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Vishal Koul

Feature

A heady brew
Organic growth powered by its superstrong beer has helped Danish brewer, Carlsberg, capture Indian market

Krishna Gopalan

Every state decides duties and taxes on its own. It’s not an easy market to make money in" — Soren Lauridsen, CEO, South Asia, Carlsberg

A month ago, Soren Lauridsen was at New Delhi’s domestic airport terminal waiting for a flight to Kolkata. He managed to strike up a casual conversation with a fellow passenger in the queue. Soon enough, it veered to what each of  them did for a living. When Lauridsen said that he worked for Carlsberg, the man’s eyes lit up. “He obviously thought I had a very good job,” smiles Lauridsen, CEO, south Asia for Carlsberg.

Such conversations happen rather often and he’s not complaining. Lauridsen has been at the helm of affairs in India (in addition to overseeing Nepal) for the Danish beer company for three years now, and it has made slow and steady progress under his watch. It’s anything but an easy market for a new entrant in the domestic beer business. Nearly 80% is cornered by only two players — United Breweries with a 52.5% share and SABMiller with 27% — and Carlsberg’s top brass is only too aware of the
task on hand. 

Carlsberg has a 7% share (not including Tamil Nadu since the state regulates that the manufacturer must have a brewery there in order to sell its beer) of the total beer sold in India and is targeting 10% over the next two years. To achieve that, it will quite simply need more people to say cheers to Carlsberg and its brands.  

The Indian terrain

When Lauridsen moved to India in early 2010 after stints with Carlsberg in Poland and Laos, it was clear to him that there was something remarkably different about this market. “Around 75% of the Indian beer market was tilted towards the strong beer segment. Today, it is getting closer to 90%,” says Lauridsen, who spent over a decade with Unilever’s foods business before joining Carlsberg in 2005. Globally, 90% of the market is mild beer with an alcohol content of less than 5%. In India, it’s the other way round. 

Love handles

Unlike the West, beer drinking is a

largely male activity in India

Lauridsen was acutely aware of what needed to be done. In barely three months, he launched Tuborg Strong. It was not as if Carlsberg, a brand that traces its origins to Den mark, did not have a strong beer brand in India. It introduced Palone in Himachal Pradesh in June 2007 just after entering the Indian market and relaunched it as Palone 8 in January 2011. “Palone was in a highly price-competitive end of the market, where the margins were low,” says Lauridsen.

What was interesting was that while Tuborg was already a significant brand in Carlsberg’s portfolio, it never had a strong variant. “I guess my bosses were a little surprised when I said we needed that in India,” he recalls. That decision seems to have paid off with Tuborg Strong now accounting for 4.5% of Carlsberg’s 7% market share, nearly two-thirds of its sales. Where Tuborg succeeded was in opening up a new segment, which was also at a premium price. “This category didn’t exist and we thought consumers would pay for quality,” says Lauridsen. It was backed, of course, by some serious marketing — associating with the UEFA Cup football and different music events.

Strong beers like Haywards and Kingfisher Strong had been around for a while, but there was nothing in the premium strong beer category. It had something to do with the perception that consumers would not pay a premium price for strong beer. In comparison, Tuborg Strong came with its unique pull-off cap, which made the can opener superfluous. Lauridsen thinks the preference for strong beer in India comes from the fact that there is a huge consumption of whisky and rum. “Indians are probably used to that taste. If whisky needs to be sacrificed, some compensation is required,” he says with a laugh.

Rajiv Rao, national creative director, Ogilvy & Mather, the agency that handles the Foster’s beer account, says the biggest difference between a western beer drinking occasion and an Indian one is that the latter is primarily an all-male activity. More women drink it globally than in India, though no numbers are available. b also adds that an international lineage does not guarantee success in India. “For the average Indian beer drinker, “international beer” has become tablestake (a minimum entry requirement).” 

A year after bringing in Tuborg Strong, the company launched Carlsberg Elephant, a super-premium strong beer, at an expensive ₹100-125 for a 650 ml bottle (Budweiser Magnum is the most expensive strong beer; launched in June 2012 at ₹150, now selling in Maharashtra for ₹175). The success of Tuborg Strong was a trigger and it is estimated that the brand has been growing by 100% each year (In the first six months, Tuborg sold a million cases — one case is approximately 12 bottles of 650 ml each. According to Lauridsen, Carlsberg grew by 37% in 2012. In the same period, Carlsberg Elephant grew by 128%, Tuborg Green (mild) grew by 66%, while Tuborg Strong, the biggest brand for the company, grew by 100%. The Tuborg brand in all — mild plus strong — sold over 10 million cases in 2012).

Carlsberg Elephant earlier existed only in Germany and Denmark. “Today, we sell more of that in India than either of the two countries,” says Lauridsen. If there was a slight hesitation about entering the super-premium segment, he backed it up with the gut feeling that consumers will pay more for quality. “It was easier to convince my bosses the second time,” he says with a grin.

