Heineken's last frontier

The super-premium beer is banking on UB for its India debut, but the late entry may make the going tough.

The king of good times can look forward to better times. That's precisely what the deal with Heineken promises for Vijay Mallya's United Breweries, India's largest liquor company.

And it's not Mallya alone who was celebrating earlier this month after signing the deal, under which UB will brew and market the beer brands, Heineken and Cannon 10,000, in India. In turn, Heineken will make and sell the Indian company's largest selling beer brand, Kingfisher, in the overseas markets.

Jean-François van Boxmeer, chairman of the executive board and CEO of Amsterdam-headquartered $17 billion Heineken, says "India is the last frontier in the global beer market as the consumption here is about to explode".

Boxmeer is bang on. India's annual per capita consumption of beer is just around 1.3 litres, compared with more than 50 litres in developed markets. The Indian beer market at 14.4 hectolitres is valued at Rs 3,000 crore (Rs 30 billion) and is growing by 9 per cent, with UB controlling 48 per cent market share.

That number is expected to sky-rocket on the back of a rapidly growing upper middle class, favourable demographics, strong economic fundamentals and a shift from other alcoholic beverages.

The expectation is that Heineken will make a splash in India in the summer of 2010. During the past few years, the beer was available in India through a joint venture in Singapore, but was selling in miniscule numbers only at a few duty-free shops in India.

UB executives say Heineken will continue with its global tradition of positioning the beer at the super-premium segment

Many, however, say it's certainly not going to be roses all the way. Heineken will have to contend with Peroni, Carlsberg and Tuborg which have a decent head start at the premium end of the Indian beer market, which is estimated at 6 per cent of the total beer market.

But independent brand analysts counter this by saying that Heineken has an advantage in India, given the fact that the brand has a high recall in the premium category and also the aspirational value it comes with.

"There are as many as 20 beer brands which I can think of," says Harish Bijoor, a noted brand consultant, "and Heineken is a brand with a gold standard. I guess that initially there will be a cold launch where the brand will be seeded, a natural demand built up and then the market will be warmed up with an aggressive marketing push within a period of six to eight months."

While Heineken will get a sturdy distribution network in India, UB's plans to take its own brand Kingfisher will also get to see a few positives. "UB has been trying to establish its flagship brand Kingfisher beer globally but has not been really successful. Its earlier strategic pact with Scottish & Newcastle did not help either," say industry analysts.

UBL, which sold 82 million cases in the last fiscal, has a small presence overseas with brewing facilities in the UK, US and New Zealand.

"UB's international revenues are small and growing. We seek to ramp it up significantly through exports and local brewing arrangements in Heineken's facilities," says Mallya while not specifically commenting on the percentage of UB's revenues that comes from outside of India. "India is a big enough market and we are yet to tap its full potential," he adds.

If all these weren't enough, UB's expansive beer portfolio may also see the addition of the 'Tiger' brand, if it decides to engage with Asia Pacific Breweries for licensing it in India.

The deal details

During January 2008, Heineken indirectly acquired a 37.5 per cent stake in United Breweries Ltd following a worldwide takeover of Scottish & Newcastle's brewery business. S&N was an equal partner in the joint venture with UBL.

UBL declined to offer Heineken equal rights on its board as it (Heineken) had another joint venture with Singapore-based Asia Pacific Breweries which competed with UB's brands in India. Mallya made it clear that Heineken should resolve the conflict of interest by operating only through UBL, else it can as well be a passive shareholder.

APB India sold beer brands Tiger, Cannon 10000 and Heineken in India and has brewing facilities in Maharashtra and Andhra Pradesh with a capacity to brew 460,000 hectolitres a year.

In a series of transactions, Asia Pacific Breweries, Singapore sold its wholly owned subsidiaries, Asia Pacific Breweries (Aurangabad) and Andhra Pradesh-based Asia Pacific Breweries-Pearl- with annual sales of over two million cases- to Heineken International for a total consideration of $51.9 million.

Heineken will now integrate these breweries in 2010 and Asia Pacific Breweries has agreed not to re-enter the Indian market.