Has Bira lost its fizz?

The bottled, craft-beer company had a clear winner, until impatience got in the way 

Vishal Koul

Over 20 people who had gathered looked at each other in stunned silence as the words rolled off Ankur Jain's tongue. The man was known to make tall claims but this was really something else.

Bira had been in the market since early 2015 and, less than two years later, Jain was talking about knocking off Budweiser from the No.2 position, before displacing Kingfisher as the market leader. In the air-conditioned comfort of The Leela Ambience in Gurugram, every company staffer was anxious. The calmness on the face of Jain and the folks from Sequoia Capital, investors in the company, presented the perfect contrast. 

The occasion was the annual operation presentation of B9 Beverages, the company that owned Bira, for which a large conference room was booked in the plush hotel. It had the leadership team of the company and Jain, the company’s founder, had invited some from Sequoia’s top brass as well. By then, Bira was among the most visible beer brands but beneath that lay a business that thrived on filling bars and pubs with it. Not the best way to go about it but Jain was obsessed by the idea of Bira being omnipresent. Business logic and profit could wait.  

Bira was selling a little over 30,000 cases (each comprising 24 cans or 12 bottles) each month. How many of those did the trade pay for is not known as much of that volume was given away free. “The beer drinker should see nothing but Bira,” was Jain’s favourite line to his team. At the same time, Budweiser, owned by AB InBev was selling close to 700,000 cases and United Breweries’ Kingfisher ruled the market with around 1.5 million cases. Obviously, the upstart was being a little too ambitious but Jain gave the impression of knowing just how to get there. The fact that the Sequoia team called him a visionary only seemed to boost his confidence.  

Cut to the present, when B9 Beverages is deep in the red with revenue and losses not far from each other (See: Flat bubbly). The bottled craft beer maker has tried various strategies along the way and it has now landed itself in a spot of bother.

How It Came Together
Unlike most other beer markets globally, India plays a different tune. It has a significant bias towards the strong version — 85% by volume, with mild taking the other 15%. The ratio is really the other way around in many countries. Mild, by definition, has an alcohol by volume of 4-5% and strong is anything beyond that with 6-8%.

This oddity is what led to the large beer companies in India spending more time in launching stronger versions. Be it Kingfisher Red or Carlsberg Elephant or Budweiser Magnum, strong was the way to go. These companies make 85% of their India revenue from strong beer sales. The mild beer slot — which offers higher margins of Rs.13 to Rs.15 per case against strong beer’s margins of Rs.1 to Rs.2 per case — was left wide open.

As anyone in business knows, enterprise (like Nature) does not like a vacuum.

At the turn of the decade, Jain was importing 20-30 kinds of beers and selling them. He realised that the younger generation was developing a taste for milder beers. He decided to make a pitch for bottled, craft beer and launched Bira through B9 Beverages. It was meant for the premium end of the market, which was but a small slice of 4-5%. But that did not deter him. He packaged his bottles quirkily with a monkey for a logo. Craft beer was meant to be sold in small quantities manufactured in a microbrewery; however, Jain believed they would sell in massive volume. It went against conventional logic.

A former Bira official recalls a meeting in the office around 2017 where Jain lost interest when his staff spoke of profitability. “Just speak to me about revenue. We are in the negative now but will break even in 2020 and be profitable the following year,” he declared. This was at a time when the brand was quite literally being given away for free — for every ten cases of Bira that a bar or large restaurant bought, they would get twenty free. The benefit of cheaper prices was meant for the restaurants and it was never passed on to the customer. It helped increase sales manifold, but the company’s book took a hit. While there was no revenue for the volume being given away free, they still had to pay the government taxes for that quantity. While talking to Outlook Business, Jain is emphatic that Bira’s model is different. “We do have higher fixed costs but that is a deliberate strategy to get more consumers to taste our product,” he had stated.

Beer Pressure
What seemed a bit odd was their initial overreliance on restaurants and pubs, to distribute their brand and back then as much as 70% of Bira’s volume originated there, with the rest from retail (neighbourhood liquor stores). Jain claims that nearly 80% now comes from retail. In India, other brands get 85% of their sales through the stores.

Bira also has to absorb a longer delay in payments than peers. The big daddy, Kingfisher gets its money from the trade in 45 days, while it is anywhere between 90-120 days for the likes of Carlsberg and AB InBev. In the case of Bira, it is as high as 180 days. “It was a disaster since working capital was always stuck. All the time was spent on building the brand with nothing being done at the backend,” says the ex-Bira official. On his part, Jain says his working capital is better than competition.

With advertising options limited in the liquor industry, companies need to spend on events or promoting the brand through trade incentives. It is estimated that Kingfisher spends 10-15% of its sales on this, with the corresponding number for Carlsberg and Bira being close to 25%. The obsession for spending has not seen any let up though and, at the end of 2018, Bira inked a deal with the ICC for a five-year global sponsorship. The outgo will be $5 million-6 million each year and Bira gets a presence across mediums for all tournaments. 

