Indian beer industry faces ‘major trouble’ as aluminium costs surge, pricing curbs tighten grip

According to the Chief Executive Officer and Managing Director of United Breweries Ltd (UBL), Vivek Gupta, a "major trouble" is currently being faced by the Indian beer industry as it continues to grapple with the rising input costs caused by the war, supply shortages and pricing restrictions imposed by the state.

The UBL CEO and Managing Director requested government intervention, making a strong appeal that without proper regulatory support, the sector, in the coming years, may face mounting hurdles, especially in terms of growth and innovation, making it tough to fulfil its commitments.

Gupta told PTI, "I think the beer industry is in major trouble right now because of the war and the financial impact it has on input costs and the inability to take pricing without government approval."

He also added to the conversation that the government needs to come forward and provide support to the domestic beer industry. Failing that would result in risking stifling innovation. Additionally, he also pointed out that the current impact on the beer sector would be much wider in context than that of any other industry.

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The greater impact on the industry is being faced mainly because of the war, which has resulted in rising bottles and raw materials costs, where the Indian rupee is said not to hold up well against the dollar. Because of this, the exports are also affected, which was pre-war was deemed to be a profitable business and is now creating an on-going supply shortage.

The mounting regulatory challenges

He also highlighted the regulatory challenges, mentioning that state governments largely dictate beer pricing through excise policies. Additionally, he also pointed out that around 75 per cent of the business is under regulation, leaving them with little control over pricing. He is currently in talks with the state authorities for granting relief in that area.

Additionally, his request includes a 15 per cent increase in his selling price to the government but not to the consumers, since a significant portion of revenue goes to taxes. For instance, in Telangana, he mentioned that United Breweries Ltd only gets about INR 330 (USD 3.54) per case of beer, while government taxes can reach around INR 1,400 (USD 15.03).

Owing to the can shortage

Regarding the ongoing can shortage, Mr Gupta also pointed out that, irrespective of the government’s multiple notifications, the problem remains unresolved and is likely to continue. This is mainly owed to the rising aluminium prices.

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Additionally, he mentioned that factors like gas shortage can cause the can manufacturers to declare force majeure and the local producers have indicated they would not continue with full capacity.

Due to the rising aluminium prices, importing cans has also become costly. As a response, the United Breweries Ltd, in partnership with Heineken, have urged companies to invest within India for establishing new plants. This comes at a time when the country is looking for new partnerships and investments; however, the process is said to take a few years.

Timeline for BIS certification by the government

At the start of this year, the government came up with extending the BIS certification timeline regarding the imported cans. This move by the government is expected to help close the gap between demand and supply before the summer season kicks in.

With this decision, it was also hoped that some alleviation in the supply issues that companies, including cola makers to beer brewers, are currently facing, especially due to the serious can shortage.

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Rising costs due to the war

The industry's main hurdle, as pointed out by Mr Gupta, is the rising costs from the suppliers, suggesting that the government could either allow a temporary price hike or provide some relief on excise duties. He also warned that if the costs keep rising, small brewing businesses may not be able to keep their doors open for long.

Keeping this in mind, Mr Gupta urged regulators to consider temporary adjustments to excise duties or offer more pricing flexibility. Since these breweries do not have financial reserves, working with the government in the current situation will provide relief in terms of managing working capital as well as imports.

The consumption trends

Concerning the consumption trends, Mr Gupta further added that the industry is witnessing a shift towards downtrading. This is because consumers are rapidly opting for more economical brands and smaller pack sizes. Alongside this, there are many people who are now turning to cans as they need lower cash outlay and the pressure on wallets is leading to smaller sizes and less consumption overall.

The beer volumes have grown by about 4.5–5 per cent over the last two years, with value growth sitting at around 7–8 per cent.

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