Foster’s in hand is mild cheer for SABMiller

MUMBAI: In a bid to break the stranglehold of UB Group’s Kingfisher brand in the mild beer market, SABMiller plc on Friday announced the acquisition of Australian brewer Foster’s Indian operations for Rs 540 crore.

By acquiring Foster’s, SABMiller’s market share of the mild beer segment will rise by 6% to 22%.

The UB Group has a stranglehold in the mild beer segment with a  market share of upwards of 60%

SABMiller, with Royal Challenge and Castle, is combating arch rival UB’s flagship brand Kingfisher, which has overwhelming domination.

“It’s a synergistic acquisition. We stand to gain an immediate 6% market share,” Sundeep Kumar, director, corporate affairs & communications at SABMiller, told DNA Money.

The UB Group is, however, unimpressed by all this.

“I don’t see the acquisition make any difference in the marketplace. The brand that leads the segment is Kingfisher and a change in ownership of Foster’s is unlikely to make any dent to the current market dynamics,” said Kalyan Ganguly, CEO of United Breweries, told DNA Money.

Interestingly, the UB group had avoided bidding for Foster’s assets in India.

The UB group has an overall beer segment spoils of 50%, while SABMiller will increase its share by 2% to 36% in the 110 million cases Indian market.

What Foster’s couldn’t do in seven years, it’s is unlikely that SABMiller could change, reasons their rival.

However, that’s precisely what SABMiller hopes to change in the coming months. Foster’s was hampered by a single location brewery in Maharashtra. The Indian tax laws and the challenges posed by logistics prevented it from making an impact.

SABMiller will eventually ramp up Foster’s sales by brewing it in its 10 facilities spread across the country. Analysts say it’s also a pre-emptive move at a time when global brewery majors such as InBev and Heineken through Asia Pacific Breweries are setting up camp in India.

India is one of the fastest growing beer markets in the world and most of the foreign players are experiencing stagnation in their local markets.

“The entry of global players is inevitable. Ultimately, it’s the consumer who’ll judge”, says Ganguly of UB. “The fact that Procter & Gamble came to India later, did not make Hindustan Lever any smaller,” he added.

SAB Miller has so far grown in India through the acquisitory route. SABMiller acquired the brewery assets of Shaw Wallace and Haywards and Royal Challenge brands from the Chhabbria family.

SABMiller rules the roost in the strong beer segment but have made little impact in the mild beer segment. In India, strong beer is one of the fastest growing segments and also the most lucrative.

SAB Miller’s latest acquisition is a cash-free and debt free deal. SABMiller will assume ownership of all Foster’s assets in India including the Foster’s brand in the territory, a statement said.

“This transaction enhances our existing portfolio in India and provides us with an exciting opportunity to further increase our premium brand offering. The acquisition also supplies much needed capacity to fuel the strong growth we have experienced so far this year,” SABMiller Africa and Asia managing director Andri Parker said.

Foster’s India currently operates one brewery in Aurangabad, Maharashtra with an annual capacity of 350,000 hectolitres.

India is the third largest market for the Foster’s brand globally and it has achieved a compounded annual growth rate of 13% since its operations commenced in India in 1998.

With disposable incomes rising, the trend is expected to gather faster pace in the coming years.

The company produces, distributes and supports Foster’s Lager, Amberro Mild and Amberro Strong beer brands in the Indian market.