An ambitious Vijay Mallya is on a beer binge. But will he be able to keep his head (above water) in a market that refuses to look up?

By Dilip Maitra

Fine, everyone knows about Vijay Mallya's weakness for fast cars, luxury yachts, and diamond-studded watches. But as recent events have shown, there is more to the 45-year-old Chairman of the Bangalore-based UB Group than just showmanship: the man, you see, doesn't want to be a beer baron no more. No sir, now he wants to be recognised as a sultan of suds. Thus, in the last three months Mallya has struck as many times to acquire beer brands and brewing capacities. First, in September, 2000, he acquired a 14 per cent stake-to go up to 51 per cent soon-in the Haryana-based Inertia Industries, gaining access to three brands, Sandpiper, Sandpiper Strong, and Turbo, and two breweries-one each in Maharashtra and Haryana.

Then, in October, UB outmanoeuvred South African Breweries (SAB) to buy a 65 per cent stake in the Mumbai-based Associated Breweries and Distilleries (ABD) for Rs 50 crore. The gains: a brewery in Mumbai, brands like London Pilsner, London Diet, and Maharaja Premium, and de facto ownership in India of the San Miguel brand, which is manufactured and sold in the country by ABD. And even as this story goes to press, UB is in the final stages of discussions to take over the Karnataka-based Mangalore Breweries (Shaw Wallace and Fosters were also in the race). Exults a jubilant Kalyan Ganguly, President, Breweries Division, UB: ''This is the right time to build muscle through acquisitions. Many small players are in trouble thanks to slim margins and poor growth.''

UB's empire-building efforts, though, don't just stop at acquisitions: capacity expansion and contract manufacturing agreements with other breweries are part of it. In the last six months, the company has forged contract manufacturing relationships with breweries like the Mohan Meakins one in UP to increase the (contract) capacity at its disposal by 36 lakh cases to 138 lakh cases (each case has twelve 650-ml bottles). By March, 2002, UB proposes to increase this to 192 lakh cases, which will account for 45 per cent of its capacity then. Already, the beer major boasts brewing capacities (either owned or 'contracted') in all parts of India except Bihar, Assam, Orissa, and Madhya Pradesh.

This is more important than it seems at first glance: to gain revenues, most states levy a high tax on the export and import of beer. Local manufacturing, to cut to the chase, is the name of the game in the beer business. However, it costs Rs 40 crore to build a brewery with a capacity of 24 lakh cases a year, a quantum that doesn't seem justified by the fact that beer consumption is nowhere near that in most states. That, and the presence of a large number of small breweries with idle capacities makes contract manufacturing a great economic option. Agrees Pradeep Gidwani, Managing Director, Foster's India: ''If you can ensure quality, it makes tremendous sense to expand through contract manufacturing in smaller markets.'' In larger markets like Maharashtra (the largest, in fact, with 140 lakh cases consumed annually), Andhra Pradesh (110 lakh cases), Karnataka, and Tamil Nadu, though, just contract manufacturing relationships won't do. And this where UB's recent acquisitions fit in nicely.

Add to this the capacity expansion initiatives in UB-owned breweries (40 lakh cases to 60 lakh cases in Maharashtra, for instance) and in those of UB's business associates (the 72 lakh cases a year brewery being built by Balaji Breweries in Tamil Nadu has been entirely contracted out by UB), and the big picture is that of a company ready to drown the country in lager.

Burp! Isn't There Too Much Beer In The Market Already?

By March, 2002, UB's total brewing capacity will be 508 lakh cases, or 60 per cent of the estimated market size of 820 lakh cases. But is that warranted in a market that is expected to grow at just around 6 per cent (in volume terms) this year? Mallya and his team of merry men believe it does: they expect the market to boom in the next 3-5 years. The reasons? The usual suspects like growing affluence, changing attitudes, and the abysmally low per capita consumption of beer today (500 ml a year as compared to China's 20 litres, and the US' 100 litres).

Still, even if the market doesn't grow, UB's capacity-enhancing drive will help it keep the competition at bay. Riding the boom in the strong-beer segment of the market, Shaw Wallace doubled its marketshare from 10 per cent in 1997 to 20 per cent in 1999. Indeed, that was the primary reason for UB's market- share stagnating at around 36 per cent in the same period. UB's Kingfisher Strong, launched in early 1999, has helped stem this rot to an extent, but by thwarting Shaw Wallace's plans to acquire Mangalore Breweries, Mallya has denied the company an opportunity to grow in Karnataka.

UB's moves are also aimed at squelching potential competition from beer transnationals like Foster's (which lost out to UB in the play for Mangalore Breweries) and SAB (which was outbid by UB in that for ABD). As Zenia Lawy- er, the Managing Director of ABD, puts it: ''Mallya is doing the right thing in protecting his turf. If you allow foreign companies to get a foothold, they may kill you eventually with their superior money power.''

It also makes sense for the company to acquire brands than build new ones from scratch. The government's recent ban on all beer advertising on the tube makes it practically impossible to promote a launch at a national level. That could be one reason why Mallya wasn't averse to shelling out Rs 50 crore for a 65 per cent stake in ABD despite the latter's poor financials. Says Ganguli: ''Both Sand Piper and London Pilsner have tremendous potential to grow. We will now take them to many other states.''

Can Mallya Handle So Much Beer?

Shareholders may not be too willing to buy into Mallya's grand