Talk to Padmal Kolongahapitiya about the good things in life and his eyes light up immediately; the conversation gets positively heady when we discuss refreshing beers. Having worked in Japan and his native Sri Lanka in the past, Kolongahapitiya has been based in Bengaluru since November 2011 in his role as head brewmaster for The Biere Club, a well-known name in Bengaluru’s craft beer business. Produced in small quantities, craft beers are available at microbreweries across the world, with 15 having popped up in Bengaluru alone in the past four years. “The Indian palate generally tends towards sweeter flavours. It is hard for a bitter beer to make a mark here, unlike Japan, where people prefer bitter brews,” he says. In the summer of 2012, this consumer insight was put to good use by Kolongahapitiya and his bosses. Coinciding with the mango season, The Biere Club ordered 60 kg of the Alphonso variant and created a mango variant of its signature brews, which people just lapped up. “We served nearly 1,500 litres during the season. It was a bit unexpected,” Kolongahapitiya adds.
If the global crisis of 2008 resulted in Gregory Kroitzsh losing his Wall Street job, it also facilitated his move to India. The American citizen — who traces his roots to Germany — was employed with Citi’s private banking team at the time of the crash and realised that India was one of the few countries with a semblance of employment opportunities. Kroitzsh moved to Mumbai with his Indian wife in 2009 to join insurance company HDFC Ergo. “Some part of me always wanted to become an entrepreneur. I have always been a beer lover and though I had a full-time job, I wanted to start something on my own,” he says. A year later, Kroitzsh finally acted on that impulse and thus was born Seven Island Craft Brewery, inspired by Mumbai’s rich maritime history. Given that the process involved a lot of back-and-forth with restaurant consultants, Kroitzsh’s finance background did come handy after all. “Making spreadsheets might have been fun in the past, but the ground reality is very different,” he chuckles.
Keeping The Barking Deer company barely half a kilometre away is The White Owl, set up by 33-year-old Harvard graduate Javed Murad, who returned to India after working in the US for nearly 12 years. “We looked at various options and it was obvious that the biggest challenge was distribution. The mass route was unviable, though the opportunity in the beer market itself was too big to ignore,” says Murad, who spent his formative years in Mumbai, before heading westwards. India already had mass-market brands such as Kingfisher and Carlsberg and imported beer such as Corona and Stella Artois, with the latter being priced in the Rs 240-320 range.
Then there were brands such as Shepherd Neame and Chimay from brewers in Britain and Belgium, priced in the relatively unaffordable Rs 350-700 range. “There was an untapped opportunity for craft beer in the affordably priced category starting from Rs 120,” points out Murad. Even in the $100-billion beer market in the US, craft beer accounts for as much as 8% sales by volume and 14% by value, he adds.
The emergence of craft beer in India is in line with global trends, especially those seen in larger markets such as the US and Europe. According to Pradeep Gidwani, former managing director of Foster’s India and Carlsberg India and founder of Pint Room, which serves international beer, the growth of craft beer in more developed markets has been at the expense of bottled beer. “In fact, bottled beer has been registering a negative growth rate in the US, while craft beer has been the big story. That has prompted some serious buyout activity,” he explains. In November this year, Anheuser-Busch InBev, the company that owns marquee brands such as Budweiser, Stella Artois and Corona, bought over Oregon-based 10 Barrel Brewing Co. This move was preceded by its acquisition of Blue Point Brewing in New York and Chicago’s Goose Island in 2011.
