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Consumer Behaviour Towards Beer Beverage Industry

Essay by   •  July 10, 2011  •  Case Study  •  10,196 Words (41 Pages)  •  2,205 Views

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Chapter No.1 Introduction to Beverage Industry

1.1 Over-view of Beverage Industry

The beverage industry is extremely competitive, with private labels greatly influencing the environment. A few global "beverage giants" produce many brands, but those brands fall into self-contained categories as well. Thus, the "beverage" market is not really one market; it is a collection of markets with many different types of products, processes and requirements. The beverage market includes several different products that can be grouped into two main categories: alcoholic (beer, wine, spirits) and non-alcoholic (carbonated soft drinks, juice, water, sports drinks, etc.). Each category, and often each type, of beverage have its unique issues and needs.

Picture 1.1- Classification of Beverages

1.2 Over View of Non-Alcoholic Beverages

Non-alcoholic beverages are broadly classified as carbonated drinks, non-carbonated drinks and hot beverages. India's non-alcoholic drinks market to grow at 15% CAGR. The fruit juices and fruit-based drinks market is close to Rs 5,000 crores ($1.13 billion), growing at 35-40 per cent annually. The carbonated drinks market is close to Rs 6,000 crores ($1.36 billion) with growth at 10-12 per cent annually.

Within the hot beverages category, India is the largest producer of tea and accounts for 28 per cent of the global production at 956 million kilograms annually. The total turnover of the tea industry is over Rs 8,000 crores ($ 1.8 billion), growing at a rate of 1.2 per cent annually. India is the world's 5th largest producer of coffee, accounting for 4 per cent of the world's production.

India has witnessed radical shift in consumption of non-alcoholic drinks over the recent past. Fast expanding middle class population that is currently around 350 million increased urbanization and rising disposable income are some of the major reasons contributing to this change. Indian non-alcoholic drinks market was estimated at around Rs 216 billion in 2008 and is forecast to grow at a CAGR of around 15% during 2009-2012.

Growing health consciousness among India's young population has brought about a revolution in the Indian non-alcoholic drinks market. It has been seen that cola sales have fallen dramatically due to rising health concerns and this seems to have benefited the country's non-carbonated drinks market such as energy drinks and juices.

According to the segment level analysis, the highest growth will be seen in the fruit/vegetable juice market which is forecast to grow at a CAGR of around 30% in value terms during 2009-2012. It will be closely followed by the energy drinks segment at a CAGR of around 29% during the same period. There is a greater awareness of the 'functional' benefits of health beverages and a greater willingness to pay a premium for such beverages. With these strong drivers of growth, it is not surprising that the beverage industry in India has begun responding with products that are marketed clearly on a health and wellness platform.

In India, the Coca-Cola and Pepsi soft drink brands suffered a setback in August of last year due to a product contamination scare. Both have cut profit margins to the bone in order to fend off competition from low-priced local fruit drinks.

Indian consumers are accustomed to drinking a variety of locally-produced soft drinks that are sold in small stands throughout the country. Rural India is still a highly price-sensitive marketplace, so the major soft drink companies are forced to cut profit margins in order to compete there.

India's purchasing power parity per capita of US$2,850 is representative of a nation in which the average consumer has insufficient income to engage in discretionary spending. Nevertheless, during the hot season, spur-of-the-moment beverage sales are common place.

Beverage companies cannot afford to ignore India's rural consumers if they wish to expand market share. According to data release by the PRB, only 28 percent of India's population lived in urban areas in 2003. On average, rural consumers have a lower income level than their urban counterparts and demand lower-cost beverage options.

In order to remain cost competitive, soft drink companies have to contain the transportation costs involved in expanding their distribution network into widespread towns and villages. Faced with high fuel and vehicle costs, companies are turning to less expensive means of transportation including ox carts and rickshaws.

Another challenge facing the major soft drink companies is regaining consumer confidence in the aftermath of a well- publicized scandal over the presence of pesticides in some soft-drink products. A major publicity campaign aimed at regaining consumer confidence seems to be working, but bottlers need to avoid any more issues that would throw product safety into doubt.

Recovering and maintaining an image of quality will be a key weapon in the struggle to take market share away from locally produced fruit beverages. Indian consumers are ready to opt for soft drinks, but not at a premium price.

1.3 Over View of Alcoholic Beverages

The alcohol industry is very important for the government. It generates an estimated Rs. 16,000 crores per annum in spite of the fact that the per capita consumption of liquor in India is the lowest in the world. The total liquor industry is worth Rs. 2,000 crores. IMFL accounts for only a third of the total liquor consumption in India. Most IMFLs are cheap and are priced below Rs. 200 per bottle. Alcohol sales proceeds account for 45% of the total revenue collection in the country. Whiskey accounts for 60% of the liquor sales while rum; brandy and vodka account for 17%, 18% and 6% respectively. MNC's share is only 10% and they have been successful only in the premium and super premium ranges. Post WTO the government may have opened India to foreign distilleries, but the duty has been increased from 222% to 464-706%. This is due to the fact that there is a 100% customs duty, 150% contravening duty, local taxes, distributor's margin, and retailer's margin and publicity charges. The cost is finally borne by the consumer. Though the government claims that this is being done to protect the domestic liquor industry, the domestic industry accounts for 99% of the market share. This protectionist policy could prove to be counterproductive and lead to smuggling. As of now, only 45% of the sales are through legal channels

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