USA: Anheuser-Busch is engaged in talks with mid-sized breweries in India

United States’ largest brewer, Anheuser-Busch Cos. Inc., has its eyes on the world's second-largest country. The brewer is engaged in talks with mid-sized breweries in India, according to a report published this week in India's Economic Times newspaper, The St. Louis Business Journal posted June 09.

An acquisition or joint venture there would mark Anheuser-Busch's entry into the emerging Indian market. Any investment would require a long-term view since annual beer consumption is low and profit margins are slim at the moment, analysts said. But with a booming economy and a population of more than 1 billion in which 50 percent of the people are under the age of 25, India is seen by many as a potential megamarket.

Anheuser-Busch is in formal negotiations with Crown Breweries near the central city of Hyderabad and is also speaking with Aurangabad Breweries in Maharashtra, Arlem Breweries in Goa and Mohan Meakin Ltd.'s brewing operations, according to sources cited by the Economic Times. St. Louis-based Anheuser-Busch declined to comment on the report.

On a per capita basis, Indians consume less than 1 liter of beer a year, compared to about 115 liters a year in the United States. But volume growth in the mature U.S. market is flat, while the Indian beer market is growing at an estimated 7 percent to 10 percent annually, according to Mark Swartzberg, a beverage industry analyst with Stifel, Nicolaus & Co. in New York. India's gross domestic product, a measure of overall economic activity, grew about 7.1 percent last year.

Still, Anheuser-Busch could face some significant challenges in India that would differ from its acquisition and investment experiences in China. China, which boasts the world's largest population and red-hot economic growth, does not yield high profits at this stage but has surpassed the United States as the largest consumer of beer by volume. Profits are expected to increase over time as more Chinese earn additional disposable income to spend on beer and other goods.

India, on the other hand, has neither high volume nor high profits, said Benj Steinman, editor of trade publication Beer Marketer's Insights. The Indian beer market is also highly regulated, much more so than in China. As a result, beer costs about six times as much in India as it does in its neighbor to the east, said Charles Georgas, an analyst with Atlanta-based Jackson Securities. Local religious restrictions regarding alcohol consumption could also hamper overall growth.

China's beer market is fragmented, with dozens of local and regional breweries across the country and limited distribution infrastructure, which has prevented the development of dominant national brands as in the United States. Anheuser-Busch is working to widen its Chinese market position through its various investments there, including a 27 percent stake in Tsingtao Brewery Co. Ltd., China's largest brewer; its acquisition of Harbin Brewery Group Ltd., the country's fifth-largest brewer; and its 97 percent equity interest in the Budweiser Wuhan International Brewing Co. Ltd. joint venture, which produces Budweiser brand beer.

India's beer market is much more consolidated, however. United Breweries Ltd. of India is the local powerhouse with control of about 45 percent of the market. UB's brews include Kingfisher, India's top-selling beer. London-headquartered SABMiller has a 35 percent share of the Indian beer market. Locally based Mohan Meakin, which is considering the sale of some or all of its beer operations, has a 9 percent market share. Other companies make up the remaining 11 percent, according to analysts and a February report published in India's Financial Express newspaper.

Anheuser-Busch could take a significant share of the consolidated Indian pie with relatively few acquisitions compared to China.

"In one fell swoop they could make a pretty big dent," said Harry Schuhmacher, editor and publisher of Beer Business Daily, an industry newsletter.

In addition to its investments in China, Anheuser-Busch holds a 50.2 percent interest in Diblo S.A. de C.V., the operating subsidiary of Mexico's Grupo Modelo and brewer of Corona, the top imported brand in America. It also has operations and distribution agreements in Europe. The brewer entered the Russian market this month through a licensing partnership with Heineken that will allow the Dutch company to brew, sell and distribute the Budweiser brand in Russia under the Bud trademark.

"Anheuser-Busch needs to participate in those kinds of markets," Georgas said. "Some criticism they've received is that they have been too focused on the domestic side. Also, the import beer market in the United States is growing pretty strongly. An acquired Indian beer could potentially become an import as well. "

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