ASSIGNM

ENT:
BUSINESS
ECONOMI
CS

DETERMINANTS OF
DEMAND OF BEER

1. INTRODUCTION
Roughly 11% of Indian liquor market is held by Beer. Major part almost
70% share by value is dominated by IMFL, country liquor holds 19%.
However, by volume IMFL holds 36%, Beer holds 33% and country
liquor 31%.
Beer is a rapidly expanding segment in the Indian alcoholic beverages
industry and is one of the fastest growing.The market size is expected to
touch 452 million cases by 2017 driven by growing acceptability of social
drinking, easy and convenient availability of beer, rising incomes etc.
Indian beer market is dominated by United Breweries capturing over
50% of the market followed by SABMiller with around 25% and
Carlsberg with under 10% of the marker share. Similarly in brands,
Kingfisher dominates the market followed by Haywards 5000, Knock Out
& Tuborg.

Market Share of Beer Companies In India - 2013

Others; 15%

Carlsberg; 10%
United Breweries; 50%

SABMiller; 25%

2. DETERMINANTS OF DEMAND

2.1. PRICE
Since beer is part of the alcohol family, it is an addictive substance.
Demand and price generally share an inelastic relationship as increase
in price to a certain degree will not reduce demand. However, a heavy
increase in price might cause people to shift to lower priced alcoholic
drinks other than beer. A reduction in price will lead to higher demand for
beer which is again governed by the factor of addictiveness, but again if
prices are reduced too much, people might shift to more expensive and
sophisticated alcoholic beverages.
Also, a lower price will increase demand of beer for a country like India
as beer generally attracts the people of age group (25-44 years) as it is
thought of as a youth drink. This age group forms nearly 28% of Indias
population and are the biggest target market for beer companies as they
are more modern and do not attach beer to social stigmas. Beer is
generally the first alcoholic drink for people in this age as it is thought
of as mild alcohol, Legal drinking age in India being 25 Years.

2.2. INCOME
Most studies show beer to be in the category of normal goods, where a
rise in populations income will lead to an increase in demand for beer
per capita and vice versa. For developing countries like China & India,
beer consumption has historically increased with the rise in incomes
(Chart enclosed)
However, in case of certain developed countries, demand for beer has
shown an inverse U shape, where a continuous rise in incomes has
compelled people to shift to more sophisticated alcoholic beverages and
hence consumption of beer has fallen, hence beer is can be grouped in
inferior goods category for such nations.

2.3. DEMOGRAPHIC FACTORS

With beer predominantly being associated as drink for younger
population. Its demand is likely to grow heavily in countries with a
younger population. With India and China being among the nations
having higher population of young adults and professionals in the age
group of 18-44 Years consumption beer market has in fact grown at a
CAGR of atleast 8-10% for the last five years.
Also, an independent and working population of ladies in a country will
increase demand for certain beers targeted at ladies, than in male
dominated country.
Even a higher concentration of population in urban areas drives the
demand for beer as it is more of an urban drink targeted towards young
working professionals. Rural population is more inclined towards hard
spirits.

2.4. TASTES OR PREFERENCES

Mass manufactured beer is basically sold in two varieties by most
brands Strong Beer and Light Beer. For the last many years strong
beer has dominated the beer market and has consistently grown its
market share.
The taste or preference of the consumers has shifted demand towards
strong beer which has a more hoppy and bitter taste. Strong beer
contains nearly 8% Alcohol whereas Light beer has 6% Alcohol. Alcohol
being and addictive substance, habitual consumers have demanded for
the strong beer much more than light beer. People have also preferred
strong beer as it gives the more alcohol per unit volume.
Strong beer dominates the market with an 83% share while light beer
covers 17% only.
Also, recently craft beer has become an interesting segment with
microbreweries opening up in various metro cities. The fresh taste of
crafted beer has pulled middle and high income populace towards itself.

MARKET SHARE COMPARISON OF LIGHT & STRONG BEER IN

INDIA

100%
90%
80%
70%
60%

Strong Beer

50%

Light Beer

40%
30%
20%
10%
0%
2011

2012

2.5. CLIMATIC CONDITIONS

Beer is generally served cold and hence is consumed more in hot/warm
weather. Demand for the product is more during summer months as
compared to winters.
Also, demand is more in countries which experience hot/warm weather
all year round like Sri Lanka where beer consumption is 2.7 Litres/per
capita as compared to India where it is 2 Litres/per capita.
Please note comparisons are being made between countries with similar
purchasing power of people.

2.6

RELIGIOUS DIVERSITY

Demand for beer is also controlled by the presence of various religious

groups. Since most muslims abstain from drinking alcohol, demand for
beer is very less in muslim dominated areas as compared to areas
dominated by catholics.

2.6. DISTRIBUTION & REGULATION

Beer or more specifically all alcoholic sector is highly regulated in most
countries as making it free can lead to bad effects. In a country like
India, alcohol is a state subject due to which every state attracts different
taxes on any alcohol produced. Interstate alcohol trade is discouraged
as it attracts lots of taxes.
Due to this, demand for particular brands of beers which are produced in
a particular state tend to be more in that state due to availability and
price advantage. Same will be true for any other beer in a different state.
Also, apart from bars and restaurants beer has traditionally been sold at
liquor vends, which have a social stigma attached to them. However,
recently online stores have come up which sell beer at competitive
prices. Websites like letsbuydrink.com and boozrr.com are catering to
the untapped demand by sections of our society, who were discouraged
by making a purchase at a liquor vend.
2.7. PRICE OF RELATED GOODS
Beer and other alcohols being addictive in nature, any major increase in
price of any one of it will lead to shift in demand of that product. In case,
beer prices increase on a high scale, it will lead to increase in demand
for other cheaper alcoholic beverages.

Also, beer is made by fermentation of grains mostly like barley. Any

increase in the prices of grains will directly increase the price of beer and
vice versa. Even a drought season where output of farm sector is low will
directly increase prices.
Also, fuel prices determine beer prices as it follows various transport
channels to reach the customer.

2.8. PRICE OF SUBSTITUTE GOODS

Alcoholic beverages largely comprise of beer, spirits & wines etc. For a
mature alcohol population, beer usually forms the least preferred drink
due to its lower alcohol per litre ratio and in some developed countries it
is even considered among inferior goods.
Hence, a lower price of substitute goods like whiskey, vodka etc. usually
discourages the consumption of beer.
For a country with a higher ratio of younger population which considers
beer a drink for the youth is not much affected by prices of substitute
goods like whiskey, vodka etc. as beer is generally the only drink they
prefer.
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