The beer baron is all set to launch Kingfisher in the US. And that's only for starters.
THAT Vijay Mallya loves horses is no secret. And it is no coincidence that a mythical horse with wings is the official emblem of his United Breweries Limited, the holding company of the Rs 4,000-crore UB group. The flying horse is all over his corporate headquarters—from a Hussain on the wall to miniature models in silver, glass, ceramic and metal. And like the miniatures, Mallya's wishes are horses that are seeking to soar across the globe.
Kingfisher, the UB group's most famous beer brand, is gearing to build a nest in the United States, where it will be produced and marketed on both coasts from March 1998. Next stop: South Africa; Kingfisher to be launched in the second quarter of 1998. Other destinations: China, Europe, Sri Lanka and Nepal. And in the UK, where Kingfisher is already the leading Indian beer brand, Mallya has decided to float a 100 per cent subsidiary by buying out the 50 per cent stake of legendary brewer Shepherd Neame (SN) in the UBSN joint venture. Objective: to pump in large sums into marketing Kingfisher as a global beer and not just an accompaniment to chicken tikka at Indian restaurants. And given his proven smart business head, Mallya is not risking huge sums in any individual venture.
Predictably, the beer baron can't hide his excitement which increasingly borders on bluster. "Kingfisher is a consistent world class beer produced by a globally competent company. Why should we not go global when we have global strengths? Why should we not go overseas when the whole world is coming to India?" he asks.
United States of America: A little over four months ago, Mallya invested $2.75 million in Oregon-based Nor'Wester Brewing Co as an advance for a 40 per cent stake. The deal was the beginning of a chain of investments for his great American dream: the United Craft Brewers. But when Nor'Wester failed to comply with conditions behind the investment, Mallya broke off and walked away with the secured asset: a $11 million brewery Nor'wester had just built in New York. A week later, he sold the same brewery to the craft beer major Mendocino Brewing Company for $5 million. "Am pretty smart too. Not bad for one week's work," he grins.
The hiccup notwithstanding, Mallya pooled in another $4 million to invest $9 million for a 48 per cent stake in Mendocino. With another half-a-dozen microbreweries on his hitlist, Mallya's American dream hasn't changed save the name. It will now be UB of America.
On paper, American microbreweries that brew craft beer are made to order for Mallya's dreams. Craft beer are traditional full-bodied bitter beer that have more flavour, taste fresher and are brewed by small breweries called microbreweries. In the $58 billion American beer market dominated by light-bodied lagers and pilsners like Anheuser-Busch and Budweiser, the craft beers presently account for 3 per cent.
While the entire American beer market has been growing at just 1 per cent for some years now, the craft beer industry grew a whopping 40 per cent. Reason: health concerns, safety consciousness, increase in minimum drinking age from 18 to 21 and an ageing population who are all moving from guzzling large quantities of light beer to a drink or two of better-tasting beer. So, according to industry estimates, the 3 per cent share is likely to grow to 6 per cent by the end of the century.
Which suits Mallya fine. "I can't be a Budweiser or Miller in the next 10 generations. But even if I get all of that 6 per cent market to play in, it is very big to me," he explains. But the game ain't going to be easy if anything. Consisting of more than 1,000 microbreweries, the US craft beer industry's taken a hard knock by adopting some sloppy business policies. The craft beer industry mushroomed less than a decade ago when those without any brewing experience set up breweries as a 'hobby'. The companies were made public and prematurely taken national. Issues were priced way above their worth while logistics involved transporting beer nearly 2,000 miles coast to coast.
Mallya's strategy, says
Forbes which wrote about his US entry, is to operate nationally but sell locally. Each micro-brewer will sell in a local market but buy raw materials and consolidate orders on a national scale. With much fewer Indian restaurants in the US, unlike in the UK, Kingfisher will be sold on hype like the gold medal it won at the 1997 World Beer Championships, Chicago. Says Mallya: "Marketing is marketing in any part of the world. And having succeeded in the restrictive Indian environment, we have the experience."
South Africa:In November 1996,UB invested $15 million to pick up a 30 per cent equity in National Sorghum Breweries (NSB), the largest black-owned private sector company which holds 70 per cent of the sorghum beer sector. (Sorghum beer is regular beer except that maize or jowar is used for brewing instead of malt.) However, sorghum beer accounts only for 4 per cent of the South African market; 96 per cent of the market consists of lager beer and is the monopoly of a single company, the South African Breweries.
But like in the US, it is again the size and value of the South African market that has Mallya whistling. Says he: "With a population of 35 million, they consume 25 million hectolitres of beer a year. The Indian population is touching a billion and we consume a mere 6 million hectolitres. It is an ocean and NSB will sell more than UB in India this year."
While NSB was facing problems like the American microbreweries before Mallya stepped in, the going hasn't been a song since. Kingfisher was to be launched after June 1997 rather than its present schedule of second quarter 1998. The UB directors on the NSB-UB board expressed severe doubts about the accounting of NSB for 1996, leading to its results not being presented nine months after the year ended.
South African media reports were agog with talk of Mallya wanting to pull out of NSB,whose unaudited results for 1996 show a loss of $18 million on a turnover of $102 million while the accumulated debt is $36 million. But Mallya is unfazed: "We didn't go in there expecting to sail along merrily without any problems. We'll make it work."
China: Like most industries in the people's republic, its brewing industry is riding a boom with a consistent growth of 20 per cent expected till the end of the century. And according to Asia Inc. , China is expected to overtake the US in volume at the turn of the century. Enter Vijay Mallya: "Everybody is going to China. And for us China is an opportunity that will bring in disproportionately large returns for a very small investment." Mallya points out that no single company can be a market leader in China. "Our entry will be in the nature of a management contract with a very small equity participation. The opportunity of going to one small region in China, being a market leader in a small province with two or three breweries, is as good as being a market leader in India," he says.
Sri Lanka and Nepal:While Sri Lanka is still being planned, last year UB acquired a brewery in Nepal that manufactured the popular star brand beer. Star Plus, an upgraded product, is to be launched later this year after the plant is modernised to be followed by Kingfisher. Mallya-speak: "Nepal and Sri Lanka are natural extensions of the Indian market. It is as good as going to another state as all my advertising and promotions already reach them." Obviously, Mallya's global strategy is to take a swig of the humongous emerging markets, wherever they may be. But the globalisation assumes more significance, given the largescale divestment by his group from several sectors to return to its core business of liquor. With liquidity having suffered till the divestment process was started in 1994, cash flow is expected to ease out during the current financial year.
Moreover, 1996-97 saw a decrease, however marginal, in the market share and value of Kingfisher due to prohibition in Andhra Pradesh and Haryana. While UB has pumped in Rs 200 crore into the Indian market and has kept up the hard-sell, it is also bringing Carlsberg to India before the Budweisers and Heinekens make their move.
Mallya's Bottomline: "At the end of the day,it is shareholder value and consistent profitable growth." At the recent AGM, UB's shareholders expressed anguish at the continued erosion of the company's share value and the stagnant dividend percentage for four years now. For Mallya's own good, those winged-horses better fly this time.