ET 500: Prohibition can't last, we remain bullish on beer, says Shekhar Ramamurthy

India's beer market has traditionally doubled every five-six years, reflecting greater social acceptance of the beverage. The last few years have been bad for the industry though due to a sluggish economy. But things are set to get better, United Breweries managing director Shekhar Ramamurthy tells Jwalit Vyas. UB's Kingfisher brand continues to dominate the market despite competition from new entrants. Edited excerpts:

United Breweries' sales volume growth has been low in the last few years. Do you see a turnaround?
The overall growth rate in the past four years has been much less than what it was before. But, as the economy revives, demand will pick up. Last year, our volume growth was 3%, but we expect it to increase to 6-7%, while sales will grow much faster. Also, in India, the per capita beer consumption is 2 litres compared with China's 37 litres. This shows India has enormous potential.

Will demonetisation affect your business?
In the short run, there will be an impact because people often use cash while buying our products. For instance, today a beer bottle in Mumbai costs `135 and nobody buys less than two-three bottles. With the shortage of cash in the system, it does cause short-term disruption.

Some states have banned liquor. With Uttar Pradesh and Punjab elections coming up next year, are you worried?
It is worrying. But we believe prohibition is not a sustainable solution for any government because the states earn a significant amount from alcohol. Yes, Bihar has done it but we will see how it goes. The Tamil Nadu government is yet to implement it. UP parties have again not talked about it till now. I would say that while it is worrying, we don't see it as a major threat.

Taxes on liquor have remained high.
We are not against taxes, but be rational about it. You need to recognise that hard liquor, too, needs to be taxed appropriately as per the alcohol content and not on the selling price. We hope that the government realises that there can be a balance between curbing harmful consumption of alcohol and promoting more healthy and social form of alcohol.

What is your view of rising competition?
Competition is a reality. But it's not that we don't come out with new brands. We have done that and we are proud that we have maintained over 50% market share irrespective of the competition and we will continue to invest in existing and newer brands.

What are you doing to improve margins?
The three major cost heads are bottles, raw material, mainly barley, and energy. Earlier, we used to import bottles for Heineken, but now we source all our bottles from India. Energy is the pressure point on which we are trying to work on by using renewable energy. We have signed an agreement with a company in Karnataka for renewable energy, both wind and solar, which is cheaper due to the government's incentives.

What are your strategies for future growth?
Our primary objective is to be the market leader and our intent is to further strengthen market leadership. We will continue to address emerging consumer trends with existing brands and new brands in future. We will ensure we have sufficient capacity to meet demand both in terms of capacity and keep investing in technology and quality.