The world’s largest beer company, AB InBev is scaling down its investment in India until such time the situation in the country improves. In an interview with BusinessLine , AB InBev’s Kartikeya Sharma, President – South Asia, said that some of the launches have been deferred because of the coronavirus pandemic. Excerpts:

What has been the impact of coronavirus pandemic on the Indian operations of AB InBev so far?

The beer industry contributes more than ₹50,000 crore annually as taxes with significant sales happening in the first quarter of the financial year due to the onset of summer. The total beer market is close to 24-25 million hectoliters which roughly translates to around 240 million cases. Even though the sales were resumed soon after the lockdown was lifted, the additional Covid cess on retail price caused further distress on the beer sector. The arbitrary move resulted in a steep decline between 55 per cent and 60 per cent State to State. Across our global footprint, India is the only country that has implemented this arbitrary move.

How has AB InBev performed in the Indian market since the integration with SAB Miller?

Our integration with SABMiller has only strengthened our India business. In Telangana, our market share is nearly 38 per cent. With the exception of Rajasthan, our story is not only about the growing total share but also growing total share with the right mix of premiumisation. Whether it is Diageo, Pernod Ricard, UB or Carlsberg, there has been no company that has driven share growth combined with mix growth (growth of super-premium, premium and value brands).

Looking at Diageo or Pernod Ricard, as companies who are focussing more on mix change (ratio of premium versus value brands), we would have to think hard if they have been able to drive the mix change as AB InBev has. There are some States where we have chosen to de-prioritise our presence because we are not that keen to focus on those States. Wherever we have chosen to focus, we have seen our shares of the market growing both at the net company level which is the total portfolio and at the Budweiser level, which is the priority focus for the company. We know that India is not a three, five- or 10-year date country but as being more of 100 plus year game.

What are the kinds of strategies that AB InBev plans to roll out to remain relevant in the Indian market?

The innovation agenda for 2020 was an exciting one. However, the pandemic has warranted a need for us to revisit the timings of these launches in the larger interest of the health and well-being of everyone. India continues to witness a strong trend towards premiumisation and our goal is to exponentially contribute to this category, led by the acceleration of our global brands. Budweiser 0.0, our non-alcohol brand, has since its launch, gained 35 per cent market share.

We have partnered with IHCL to build 15 brewpubs (microbreweries) under the name 7Rivers Brewing Company. It will be launched in Bengaluru next month, depending on getting clearances from the government. These brewpubs, set inside the marquee Taj properties, will have a completely separate entrance, an unmatched lineup of styles of beer. We have many more launches that are now put on hold due to the current situation.

We understand AB InBev is re-evaluating its short and mid-term plans for India. Will it lead to a right-sizing of the operations of the company including letting go of employees?

We have had a strong run since our integration with SABMiller and before that as well. We were very bullish on capital expenditure to increase our production capacity and capability so that we could brew Budweiser in additional locations. Some of that capital expenditure was undertaken at the start of the year already as well as in Q4 of 2019, in anticipation of being ready for the peak in 2020. Most of it that were in the works have been put on hold for now and at this point, it looks difficult to comment on whether it would be unlocked for execution this year as the industry is on a decline by 70- 90 per cent from State to State.

The net outcome of it is that our own capacity utilisation staggers between 50 per cent and 60 per cent depending on how each State is doing. At this stage, to expand capacity or capability seems like a short-sighted move to make. If the Covid cess is reversed in Q3, then in Q4, we will have a better sense of real consumer demand coming back, which will help us decide whether we should unlock some of our capex this year in anticipation of building for summer 2021.

Is AB InBev a profitable entity post the integration with SABMiller as it was not the case with the latter?

When you choose to invest, profits might be a little thinner, but that is not the objective in a growth market like India. This was certainly going to be, I would call, our takeoff year because the foundation after three years of integration was ripe for us to truly flourish. But we are a patient company; we will engage the government hoping to reverse these taxes and pick up the same momentum we had pre-Covid. We are very confident we will be able to achieve that.

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