The beer industry in India continues to be buffeted by high prices of barley, glass and packaging material as it tries to stagger back to its legs from the sharp blows it received over the last one year, going by comments from India’s largest beer-maker United Breweries Ltd.
Beer makers like United Breweries have been struggling to protect their profits since late 2022, when the price of barley, a key ingredient in beer making, started climbing due to lower-than-expected crops. Barley prices increased over 40% between October 2022 and March 2023, partly due to the Russia-Ukraine war.
Adding to their woes, prices of other inputs – such as glass and packaging material – also started going up in an inflationary environment late last year.
Although inflation is softening, said the management in a quarterly interaction with investors, the prices were far from stable and could still threaten the recovery path.
“The inflation is still there but it has been softening in this quarter, but volatility remains..but the softening is helping our gross margins..”, Radovan Sikorsky, Chief Financial Officer of United Breweries, said on a conference call with investors.
To deal with spiralling input prices, the company was forced to undertake multiple price hikes of its beer brands. At the same time, stiff competition has limited its ability to fully offset the impact through pricing actions.
Besides barley, prices of glass bottles have also risen in sync with rising energy and transportation costs. This has had a drastic impact on United Breweries, which sells over 120 million cases of beer annually. Packaging costs also shot up due to inflated prices of paper, plastic and cardboard.
“The cost of glass bottle is a combination of both the actual price of the bottle and the returnability of it. A combination of these two has an impact on the variable cost. In the case of bottle pricing we havent seen any real movement, so we are still under pressure and have to work through it with our suppliers..” the CFO said.
Second Quarter Financials
Even as costs have started moderating, the company has also taken hope in the improvement in sales and revenue.
“There have been good results in the second quarter. Volumes were up 7%..net sales were up by 12% even with price increase in states such as Rajasthan, UP, Karnataka and Maharashtra,” Sikorsky said.
Another positive aspect of the quarter, he added, was the continued growth in premium products such as Heineken Silver, particularly in states like Karnataka.