UB GROUP - United Breweries Limited

Industry Overview
Globally, over 133 billion litres of beer is sold each year. In comparison, the Indian beer Industry contributes a meagre 1.28% of the global sales. The industry has been witnessing on an average, a steady growth of about 10%-12% per year over the last ten years with volumes crossing 172 million cases in 2008-2009 from 70 million cases in 2002. With a relatively younger population and income levels on the rise, India is seeing an increase in the popularity of beer. Consumption of beer in India is also constrained by lack of adequate market infrastructure. In China for instance, there is one outlet for every 300 persons. In contrast, India has one outlet for every 21,000 persons hampering free availability of beer. Total consumption of beer in China grew by 33.56% between the years 2000 and 2006 to reach a total market volume of 30.47 billion liters. With a per capita consumption of 22 litres, China is one of the largest beer consuming nations in the world.

Market share in India

UB along with Millennium Alcobev and SABMiller account for nearly 80% of the Indian beer market. There are some smaller, regional players too; of them, one of the most important is Mount Shivalik Breweries, which owns brands like Thunderbolt. Q1 3% 48% Q2 9% 49% Q3 14% 50%

Industry growth Firm growth

Different brands available in India

The Indian beer industry is vibrant with the entry of popular global brands. In January, FE had reported UK-based Cobra Beers plans to launch its alcohol free beer and fruit-flavoured premium lagers, under the name of Cobra Bite in India. Asia Pacific Breweries, which had launched its flagship brands such as Tiger and Barons Strong Brew, would launch other brands, Anchor and ABC Extra Stout soon. SABMiller, the worlds third largest beer maker, is learnt to be launching its Dutch premium beer, Grolsch, in India. Haywards Royal Challenge Kalyani Black Label

BCG MODEL of Indian Beer Industry

The BCG Matrix presents an overview of the position of the players in the Indian Beer Market. With this, we can observe that United Breweries Limited and SAB Shaw Wallace are in the Star quadrant whereas Mohan Meakins is in the Dog quadrant. The other players like Fosters, Chowgules, etc. are either new entrants or have very low market share.

UB GROUP (United Breweries Limited) (Kingfisher beer)

Firm introduction
A Scotsman, Thomas Leishman in 1857, founded the UB Group. The Group took its initial lessons in manufacturing beer from South Indian based British breweries. At the age of 22, Vittal Mallya was elected as the company's first Indian director in 1947. After a year, he replaced R G N Price as the chairman of the company. It all began with 5 breweries in South India. The oldest of which, Castle Breweries, dated back to 1857. United Breweries, as these breweries were named in 1915 has come a very long way. The company was bought by late Mr. Vittal Mallya in 1947, and since then has never looked back. Today each one of the 32,000 Beer outlets in India sells one brand or the other from United Breweries.

Share holding pattern

Entity United Breweries Foreign Corporate Bodies FII General public Private Corporate Bodies Banks fin. & ins. Percentage 38% 37.33% 16.59% 6.18% 1.02% .88%

Capacity
UBL undertakes the production and marketing of beer. Its products are available in 52 countries across the world. It has an installed capacity of 6,025,000 hecto liters/annum and it produces around 3,133,684 hecto liters/annum. This capacity is divided amongst a network of 23 units in different states of India.

Sales turnover, sales volume & net profit

From FY2004 to FY2008, sales revenues have grown from Rs.452 crores to Rs.1,370 crores, at average annual rate of over 50%. In the same period, net profit grew by a 538% average annual growth rate from Rs.2.77 crores to Rs.62.47 crores. From FY2004 to FY2007, the operating margin has been increased from a low of 6.72% to 13.49%. Over the same period, the corresponding the net profit margin has been increased from 0.58% to 6.1%. This was done by continuous efforts in increasing the operating efficiency. One of the indicators of increased efficiency, the inventory turnover has increased from 14.26 to 23.32.

Financial Comparison of the competitors

Financial metrics FY2008 Name United Breweries Limited SABMiller

Mohan Meakin

Market Capitalization in Rs Cr 1,695.94 7560

Sales Turnover in Rs Cr 1,340.80 7272 93.66

278.92

Net Operating Profit Margin in Rs Cr 12.57% 16.10% 10.1%

1.92%

62.47 909 5.43

0.46

Mt Shivalik 19.08
N.A

Last Five years performance (Rupees In million)

Mar ' 09 Mar ' 06 Mar ' 05

Mar ' 08 Mar ' 07

1,691.75 1,370.47 1,046.24 679.72 515.76

Major products of kingfisher beer

Kingfisher Premium beer: This is the flagship brand of UBL. Kingfisher has a continual path of taking giant strides in garnering market share all over the country by introducing a series of innovations and product packaging extensions.

