United Breweries Managing Director Rishi Pardal joined the company about 10 months ago at a time when the pandemic was at its peak. In an interview with BusinessLine, Pardal shared his insight into how the company has managed to wade through the tough times and its plans post-lockdown. Excerpts:
How tough was the last year for liquor companies like yours and how do you see the post-lockdown scenario?
The beer industry was impacted by a triple whammy — firstly, the lockdown and the physical closure of markets, secondly at the beginning of the Covid cycle, we saw a number of State governments hiking up taxes disproportionately, specifically on beer and AlcoBev in general, and thirdly, the physical closure of all bars and outlets. Due to these factors, we had almost a washout. When the Covid situation stabilised, the first quarter witnessed a negative 77 per cent sales followed by second quarter negative 45 per cent and third quarter there was a negative 15 per cent sales. However, the focus for us was how to manage costs and how we continue to engage with consumers. It also brought to the fore many new opportunities for us. We started actively building a “beer at home” consumption movement, which is a long journey we have started. At the same time, we took the opportunity to relook at all costs, efficiency and delivery to make sure that we do what is required, to come out structurally more sound and refocus on 2021-22. It has been a year of great learning and a “once in a lifetime” experience. Given our balance sheet, the strength of the brands and the capability of our people, we did a reasonable job of getting through this year.
Compared with other beverages, the beer industry hasn’t done well during the last 12 months. Is that quite unusual?
We have to look at two things. If we look at the longer-term and take a period of 2014-2019, the beer industry outpaced the rest of the AlcoBev industry. What happened in 2020, specifically in Covid times, impacted us immensely. However, as markets have opened up and States have allowed on-premise consumption and taxation got moderated, the revenues have come back. We do not see it as a long-term issue, but as a moment in time, we witnessed the beer industry lag compared to other industries.
Have you had discussions with the government recently on taxation?
We continue to be in discussion with the various governments. Some liberalisation and improvement are required on both absolute and relative levels of taxation. In our country, there are about 80,000– 82,000 outlets that cater to the entire country’s demand in terms of AlcoBev. Given the size and scale of this country, that is not enough. Having lived and worked in many Asian markets, I find that as a percentage of per capita GDP per day, beer in India accounts for almost 20 per cent whereas a pint of beer, 330 ML, in every other country is 4-6 per cent. On an absolute basis, in terms of the pricing of the product, relative to purchasing power, it is extremely high.
How are your premium brands faring in the market, especially Kingfisher, and your foray into non-alcoholic beer and craft beer?
From a brand perspective, Kingfisher continues to do well. Kingfisher Strong continues to be one of the main pillars of the beer market in the country. In fact, during the pandemic, I believe market-leading brands have a greater opportunity because consumers at a time of crisis value trust and familiarity. Looking at the non-alcoholic beverage segment and the low alcohol beverage, whether it is Heineken 0.0 or Radler or Kingfisher Ultra 0.0, I think it’s on a global consumer trend of a preference for low alcohol/no alcohol products. While we are in investment mode, what delights me is that in the channels and markets we are with these products, we have become market leaders very quickly. Kingfisher Premium continues to do well although there are a couple of markets where Kingfisher Premium sells a lot that has got discontinuously impacted by high taxation which has not been reversed. We are seeing challenges there. However, those are driven by external and environmental factors and not brand issues. We need to work on it and make sure we recover those as fast as we can. Our Ultra Witbier is one the fastest-selling craft beer and has gained a leadership position in its category.
Now that you talk about Heineken, has it gained market share over the years?
Heineken is still in investment mode. It is the brand that has come in on the strength of, I would say, its global positioning. We have great properties, and we have just about started to make progress with that brand. We manufacture it in all the major regions. We are still in investment mode with a long way to go for that brand. Has it fully realised its potential, I don’t think so.
You are seen as a representative of Heineken after the exit of the previous CEO. Apart from that, you come from a different industry as well. So, are there any changes that you plan to bring about in United Breweries?
Two specific parts to your question, let me try addressing both. When you come in from a different industry, sometimes it is a good thing because you bring a fresh pair of eyes. I have always believed, whether I was in Unilever or Avery Dennison or any other company I have worked for, the key is to understand how category dynamics are – what drives profitability, what drives shareholder value, what drives the P&L to leverage up and down, and as long as you have an understanding of that, you can bring those fresh pairs of eyes and actually convert that to an advantage.
Now going back to the first part of your questions, I think it’s very important to understand that UBL is a homegrown company that is a joint venture with Heineken. While we are free to draw in resources from Heineken, in terms of what brands we want to launch or understand from them what best practices they have in developing and emerging markets or managing plants or whatever else it may be, it remains an Indian company that needs to use its expertise and deep roots here to unlock the potential of the market so that’s the most important. What we are all committed to being – how can we maximise shareholder value? How can we be responsible member of the community we operate in? And how can we help our employees be the best that they can be? So I think within that, it is less about whether the ownership lies within Heineken or somewhere else, it is more about, how can we unlock the potential of this business to its fullest. I do not feel pressured, either way, I think there is a great opportunity ahead to really unlock potential and that is what I’m focusing on.