Business

Looking at high single-digit volume growth : UB MD

Vivek Gupta, MD & CEO, United Breweries, says “we are looking at high single-digit volume growth in our business. We have momentum on our business in the last two quarters, we have been reporting 7-8% volume growth. We continue to build this momentum behind innovation and our effort behind category growth. Our focus is on building the business for the next five years, not only for the next two years. As we continue to build and launch innovation, continue to drive category growth initiatives, continue to improve our execution, we feel we will have a good balanced growth both in terms of volume growth as well as revenue growth.”

Let us begin by talking about Queenfisher. What has been the response so far and over the medium term what is the volume growth that you are foreseeing for this launch?
Vivek Gupta: There is a huge opportunity for beer amongst women. The penetration of beer amongst women is less than 7%. Queenfisher is coming from the Kingfisher family, which is brewing on authentic friendship and what we are calling it sisterhood in case of Queenfisher is off to a very good start. We have already launched this product in the Goa market. We are expanding it in Assam next week. And by the end of this year, we should be having this all over India. So, the initial response is fantastic. I do not have a volume projection for this. Let us see how the consumer respond, but we are very bullish about this launch.

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And how is Kingfisher, which contributes 60% to 70% of your volumes performing because analysts believe that Kingfisher as a brand may have been witnessing a slowdown and hence Queenfisher may have been launched. Would you want to counter this view?
Vivek Gupta: I would say that our focus is on driving category growth. Kingfisher has an amazing role being the largest brand in the category to drive the growth. At the same time, we launched multiple innovations to meet various consumer needs. Queenfisher is going to meet one set of needs where we have a low alcohol content and pleasantly low bitterness, a taste which women prefer, especially when they want to enter the category.

At the same time, we have also brought a lot of other innovation as well. At this stage, we are very positive about our momentum on the Kingfisher business. We continue to run our campaign around hashtag no filter friendship and we are seeing a very positive response across all over the country. I would say, based on our trends, we continue to gain market share behind all these innovations and I feel very positive about Kingfisher momentum as well.

While you are positive, we have reported a 1% volume contraction in the first nine months of the financial year. Could that pick up? Do you see the base effect kicking in?
Vivek Gupta: I think we are looking at high single-digit volume growth in our business. We have momentum on our business in the last two quarters, we have been reporting 7-8% volume growth. We continue to build this momentum behind innovation and our effort behind category growth. Our focus is on building the business for the next five years, not only for the next two years. As we continue to build and launch innovation, continue to drive category growth initiatives, continue to improve our execution, we feel we will have a good balanced growth both in terms of volume growth as well as revenue growth.

Although United Breweries’ premium portfolio has been growing at a steady pace, it is still a little bit slower than some of the other premium brands. What is the reason for this?
Vivek Gupta: We have a lot to do on the premium portfolio. In fact, last quarter, our premium portfolio grew around 14% and we have a plan to accelerate it even further this quarter and coming year. A couple of things: first, getting the right innovation and right portfolio on the premium. Second, making sure that we have a local supply chain for premium.

As you know, United Breweries has a wide network of breweries and not all of them produce premium locally. Our focus is on creating a supply chain of the future, which help us bring a premium portfolio to more consumers in more states consistently. We have very strong plans on growing premium as well. But at the same time, the focus is on driving category growth and it is about growing the business in mainstream, growing the business in premium, as well as growing the business in the economy in states where we can actually afford to launch economy brands. For example, in Karnataka, we launched London Pilsner, which is driving the category growth at the economy end as well.

Your margins recovery continues to remain a concern though. Do you believe that glass prices have now peaked out? Where do you see barley prices headed because I wanted to just get a sense of your gross margin recovery.
Vivek Gupta: Look, we are focused on balanced growth. Our focus will be first to ensure that we drive category growth – high single-digit volume growth and double-digit revenue growth. At the same time, we will have progressive margin improvement. As we bring more innovation, we need to bring more new bottle immersion, which means it impacts the gross margin in the short run, but in the long run, it helps the gross margin.

At the same time, the raw material prices continue to fluctuate. But we work on cost initiatives. We work on very strategic sourcing. As I mentioned, our focus is on balanced growth, which is to continue driving the top line, but with sequential gross margin improvements.

Over the medium to long term, how soon do you expect to reach pre-Covid level margins of 15%?
Vivek Gupta: I would say that a lot has changed post Covid. The competitive intensity has gone up. The regulatory policies have changed. At the same time, the supply chain is under tremendous pressure, both from imports as well as locally. I would say that we will have sequential increase in the gross margin and will continue to reinvest to ensure that the top line and the category growth is robust. I would not commit to a number of 15% or something, but I think we will have sequential progress in our margins.

Given that there have been quite a few new launches, three products in the last few weeks, what else is lined up in terms of your new launches, expanding your reach?
Vivek Gupta: Yes, absolutely. We have a very robust innovation pipeline. One of the things I am very confident about is that we have an innovation pipeline which can fulfil consumer needs in various states at various points of time. You would continue to see innovation coming from United Breweries over the next few months and coming years as well.

On the cross-border treaties as well. The EFTA was announced recently, although the UK FTA has been delayed beyond general elections now. How do you see this benefiting your industry?
Vivek Gupta: We are still studying the impact. Beer is a very local production. We contribute a lot to local farmers, especially in the barley and sugar and rice production as well. So, we are monitoring it. Our focus is actually with the European Union and even the regulatory stakeholders on ease of doing business. In our industry, there are a lot of opportunities on digitisation, on ease of doing business, on expanding retail outlets. Those are the areas we are focusing on but we are observing the free trade agreement and we can comment once we have more clarity on that.

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