beer because mostly now a consumer prefaring a low price drink
not a high price drink. And as we discussed earlier whisky and rum are the
biggest competitor and threat for Beer industry.
As well as being able to compete price-wise, National Beverage
Corporation is also well equipped to produce quality beverages. However,
NBC may not be able to capitalize on this opportunity given its weakness in
mainstream distribution channels. According to its 10K, it competes by
"appealing to the "quality-price"tm sensitivity factor of the family consumer.
Of the two aforementioned keys to success in the pop industry, the
National Beverage Corporation possesses strengths in one area but may be
vulnerable to threats in the other.