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Kingfixer

14 December 2020 By Dasha Afanasieva

A scandal has brewed in India’s beer market. Anheuser-Busch InBev, Heineken-backed United Breweries and Carlsberg are facing modest fines for fixing prices over the course of 11 years. Tough regulations make margins thin in the $6 billion market, but its growth is too good to give up.

Top executives at Carlsberg, SABMiller and United Breweries, maker of Kingfisher beer, colluded to fix prices in India between 2007 and October 2018, according to a government investigation report seen by Reuters. AB InBev, which acquired SABMiller in 2016, discovered the cartel and alerted a regulator. Now all three are pleading for leniency. The resulting fine could top $250 million: small beer for the country’s top three brewers, whose combined market capitalisation exceeds $140 billion.

Reputational damage in a market where railing against the evils of liquor wins votes could be the bigger problem. Some states already prohibit alcohol consumption. Elsewhere, the industry is tightly managed, with most states controlling pricing and often imposing heavy taxes.

That restrains profitability. For example, in the year to March 2020, United Breweries’ net income in India was less than 3% of revenue. Heineken, which owns more than 45% of United, enjoyed a comparable margin of more than 7% globally in 2019. Covid-19 has made business even tougher in India. New Delhi imposed a special duty of 70% on retail alcohol purchases in May to discourage mass gatherings.

A patchy corporate governance record doesn’t help. Heineken had a tough time from the start. Having acquired a stake in the $4 billion group in 2008, the Dutch brewer has struggled to remove disgraced tycoon Vijay Mallya as chairman, even though he was arrested in 2017 over accusations of fraud.

Nevertheless, alcohol consumption is growing alongside India’s young, expanding population. The beer market grew 5.6% in 2019, according to Euromonitor, faster than the global average. Carlsberg said revenue grew at a high single digit there in 2019, helped by higher prices. The pandemic has been disastrous, but sales are expected to rise 13% next year. For an industry desperate for top line growth, India is worth the headache.

 

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