Due to COVID-19, Jain says the overall industry has contracted 75% during the June quarter. Otherwise, he says, his company closed FY20 with 40% growth in sales. It saw the jump due to two new breweries being commissioned last year — Mysore in Karnataka and Kovvur in Andhra Pradesh — adding a total capacity of 1.2 million hectolitres per annum (to the previous capacity of 0.75 mhlpa). Though, the company’s losses had doubled in FY19, Jain believes that the company will breakeven when they hit a revenue of Rs.9 billion.

Shantanu Upadhyay, co-founder and CEO of Kati Patang, a craft beer launched in October 2018, says that hyper discounting has severely impacted the craft beer business. He does not follow this strategy saying, “Getting a hang of the core economics is a necessary survival skill. As a brand, we ensure demand precedes supply at each step.” Citing a guard-rail approach, he produces only 1,000 cases when the market is ready to consume 3,000 cases. There is no doubt in his mind that beer is indeed a scale play. “Getting to a run rate of million cases a year can happen quickly but there are drivers of uncertainty such as delays in regulatory paperwork, limited shelf life and competitive activity,” he adds.  

Hole In The Wall
Investors in Bira seem to be okay with the company’s high-cost operation, trusting Jain’s ability to lead its ambitious charge. They seem particularly impressed by the loyalty the brand enjoys. Sakshi Chopra, principal at Sequoia Capital India, says, “From the start, Bira has been a disruptive brand, focused on capturing market share in a highly competitive space that conversely hadn’t seen much innovation in years.” She says that the novel idea of bottling craft beer and then marketing it uniquely has “helped Bira achieve almost cult status and some crazy customer love”. Sequoia declined to answer questions about Bira being in the red or its aggressive strategy of ‘chasing volume at any cost’.

In the early phase, Bira was importing beer from Belgium and selling it locally. It was priced at Rs.250-260 for 330 ml and cheaper than the likes of Corona by Rs.70-80, but was still too expensive for the Indian consumer. What gave it traction was the interesting variants such as wheat beer, white ale or low-calorie light beer. But to boost volume, Jain needed a local manufacturing facility and therefore, in October 2016, he leased facilities in Indore and Nagpur. It brought the price down to Rs.120 per bottle. Smart, but the loyal customer base began to notice the fall in quality.

“The quality of water was an issue and it straightaway showed up in the taste. It was definitely an inferior product,” says Manoj Gour Chintaluri, a Hyderabad-based beer lover who has spent years working with SABMiller. The choice of plants, too, was questionable. A former employee narrates a story of how the “dirty plant was filled with rats and unfit for production.” Jain refutes the charge on dirty plants and says there are 44 quality checks. The former employee also says that, due to poor planning, the facility that was being maintained for Rs.20 million a month (rent, security and maintenance cost) was idling for at least six months. Today, the company operates with four plants.

Looking At The Glass Half Full
Money has always kept pouring in and Jain has had little to worry about. The seed funding came from a host of names, among which were angel investors and high networth individuals. The big break was Series “A” funding where Sequoia Capital, in early 2016 or a year after the brand’s launch, invested large part of the $6 million with angel investors taking part as well. Just over a year later, the venture and growth capital investor put in another $7.7 million. In May 2018, it raised $50 million from Sofina, a Belgium-based investment firm, valuing B9 Beverages at over $200 million. An ambitious Jain spoke of listing his company and expanding overseas, to the US, Thailand, Hong Kong or Singapore.

Recently there was worrying news. A bridge round of funding was raised this May to the extent of $4.2 million from Sixth Sense Ventures. Jain says this is just till Series C money comes in, a round which he expects to close in the next three months. The plan, according to Jain, is to dilute maximum of 20% to strategic and financial investors. Today, he owns 30%, with Sequoia and Sofina together holding about 45%, according to Jain. HNIs hold 20%, and the management about 5%. “With the entry of the new investors, the existing ones will each get diluted to 20%,” he says.

Over the past few months, over 100 people were laid off (according to inside sources) with no sales team left in a market like Goa, a big one for beer. It is now left to the local distributors to sell the brand. But Jain explains that staff strength has dropped from 558 in December 2019 to 512. “With our assessment cycle being April-June, it automatically leads to 5-10% natural attrition. This year, the assessment cycle was not completed due to COVID and we had to rationalise a few of our sales territories that were not profitable,” he says. Meanwhile, the strong beer they launched last year, called Boom, has not yet boomed. There is no clear rationale behind launching this brand except maybe finally bowing down to India’s love of strong beer and giving the customers what they want to grow volume.

Jain is also willing to partner with international brewers. According to him, the company has been “looking for a combination of an international beer company as a strategic investor and a separate financial partner.” Kirin Holdings of Japan, a large beer company, was rumoured to be one of the suitors. The spokesperson of the Japanese company clarified to a media house that there was no such plan and that they would avoid making any non-essential investment, considering the COVID-19 impact.

In the initial days, Bira was intent on seducing the Indian palate with finely crafted beer. It worked. Like the investor in the company said, it gained cult status. Then, it became impatient in the quest for rapid growth. Its investors have been patient, but it remains to be seen if the brand achieves the volume growth the founder has always aspired for.