Racing Towards Break-Even
Gaurav Sikka still remembers the relief he felt when he discussed his upcoming business with his partners. “They asked me to think of our company not as a brewery but as a restaurant. That was nothing short of golden advice,” he says. As an undergraduate student at the University of Michigan, Sikka was intrigued by the concept of beer served locally in the US. The university town was home to Arbor Brewing Company, a venture started by couple Matt and Rene Greff in 1995. They gave Sikka the licensing rights for the Indian market and also picked up a minority stake in his venture, the Bengaluru-based Arbor Brewpub. None of that came easy, though; the Greffs decided to hand over the rights only after six visits over three years. Sikka set up shop on Bengaluru’s Magrath Road in November 2012, serving food and beer on tap but no craft beer — that had to wait till February the following year. Sikka, whose previous employers include Virgin Comics and Percept Pictures, has invested Rs 5 crore in the project to date, including Rs 75 lakh from his own savings.
Other entrepreneurs concede that break-even on an operational basis can be achieved in the first month itself, while recovering the capex takes close to two years. Case in point: the brewpubs mentioned in this story all broke even operationally within the first three months of being in business, bringing in enough revenue to pay for running expenses such as power and salaries. Since rentals are high in a lot of metros, someone such as Kroitzsh ends up paying Rs 7.5 lakh each month for a 4,000 sq ft property alone. Adding salaries, power and sundry expenses into this mix, he has a fixed outgo of nearly Rs 30 lakh each month. Mumbai, however, is the exception, not the rule; rentals can often be twice as expensive as those in similar neighbourhoods in Bengaluru. When ticket sizes hover in the Rs 1,000-1,500 range, a rental of Rs 300 per sq ft in Mumbai, compared with about Rs 125 per sq ft in Bengaluru, can make or break a brewpub outlet.
Mukesh Tolani, director, Ph4 Food & Beverages, which owns the Toit brewpub in Bengaluru, makes it clear that this business is merely a game of volumes. Toit was the first to get off the block when it opened in December 2011 and has grown by 30% each year. “If your cost of manufacturing is Rs 30, you can sell your beer at Rs 100. That’s the kind of margin that is possible in this business,” he says. That might be a bit difficult when everything that goes into the beer is imported. “There is no question of sourcing anything locally since we would have to compromise on quality,” maintains Tolani. To save costs in the early days, Toit sourced second-hand equipment at a cheaper rate of Rs 2 crore, compared with the Rs 3.5-crore price tag for new equipment.
In Search Of An Audience
Though Bengaluru, with its beer-drinking culture, proved to be a comfortable environment for some brewpubs, other markets were not as easy to crack. “It is easier to sell the idea of microbreweries in Bengaluru, unlike Gurgaon, which is largely a whiskey market. Today, our biggest customers are either expats or Indians who have travelled and are familiar with craft beer,” says Sanjay Mathur, managing director, Seven Souls Hospitality, the company that runs 7 Degrees Brauhaus in Gurgaon. The route that Mathur has taken is offering authentic German fare — the beer and food at his brewpub are strictly in line with what is served in that country.
“German food alone brings in 70% of our food revenue, while the rest comes from continental and Indian food,” explains Mathur. To bring in a feel of Germany, the brewpub also organises a local Oktoberfest, a well-known fair held each year in Munich. According to him, at least 70% of his customers are expats, including Koreans and Japanese, who “love pork and guzzle a lot of beer”. Mathur concedes that he is looking to enter the Mumbai market at some point. “Bengaluru is pretty crowded now but there is a big opportunity in Mumbai,” he says. 7 Degrees sells around 8,000 litre of beer each month across its four variants. “Globally, variants account for 10% of the beer business, while lager is the biggest chunk at around 70%. Beer variants is the fastest-growing segment, and that’s where we want to be,” adds Mathur.
The expat and IteS audience that Windmills generally hosts is what brother-sister duo Arvind Raju and Meenakshi targeted in Whitefield with The Biere Club. The 31-year-old Arvind laughs heartily about the brewpub’s success with the mango beer and admits that it was unexpected. “We will soon launch chilli lime and peppermint flavours as well,” chips in Meenakshi. A look around their other outlet, situated opposite United Breweries on Vittal Mallya Road, reveals impressive-looking furniture that is actually sourced from China, where it is at least 40% cheaper. According to Arvind, many people often take a five-hour road trip from Chennai to Bengaluru just to have a beer and late brunch at his outlet.
