With people already under the pressure of job uncertainty, and disposable income being lesser, it makes spending on alcohol that much more difficult. It’s been tough overall
NEW DELHI : For beer makers, the summer of 2020 has been the driest ever. Sales in the peak summer months that help the industry fetch over half of their full-year volumes were wiped out due to the coronavirus lockdown. Even as the restrictions were eased and liquor stores opened, consumers lapped up hard liquor for its longer shelf life and unit economics as a special cess spiked liquor prices, said Kartikeya Sharma, president, South Asia at Anheuser Busch InBev (AB InBev), which makes the popular beer brands Budweiser and Leffe. Edited excerpts from an interview:
Has covid forced Ab InBev to lower growth forecast in India for the current year?
Summer is gone; March, April, May, June, cumulatively contribute 55% to full-year volumes for the beer industry. In March, two weeks were gone because states were already starting to apply different levels of lockdown. May has been down by 70%; for June, we are forecasting the industry to recover because more states are opening up.
We have forecast on what the path to recovery would be for the industry—factoring in all retail stores opening up and e-commerce resuming—we don’t know to what extent it will help mitigate the very, very disruptive four months, but we’re looking at anywhere from 35-40% of the full year being lower in volumes versus same time last year, which for the industry was a reasonably decent year.
Would this then make you revisit your investments planned for the year?
Yes; for now, we are evaluating capex plans, because we need to know what we’re expanding capacity for. We continue to be clear that India is the country we are invested in, we want to get the timing right. If we see a course correction, taxes being reversed, demand coming back—both of which are mutually exclusive—we’re ready to fire on all cylinders as soon as we see demand come back on a more even playing field.
How did the covid cess affect the industry?
There have been steep set of taxes that have been applied across the board. For instance, the Delhi tax, which was eventually reversed. But, on average, across markets, we’re looking at between 15 and 20% corona cess. With people already under the pressure of job uncertainty, and disposable income being lesser, it makes spending on alcohol that much more difficult. It’s been tough overall.
Are taxes dragging down growth, or are the consumers not stepping out?
One is driving the other. If you take Rajasthan, it has seen a 33% rise over the last six months. It’s not a mystery that demand contracts when you have such price increases, which are arbitrary in nature. These also act as a disadvantage to moderate forms of alcohol consumption and almost nudge consumers towards hard liquor.
Telangana is our biggest market and taxes are up almost 40% in the last seven months. There was an excise duty increase in December, followed by a corona cess. So, our total industry reduction in Telangana was close to 70% in May. But the premium end of the segment, where we are market leaders, the segment is down almost 85%.
India should continue to promote moderate forms of alcohol. It is not in anybody’s interest to see alcoholism in society. In Haryana, we engaged with the government for about 18 months and where they introduced, for the first time in India, a sub-category of beer which is under 3.5% alcohol by volume (ABV) called the super-mild category, at much lower excise duty, which means the landed price to consumer would be lower, and people would be able to enjoy beer.
That’s what we’re doing with other governments like those in Kerala and Odisha. So, next month, we launch a Beck’s Ice premium lager super-mild, which will be 3% ABV—one of the mildest beers in India. It also fits our globally aligned strategy that AB InBev will have 20% of its global volumes come from either zero alcohol beer or low alcohol beer (ABV of 3% or less) by 2025.
Last year, The Indian Hotels Co. Ltd and Ab InBev partnered with plans to open 15 micro-breweries in India; what happens to that?
We’re still on track to open our first one in Bengaluru—if, of course, the required approvals come through. If the government allows “on-trade" (that is, pubs and bars) to return, then yes. If that doesn’t, then we can’t do anything about it.
Have you postponed launches for the current financial year?
We’ve postponed some launches indefinitely as we have missed peak summer season. Some others, we are evaluating in the light of very low demand. Some we’ve gone ahead with because we did them pre-covid. But if we see recovery and improved trends...we will certainly bring back those innovations on the table.
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