Determinents of Demand of Veer

Submitted By: Kunal Singhai, MBA (Gen.) Section – A

ASSIGNMENT: BUSINESS ECONOMICS DETERMINANTS OF DEMAND OF BEER

1. INTRODUCTION

Roughly 11% of Indian liquor market is held by Beer. Major part almost 70% share by value is dominated by IMFL, country liquor holds 19%. However, by volume IMFL holds 36%, Beer holds 33% and country liquor 31%.

Beer is a rapidly expanding segment in the Indian alcoholic beverages industry and is one of the fastest growing.The market size is expected to touch 452 million cases by 2017 driven by growing acceptability of social drinking, easy and convenient availability of beer, rising incomes etc.

Indian beer market is dominated by United Breweries capturing over 50% of the market followed by SABMiller with around 25% and Carlsberg with under 10% of the marker share. Similarly in brands, Kingfisher dominates the market followed by Haywards 5000, Knock Out & Tuborg.

United Breweries50%

SABMiller25%

Carlsberg10%

Others15%

Market Share of Beer Companies In India - 2013

2. DETERMINANTS OF DEMAND

2.1. PRICE

Since beer is part of the alcohol family, it is an addictive substance. Demand and price generally share an inelastic relationship as increase in price to a certain degree will not reduce demand. However, a heavy increase in price might cause people to shift to lower priced alcoholic drinks other than beer. A reduction in price will lead to higher demand for beer which is again governed by the factor of addictiveness, but again if prices are reduced too much, people might shift to more expensive and sophisticated alcoholic beverages.

Also, a lower price will increase demand of beer for a country like India as beer generally attracts the people of age group (25-44 years) as it is thought of as a youth drink. This age group forms nearly 28% of India’s population and are the biggest target market for beer companies as they are more modern and do not attach beer to social stigmas. Beer is generally the “first alcoholic drink” for people in this age as it is thought of as mild alcohol, Legal drinking age in India being 25 Years.

2.2. INCOME

Most studies show beer to be in the category of normal goods, where a rise in population’s income will lead to an increase in demand for beer per capita and vice versa. For developing countries like China & India, beer consumption has historically increased with the rise in incomes (Chart enclosed)

However, in case of certain developed countries, demand for beer has shown an inverse U shape, where a continuous rise in incomes has compelled people to shift to more sophisticated alcoholic beverages and hence consumption of beer has fallen, hence beer is can be grouped in inferior goods category for such nations.

2.3. DEMOGRAPHIC FACTORS

With beer predominantly being associated as drink for younger population. Its demand is likely to grow heavily in countries with a younger population. With India and China being among the nations having higher population of young adults and professionals in the age group of 18-44 Years consumption beer market has in fact grown at a CAGR of atleast 8-10% for the last five years.

Also, an independent and working population of ladies in a country will increase demand for certain beers targeted at ladies, than in male dominated country.

Even a higher concentration of population in urban areas drives the demand for beer as it is more of an urban drink targeted towards young working professionals. Rural population is more inclined towards hard spirits.

2.4. TASTES OR PREFERENCES

Mass manufactured beer is basically sold in two varieties by most brands – Strong Beer and Light Beer. For the last many years strong beer has dominated the beer market and has consistently grown its market share.

The taste or preference of the consumers has shifted demand towards strong beer which has a more hoppy and bitter taste. Strong beer contains nearly 8% Alcohol whereas Light beer has 6% Alcohol. Alcohol being and addictive substance, habitual consumers have demanded for the strong beer much more than light beer. People have also preferred strong beer as it gives the more alcohol per unit volume.

Strong beer dominates the market with an 83% share while light beer covers 17% only.

Also, recently craft beer has become an interesting segment with microbreweries opening up in various metro cities. The fresh taste of crafted beer has pulled middle and high income populace towards itself.

MARKET SHARE COMPARISON OF LIGHT & STRONG BEER IN INDIA

2011 20120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Strong BeerLight Beer

2.5. CLIMATIC CONDITIONS

Beer is generally served cold and hence is consumed more in hot/warm weather. Demand for the product is more during summer months as compared to winters.

Also, demand is more in countries which experience hot/warm weather all year round like Sri Lanka where beer consumption is 2.7 Litres/per capita as compared to India where it is 2 Litres/per capita.

Please note comparisons are being made between countries with similar purchasing power of people.

2.6 RELIGIOUS DIVERSITY

Demand for beer is also controlled by the presence of various religious groups. Since most muslims abstain from drinking alcohol, demand for beer is very less in muslim dominated areas as compared to areas dominated by catholics.

2.6. DISTRIBUTION & REGULATION

Beer or more specifically all alcoholic sector is highly regulated in most countries as making it free can lead to bad effects. In a country like India, alcohol is a state subject due to which every state attracts different taxes on any alcohol produced. Interstate alcohol trade is discouraged as it attracts lots of taxes.

Due to this, demand for particular brands of beers which are produced in a particular state tend to be more in that state due to availability and price advantage. Same will be true for any other beer in a different state.

Also, apart from bars and restaurants beer has traditionally been sold at liquor vends, which have a social stigma attached to them. However, recently online stores have come up which sell beer at competitive prices. Websites like letsbuydrink.com and boozrr.com are catering to the untapped demand by sections of our society, who were discouraged by making a purchase at a liquor vend.

2.7. PRICE OF RELATED GOODS

Beer and other alcohols being addictive in nature, any major increase in price of any one of it will lead to shift in demand of that product. In case, beer prices increase on a high scale, it will lead to increase in demand for other cheaper alcoholic beverages.

Also, beer is made by fermentation of grains mostly like barley. Any increase in the prices of grains will directly increase the price of beer and vice versa. Even a drought season where output of farm sector is low will directly increase prices.

Also, fuel prices determine beer prices as it follows various transport channels to reach the customer.

2.8. PRICE OF SUBSTITUTE GOODS

Alcoholic beverages largely comprise of beer, spirits & wines etc. For a mature alcohol population, beer usually forms the least preferred drink due to its lower alcohol per litre ratio and in some developed countries it is even considered among inferior goods.

Hence, a lower price of substitute goods like whiskey, vodka etc. usually discourages the consumption of beer.

For a country with a higher ratio of younger population which considers beer a drink for the youth is not much affected by prices of substitute goods like whiskey, vodka etc. as beer is generally the only drink they prefer.

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