A Head For Business
Not everyone has the patience to run a restaurant business, though — this is something that Rahul Mehra, co-founder, Gateway Brewing Company, agrees with. It was very early in the day when Mehra and his partners Krishna Naik and Navin Mittal decided to manufacture craft beer at a microbrewery in Dombivli, a distant suburb outside Mumbai’s city limits. The 10,000 litre of beer produced each month — starting February this year — makes its way to 30 bars in Mumbai and five in Pune.
Though Mehra and his partners have zeroed in on a system that works, as things stand, craft beer is a story that is still playing out. To get it right in smaller centres will call for a sea change in the way beer is consumed and also how state laws make it easy for such microbreweries to set up shop. The other big challenge is distribution, where large brands hold a substantial advantage, and escalating real estate costs in metros. Quiz Mehra on the future prospects of this business in India, and he avers, “The way forward will be craft beer in a bottle.” Lofty though this idea may be, the truth is that craft beer sells like hot cakes in markets such as the US and Europe. Whether local players will see the same degree of churn and success, then, remains to be seen.
The Barking Deer
Note: All prices not inclusive of taxes; *started serving craft beer in Nov’13
We at Outlookindia.com welcome feedback and your comments, including scathing criticism
1. Scathing, passionate, even angry critiques are welcome, but please do not indulge in abuse and invective. Our Primary concern is to keep the debate civil. We urge our users to try and express their disagreements without being disagreeable. Personal attacks are not welcome. No ad hominem please.
2. Please do not post the same message again and again in the same or different threads
3. Please keep your responses confined to the subject matter of the article you are responding to. Please note that our comments section is not a general free-for-all but for feedback to articles/blogs posted on the site
4. Our endeavour is to keep these forums unmoderated and unexpurgated. But if any of the above three conditions are violated, we reserve the right to delete any comment that we deem objectionable and also to withdraw posting privileges from the abuser. Please also note that hate-speech is punishable by law and in extreme circumstances, we may be forced to take legal action by tracing the IP addresses of the poster.
5. If someone is being abusive or personal, or generally being a troll or a flame-baiter, please do not descend to their level. The best response to such posters is to ignore them and send us a message at Mail AT outlookindia DOT com with the subject header COMPLAINT
6. Please do not copy and paste copyrighted material. If you do think that an article elsewhere has relevance to the point you wish to make, please only quote what is considered fair-use and provide a link to the article under question.
7. There is no particular outlookindia.com line on any subject. The views expressed in our opinion section are those of the author concerned and not that of all of outlookindia.com or all its authors.
8. Please also note that you are solely responsible for the comments posted by you on the site. The comments could be deleted or edited entirely at our discretion if we find them objectionable. However, the mere fact of their existence on our site does not mean that we necessarily approve of their contents. In short, the onus of responsibility for the comments remains solely with the authors thereof. Outlookindia.com or any of its group publications, may, however, retains the right to publish any of these comments, with or without editing, in any medium whatsoever. It is therefore in your own interest to be careful before posting.
9.Outlookindia.com is not responsible in any manner whatsoever for how any search engine -- such as Google, Bing etc -- caches or displays these comments. Please note that you are solely responsible for posting these comments and it is a privilege being granted to our registered users which can be withdrawn in case of abuse. To reiterate:
a. Comments once posted can only be deleted at the discretion of outlookindia.com
b. The comments reflect the views of the authors and not of outlookindia.com
c. outlookindia.com is not responsible in any manner whatsoever for the way search engines cache or display these comments
d. Please therefore take due caution before you post any comments as your words could potentially be used against you
10. We have an online thread for our comments policy:
You are welcome to post your suggestions here or in case you have a specific issue, to directly email us at Mail AT outlookindia DOT com with the subject header COMPLAINT