At first sight it might seem that Molson Coors Brewing Co’s acquisition of Mount Shivalik Industries Ltd is of little relevance to the global beer market. However, the Canadian/American brewer now has a foothold in a key beer market, and one of the world’s most dynamic ones.
Impact of acquisition on Indian market
Molson Coors’s decision to delve into the Indian market is not a bad move, considering its relative size and performance in Asia Pacific. India’s beer market totalled 2.2 billion litres in 2013, with a growth rate of 7% that year, according to Euromonitor International. It is the fourth biggest market in Asia Pacific and is expected to be one of the most dynamic beer markets in the region over the 2013-2018 period, with a forecast 8% volume CAGR.
Source: Euromonitor International
The acquisition of Mount Shivalik seems of little relevance because it has brewing operations only in Haryana and Punjab, in Northwest India, so its distribution network has little reach in the southern states. This is because of the vast geographical space that a distribution network requires to cover in India, followed by the costly logistics of transportation in India’s underdeveloped infrastructure. But most of all, some states have a more costly cross-state excise tax imposed on federal-state imported goods, especially alcoholic drinks. Moreover, Molson Coors’s full purchase of Mount Shivalik marginally improves its ranking, from seventh to fifth, so it can now be considered a key player in India’s beer market.
Molson Coors’s options to acquire share were limited by the available options of brewers that fit the product portfolio and synergy of the global brewer, and also with a significant share to boost its presence. Mohan Meakin Ltd – a privately owned company – is its most viable option after Mount Shivalik. The benefits in acquiring Mohan Meakin is that it holds a portfolio for super-strength beers, such as Vorion 6000 Super Strong Beer, which is in growing demand amongst India’s beer drinkers. However, the downside of this acquisition is that the global brewer will have to operate or sell off Mohan Meakin’s spirits, non-alcoholic drinks, and packaged food portfolios to keep the beer line.
Molson Coors will ride on the super-strength ABV wagon
Molson Coors entered India in June 2011, when the company purchased a controlling stake in Cobra India Pvt Ltd, creating the joint venture Molson Coors Cobra India. Molson Coors Cobra maintained one brewery in Bihar state, Northeast India, where it has secured a strong position through the strength of its super-strength brand portfolio, led by Iceberg 9000, King Cobra, and Royal Brew. With the purchase of Mount Shivalik it added the Thunderbolt Super Strong Beer, 9% ABV. This is a shrewd move from the global brewer to build on its strong ABV beers portfolio, as it is a vastly popular tipple in India. The market is already witnessing double-digit volume sales growth of such beers as Kingfisher Strong, Carlsberg Elephant, and Thunderbolt Super Strong itself.
Adding to the success of super-strength beer, Molson Coors can also look forward to the prospective Universal Goods and Service Tax (GST) system, scheduled for 2016. Since India is a federal republic, tax is paid on cross-state transport of fmcg, especially alcoholic drinks, making it costly to distribute to states outside those that hold the production facility. The new tax system will be implemented across central and state governments to be levied across the board for fmcg, reducing the bureaucratic and logistical costs of cross-state distribution.