Elections are big disruptors but 6-8% industry growth is possible: Shekhar Ramamurthy, UBL
Industry-wide growth has been strong at 10% in Q1. Given that we have had highway ban and GST implementation in the base quarter, do you believe this growth could be optical?
All the factors you have highlighted are highly relevant. Last year and about six-eight months prior to that, we had the impact first of demonetisation and then the highway ban. For the beer industry, GST was the disruptor more in terms of our import material cost, not so much the output because we are out of GST.
Last year, quarter one was a bit depressed because the highway ban came in from the 1st of April. The 10% growth needs to be seen in that context. What we expect and what we have maintained for a long time is that we anticipate medium-term industry growth to be in the 6% to 8% range. Even after looking at how quarter one has performed, we still believe that in the rest of the quarters — taking out any residual impact of the highway ba n– growth could still be in the 6-8% range.
Come third quarter and Q4, when the base normalises and as it is an election year, what kind of growth can you expect and how far would you say it has been already in July and August?
July and August have been good and similar to quarter one. The base impact of the highway ban still stayed. But Q3 and even more importantly, Q4, and perhaps Q1 of next year will get impacted by impending elections. Our business is effected by the simple fact that there are closures of outlets during voting, prior to counting, post counting and a lot of restrictions are placed on our breweries in terms of hours that we can operate, etc.
Elections are a big disruptor to the beer business, contrary to popular belief. Therefore, whilst the impact of the highway ban may go away to a large extent in Q3-Q4 of this year, the impending elections will dampen the growth. Taking everything into account. we still believe that 6-8% industry growth rate is sustainable.
The strong growth posted by the beer industry continues. Still penetration as indicated by per capita consumption remains the lowest in the world. Why is that and do you see the scope of that increasing? Is the way only up from here?
You are right. On the positive side, it can only go up. We are at about two litres per capita if you take the entire population of India into account, it clearly will go up. There are several constraints in growth. One, there is limited access. There are only about 75,000 outlets across the country where you can buy beer and most of them are in urban areas.
Two, in India beer is taxed much higher than spirits when you look at it from the perspective of tax per unit of alcohol. It is almost two times that of popular range of spirits. That is a dampener because beer is expensive. The corollary is that in India, beer is marketed and positioned to consumers as a premium aspirational drink across companies and not just us. This is simply because entry level beer is expensive.
Three, the number of beer consumers in this country are estimated at about 100 million out of the 1.2-1.3 billion population. The reason for that is India is about 31% urban and most of the outlets where you can buy beer is in urban India. That straight away brings down the accessible population to about 400 million and beer like any other alcohol is consumed by the adult male and adult male is about one-fourth of a family unit. That brings down the total consuming number of people to 100-120 million.
Of course, you must always remember that even a per capita GDP of $2000 – A) is very low and B) leaves out half the country even if they had access to it as they are really poor.
Thus on the positive side, the number can only go up as prosperity level and urbanisation increase. Hopefully, the number of outlets where people have access to beer will increase and there will be more innovation, more offering to consumers. All in all, the future is bright but also long term. There is not going to be much change in next three years.
Despite the influx of foreign beer brands, you have managed to maintain your market share in the last few years. What would you say has helped you?
Consumers. They continue to like us. But on a serious note, what has helped us is that notwithstanding all the regulations, we always keep in mind that the consumers and watchers of your programme are not impacted. They are not impacted by regulation. You go to a bar, you go to an outlet and you seek a brand. So, ultimately beer too is a business of brands.
Over decades, UBL has always invested in its brands and built them as the most desirable, most accessible, fun brands because at the end of the day, beer is a fun category. That is from the consuming point of view and on the back end, we have the widest manufacturing footprint. We have perhaps the most efficient manufacturing footprint as that makes our distribution and our availability far higher than anybody elses.
Plus, ours is an organisation of people who are committed to the business and who love what they do. It is a combination of many things but the one paramount thing which makes UBL what it is and what helps us maintain our shares is the fact that this is a business of brands and we have always invested behind our brands.