Today, the strong beer segment in India is intensively competitive, with brands like Kingfisher Strong, Knock Out and Haywards 5000 from SABMiller, and Budweiser Magnum. They are all banking on the 15% growth rate that this space has been registering. In the process, the mild beer segment has taken a serious beating. Lauridsen allows himself a faint smile when asked about Carlsberg’s milder version not really making an impact. “We’d obviously like it to sell a lot more but this is really a very different market. We have to just adapt,” he says.

Of course, the big reason to be in India is the low per capita beer consumption — 2 litres as against China’s 39 litres — and the fact that Carlsberg’s key markets globally are not exactly in growth mode. In 2012, Carlsberg’s western Europe business grew by just 1%, while eastern Europe dropped by 6%. In contrast, Asia, on an organic basis alone, grew by 9% and with acquisitions — Carlsberg increased its ownership in breweries in Vietnam and Laos in addition to a JV in China — was up by 19%. Carlsberg’s Indian operations grew by 45% the same year, and for the first time, volumes here exceeded 1 million hectolitres (100 litres make a hectolitre). Business in China, where Carlsberg sells 14 million hectolitres, grew by 4%. For the $11.82 billion Carlsberg group, Asia alone brought in 21% revenues for 2012; western Europe is the largest market, bringing in almost 42%. It is estimated that Carlsberg India has a topline of about ₹350 crore. (SABMiller India had a topline of ₹2,987 crore in FY12, as compared to ₹2,487 crore in FY11).

A heady brew

If Carlsberg  chose to enter the beer market through the buyout of a brewery in Himachal Pradesh, it was not without reason. There was no brand to be bought out, unlike other Asian markets like Cambodia, Malaysia, Vietnam and Nepal, where it either entered into a JV with a local player or just bought out existing local brands. 

Lauridsen admits that the entry into India should have taken place earlier. “Since we came late, there was no business to acquire,” he says. The big development, of course, was the global buyout of Foster’s by SABMiller in 2006, which was preceded by the latter’s acquisition of Shaw Wallace in 2005. The Shaw Wallace deal brought brands like Castle Lager, Haywards 5000 and Knock Out, and 10 breweries to the table. According to Pradeep Gidwani, who headed Foster’s India for six years before setting up Carlsberg’s Indian operations, Carlsberg’s growth will depend significantly on where its breweries are located. “In other parts of the world, it is not unusual to have one state-of-the-art brewery which can cater to the needs of the entire country. In India, it is a lot more complex since issues related to land and licenses vary state by state,” he points out.

Big game hunting

Carlsberg wants to double its market share over the next five years

In the early days, Carlsberg would serve the Andhra Pradesh market by bringing in the beer from neighbouring Maharashtra. “It was an expensive affair till Andhra got its own brewery. Success in the beer market in India depends on a clear, long-term strategy and how deep your pockets are,” says Gidwani. Today, Carlsberg has six breweries across Himachal Pradesh, Rajasthan, Maharashtra, West Bengal, Andhra Pradesh and Haryana. Work is underway on the ones in Haryana, a recent buyout where modernisation is taking place, and a greenfield project in Bihar. 

In a country where the total beer market is at approximately 21 million hectolitres, the importance of having a brewery close to the market can’t be exaggerated. Carlsberg’s existing installed capacity across six breweries at this stage is 2.5 million hectolitres, with Bihar scheduled to add 0.5 million hectolitres a year from now. It is estimated that Carlsberg spends about ₹100 crore on a new brewery; an Indian beer company would spend barely half that number. Lauridsen attributes that to conforming to the parent company’s standards of quality and taste.

Inevitably, this has a bearing on the margins as well, with very few players clocking net margins in excess of 5%. Lauridsen calls India his toughest beer assignment, for a variety of reasons. “Every state has the autonomy to decide excise duties and taxes. It’s not an easy market to make money in,” he says. Some of that effort has been worth it since Carlsberg, he claims, has over a 20% market share in Delhi, Kerala and Uttar Pradesh and about 15% in Haryana. 

Today, Carlsberg’s brands are available in 23,000 retail outlets and over 15,000 hotels, restaurants and bars. But dealers like Randip Singh Munjral, owner of Shah & Co, one of Mumbai’s largest liquor outlets, are unhappy about the company’s distribution services. “The firm’s sales team meets us once a month, while the person from Kingfisher comes four times a month. That is why it is not always easy (for consumers) to buy Carlsberg off the shelf,” he says. 

It’s odd considering that retailers enjoy high margins on Carlsberg’s brands, Munjral points out. “Margins on the Kingfisher brands is 4-5%, Carlsberg mild gives us 8-9% and its strong beers 12%; on Foster’s and Budweiser we make around 8%. It is a peculiar situation where margins are great but there isn’t enough stock,” he says. 

But Lauridsen is pretty ambitious about the five-year horizon. He is looking at a 15% market share, which will be backed by one or two more breweries. “We could launch a couple of more brands. (But) brands cost money and we would rather spend that on our existing portfolio,” he explains. In June, Carlsberg launched the first fruit-flavoured strong beer in Mumbai and Kolkata, with plans to take it across other states. Priced at ₹105 for a 500 ml can and ₹135 for a 650 ml bottle, Tuborg Booster Strong is testimony to how seriously Carlsberg is taking its position in the strong beer segment. Carlsberg India will need many more such stories to remain relevant in future.  

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