Kingfisher Strong beer: Kingfisher Strong records the distinction of becoming Indias fastest growing brand of beer with sales crossing the ten million cases mark. Kingfisher Draught beer: Kingfisher Draught is the newly launched brand under the UB shed. Packaged in a yellow sporty can it has a lively touch to it. Kingfisher Draught has been launched in 2007. It is available in 500ml cans. Kingfisher Blue beer: Blue beer made waves in Kerala through an exciting campaign. Blue beer is popular in the eastern section, Delhi and Tamil Nadu. Kalyani Black Label is one of UB's largest brands in the below 5% alcohol content beer segment.

Kingfisher Ice beer: This is a niche brand and was positioned for the young and trendy customers launched in 330 ml frosted bottles in 1998; its unique refrigeration process gives beer a clean, crisp and strong taste. It has a clean full flavour, mellow aftertaste, light delicate colour.

Target Market
Beer tends to be consumed in greater quantities by young adults. Over the next decade, the 21- to 27-year-old age group is expected to show strong growth, averaging 1% annually, something that did not happen in the 1980s and 1990s. This increase in the number of individuals reaching legal drinking age is positive for the beer industry and hence, this is the market segment UB is targeting. They are mainly targeting the age group 18-25. Meanwhile, consumers more active lifestyles will also continue to drive light beer growth.

Marketing and Promotional strategies

The core value of UBL is to continuously adapt to the changing consumer and therefore to stay relevant, in a unique way, in the fast changing socio economic and cultural context. They believe in offering a wide range of products to be able to meet the demands of all types of consumer groups. Innovation has always been the thrust area and as market leaders they are focused on challenging the paradigm. This allows them to stay in the lead all the time. Quality delivery has always been recognised as the most important imperative. Efficient and friendly servicing of the market ensures that they have the nest support of the retail and the on-premise network.

UB is in the process of strengthening its core brands. UB has formed a new subsidiary, Millenium Alcobev, to develop strong regional markets for its beer brands. It launched a new brand Kingfisher Gold during the year.

For United Breweries, its online facility is making a huge difference. All consumers need to do is log on to www.kingfishernetshop.com and get their beer - a minimum of six bottles - home-delivered. According to UBL Branch Manager S. Diwakaran, the move has been a big draw with info-tech professionals and "discreet" women drinkers. The online outlet apart,

much of the beer boom has been through sales from some 1,600 shops, and not pubs and bars. UBL firmly believes in investing in social-awareness programs and has in past run campaigns on Responsible Drinking. As a policy, they do not sponsor or organise events at college level. In addition, they take all necessary precautions to ensure that they do not hurt anybodys social or religious sentiments. Given the market realities, UBL has consciously followed a strategy of being present at different price points across different flavours. They have identified a set of Power brands to provide a range of solutions to meet the mood, occasion, expectation and retain the consumer. Another significant advantage is trapping higher value as the consumer moves up the economic ladder. Kingfisher has entered into an association with five of the eight participating teams of the Indian Premier League, as the Good Times Partner. The association with the teams was leveraged through visibility, retail and on-site promotions along with providing consumers and traders an opportunity to watch the finals live in South Africa. The NDTV Good Times channel, the most viewed and top ranked Lifestyle channel in its category is in its 3rd year of operation. Through this partnership, Kingfisher strengthened its association with the Force India Formula One Team and provided a firsthand experience to members of the trade with a visit to the race at Shanghai. The exclusive Kingfisher Sports Bar opened at Bangalore International Airport has been a huge success. In yet another innovative branding and distribution initiative, Company has entered into a similar arrangement with an outlet at New Delhi Airport. The outlet is called the Kingfisher T2 bar.

Challenges in front of the company

The Indian beer industry is plagued with a myriad of taxes & levies that vary from state to state. These along with price regulation, inadequate market infrastructure and restrictions in interstate movement of beer, pose a great challenge for the industry. Unlike most developed countries where beer is less regulated and available freely, high level of regulation and higher end consumer price hampers beer sales in India. Uniform tax regime for beer in all states will be a boon for the industry. If implemented, it will help the beer industry by rationalizing end consumer prices in all states, as is in the case of other consumer goods.

Continuing control on pricing as exercised by a number of state governments has resulted in our inability to raise prices on roughly 45% of our sales and has had a direct bearing upon the Companys profitability. As this challenge continues in the current financial year, it has resulted in a number of key markets becoming unattractive from a financial perspective. Restrictions on advertising and licensing of retail outlets continue to present challenges to the Industry.

Conclusion
Duty reduction in several states could increase beer consumption as multiple states are looking at reducing tax rates on beer as states look to increase overall tax income. In the meanwhile the Beer Industry plans a systematic plan to make this happen. Increasing availability of beer through on-premise outlets could lead to increase of at least 6-8% over the next decade. There has been an increasing acceptability due to change in lifestyle which has also driven growth. Beer is increasingly seen as distinct from liquor and people can be expected to drink more openly in the future. This is not the end of the consolidation wave in the Indian industry. Rather, some of the largest beer players across the world are still eyeing India with a view to gaining a share of the country's rapidly growing beer consumption. The beer industry will not improve if the government does not de link taxation of spirit from beer. Then only we can see improvement in this industry.