U.S. brewer Anheuser-Busch Cos. Inc. is betting rising incomes and an aspiring middle-class in countries such as India and China will boost its international revenues, a senior company official said on Friday.
International business makes up less than 10 percent of the company's total sales but is growing much faster than the U.S. market, said Stephen Burrows, chief executive and president of Anheuser-Busch Asia-Pacific operations, at the Indian launch of Budweiser beer.
We have an intention to grow in high-potential markets outside the U.S., and India and China meet our criteria, he said, adding easing regulations and a shift to premium brands will also help boost profitability in these markets.
We have a very long-term involvement in China, and India is the only other Asian country besides China where we have invested in a brewery, he said.
Anheuser-Busch said earlier this year it would form an equal joint venture with Crown Beers to brew, market and sell Budweiser and other beer brands in India.
The venture, Crown Beers India Ltd., has built a 500,000 hectolitre brewery in southern Andhra Pradehsh state, and has launched a strong beer, Armstrong, made specially for India, where two-thirds of the beer market is for strong alcohol beers.
Per capita consumption of beer in India stands at just 1 litre, compared to about 24 litres in China and more than 80 litres in the United States, Anheuser-Busch estimates.
Annual beer sales in India are estimated at around 7 million hectolitres, and have grown at 12 percent annually in the last five years, it estimates.
But high taxes and excessive regulation in the production, sale and advertising of alcoholic beverages make India a challenging and pricey market, where a 650 ml bottle of Budweiser is priced at 68 rupees ($1.7), several times its price in China.
Still, operating profits in India are higher than China's, while still lower than the global average, Burrows said.
Global operating profit per barrel of beer is around $8, while China is about a quarter of that. The U.S. industry gives about triple the average, but is seeing a slowdown in sales.
Brewers including SABMiller, InBev and Carlsberg have rushed into China, the world's largest beer market by volume and Anheuser-Busch's biggest and fastest-growing overseas market.
Operating profits in China are probably the lowest in the world, but it's among the fastest-growing markets and profitability will improve, said Burrows.
India's profitability is higher than China's, and while today it is a relatively small market, it has strong economic growth, a big middle-class and a relatively young population.
Anheuser-Busch has invested about $1.3 billion in mainland China and is building its 15th brewery there. It estimates Chinese consumption will double within a decade and expects the Indian market to also grow quickly if taxes are normalised.
We haven't come to India to build just one brewery. We will invest to be a legitimate and profitable player, Burrows said.
India's United Breweries Ltd., which has a joint venture with Scottish & Newcastle Plc, has about 40 percent of India's beer market. SABMiller has about a third.