The Beer Bucket and the consequences

Given the background of Bira’s mounting troubles, B9 Beverages’ new launch Boom may seem like a sensible move. Of the overall beer market in India, 90% of the market is dominated by mass-market beer brands such as Kingfisher and Tuborg and 10% is controlled by premium brands such as Budweiser and now, craft beer brands like Bira. Of this, craft beer accounts for less than 2%, according to estimates from two industry executives. And within that 2% craft, there is no dearth of competition. Making money, thus, becomes an uphill task.

The most obvious solution for a niche brand in such a situation is to go mass-market. And that’s exactly what Bira seems to be attempting with Boom.

Mass-Market Beer

A strong mass-market beer, Boom comes in two variants—Classic (mild beer) and Super Strong—and is available in cans as well as 330 ml and 650 ml bottles. The likes of United Breweries and Carlsberg (Carlsberg and Tuborg) currently account for more than 60% of the market, according to industry estimates. In fact, the market is so widely dominated by United Breweries that most alcobev executives refer to the mass-market segment as “the Kingfisher segment”.

“Boom will require significant investments in trade discounting and above the line initiatives, assuming, of course, they have a superior product in the market.”

SAMAR SINGH SHEIKHAWAT, INDEPENDENT BUSINESS CONSULTANT AND FORMER CMO AT UNITED BREWERIES

The unique selling point for Boom is that it is flavored; Boom Strong beer has a hint of honey and biscuit, while Boom Classic is a somewhat fruity ale. However, that counts for little when the brand has to fight on multiple fronts to establish its territory.

First, the market is crowded. Above and beyond Kingfisher. There are scores of brands like Haywards, Thunderbolt, Knockout, and a whole range of regional brands. Second, and no points for guessing this, margins are thinner in mass-market brands than in premium because of the low pricing; you need a strong distribution system to achieve scale which is an expensive task in itself. According to the rival executive quoted above, the gross margins in the premium segment (excluding duties and taxes) can go as high as 50%, but in the mass-market are as low as 10% if the distribution is not in place.

What is the United Breweries?

Even the smallest mass-market strong beer brands have at least ten breweries (owned or contract manufacturing),” says Samar Singh Sheikhawat, independent business consultant and former chief marketing officer at United Breweries. In fact, UB produces beer at 30 breweries, of which it owns 21, according to its website. In comparison, Bira, which now has four units—Indore (Madhya Pradesh), Mysore (Karnataka), Nellore (Andhra Pradesh), and Nagpur (Maharashtra)—owns none.

“Alcohol is an expensive business to be in. Export/import duties, as well as the distribution cost from just these many units, will be very costly for Bira,” said an executive at a rival craft beer firm asking not to be named. He did not want to comment on the competition. “In fact, in this mass-market segment, primarily two companies have been able to make money—Kingfisher and Carlsberg. None of the [relatively] smaller players have turned a profit,” added this executive. In the year ended March 2018, UB earned Rs 12,440 crore ($1.7 billion) in revenue and Rs 392 crore ($56 million) in profit, while Carlsberg made Rs 3,735 crore ($535 million) in revenue at a profit of Rs 217 crore ($31 crore).

With the launch of Boom and increased investment in marketing as well as increasing production capacities, B9 Beverages may be looking at a fund crunch. The former Bira executive quoted above confirmed that the company is in the market to raise another sizable round of funding. “Bira is looking to raise $50-70 million in funds and will close the round in about two months,” he said. “This will give the company a runway of at least 1.5-2 years.”