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A STUDY ON PORTFOLIO ANALYSIS AND STRATEGIC PERSPECTIVE OF KINGFISHER BEER Group No.

2 Praveen Kumar Gagan Kasliwal Sneha Keshan Ashmita Goyal Abhijeet Akash Jitendra Kumar Gupta (035) (078) (084) (089) (092) (116)

EXECUTIVE SUMARY The present report is a unique effort to highlight the exuberance and achievemen ts of the United Breweries Ltd., a inimitable company, and the report, in a nuts hell, has tried to give glimpse on the company position, the industry analysis, comparative status, portfolio of its products Its core competency, value chain e tc. The UB Group was founded by a Scotsman, Thomas Leishman in 1857. The Group t ook its initial lessons in manufacturing beer from South Indian based British br eweries. United Breweries made its initial impact by manufacturing bulk beer for the British troops, which was transported in huge barrels or "Hogsheads". At th e age of 22, Vittal Mallya was elected as the company's first Indian director in 1947. After a year, he replaced R G N Price as the chairman of the company. Kin gfisher, the Group's most visible and profitable brand, made a modest entry in t he sixties. With currently into business of Spirits (United Spirits Ltd.), Wine, Beer (United breweries Ltd.), Engineering (UB Engineering Limited), Fertilizers (Mangalore Chemicals and Fertilizers) company has made its mark and presence in each sector it is in. United Breweries Limited (UBL) - has assumed undisputed m arket leadership with a national market share in excess of 50%. Through a proces s of aggressive acquisition and market penetration, The UB Group today controls 60% of the total manufacturing capacity for Beer in India. The flagship brand, K ingfisher is now sold in over 52 countries worldwide having received many accola des for its quality. As an economic force, India is believed to hold the potenti al to grow faster than any other BRIC country over the next thirty to fifty year s. The sub-continent's Beer market has been equally dynamic, growing by almost 90% since the turn of the Century. Exceptionally high growth was generated in the n orthern states of Punjab, Haryana and Rajasthan which took full advantage of red uced taxes and improvements in the distribution policy. In contrast to Russia, c onsumers are displaying a distinct preference for Strong Beer which has gained m arket share steadily in recent years and now accounts for almost 70% of total vo lume. Kingfisher Strong replaced Kingfisher Premium as the leading Beer and the Kingfisher brand overall now holds a commanding position.

MARKETING MYOPIA It is Narrow-minded approach to a marketing situation where only short-range goa ls are considered or where the marketing focuses on only one aspect out of many possible marketing attributes. Because of its shortsightedness, marketing myopia is an inefficient marketing approach. According to Theodore Levitt company shou ld have a radar view rather than tunnel view to its business and when we talk of UBL it is not at all myopic because it has foot falls not just in breweries ind ustry by products like distilleries, beer , wines, but has also entered into air lines, footwear, fashion, apparels, sports. Company's brand KINGFISHER is not new to any one and has showed its presence in every sector it is in. Company has als o gone for backward integration and has various collaborations and JV's with suppl iers. COST COMPONENT One of the most and well reckoned step that UBL has taken in order to reduce the rising cost and decreasing prodution (Appendix) of raw material barley over the year. Higher prices and short supply of key raw materials like malt, hops and b arley can reduce the profit margin and affect Any price increase in this two com modities have a direct bearing in reducing the overall operating margin. Due to price increase of barley by over 33% and increase in bottling cost, during FY200 8 the net profit margin fell by 26%. In states like Uttar Pradesh, Rajasthan and Madhya Pradesh which, account for 80.34% of barley production in India, the are a under cultivation is shifting to other crops like sugarcane. As can be seen in the adjoining diagram, the barley production has declined by over 60% from 3135 KMT to 1220KMT from 1975 to 2005. To hedge the risk on rising raw material pric es, UBL has entered into long term arrangements for sourcing of the vital inputs . In addition it has extended its own contract farming initiatives in the state of Punjab. The 51% Equity stake in Maltex Malsters Limited, a manufacturer of ma lt, is also an initiative for vertical integration. INDUSTRY The Indian beer industry has been witnessing steady growth of 10 - 17% per year over the last ten years. The rate of growth has increased in recent years, with volumes passing 170m cases during the 20082009 financial year. With the average age of the population on the decrease and income levels on the increase, the pop ularity of beer in the country continues to rise. In modern times, beer began to be exported to India in the early days of the British Empire the early 1700s. T he first modern brewery in India was set up in Kasauli, in the Himalaya mountain s, near Shimla, in the late 1820s by the Englishman Edward Dyer . The Indian bee r industry has witnessed a big change during the last five years. The industry w as previously dominated by competition between the Vijay Mallya-controlled Unite d Breweries Group and the Manu Chabbria-controlled Shaw Wallace. The scenario ch anged, however, with the entry of SABMiller in India. The international beer gia nt started by acquiring small breweries in the south but then completely changed the landscape with

the acquisition of Shaw Wallace's beer portfolio for a reported US$264m in 2003. T his gave SABMiller ownership of strong brands like Haywards 5000, along with its existing brands. After the acquisition, SABMiller focused on spreading its foot print across India, including opening new breweries in states where Shaw Wallace did not have a presence. In 2008, beer prices saw steep hikes in key beer consu ming states. Consumers' reactions to the price hikes saw many cut back on consumpt ion, which adversely affected sales growth. Excessive regulation and further ext ensions of government intervention, in the areas of distribution and pricing, is affecting the growth and profitability of the industry as well as restricting g overnment revenues. In addition, restrictions on advertising and licensing of re tail outlets continue to present challenges to the Industry. The Indian beer ind ustry is plagued with a myriad of taxes & levies that vary from state to state. These along with price regulation, inadequate market infrastructure and restrict ions in interstate movement of beer, pose a great challenge for the industry. Un like most developed countries where beer is less regulated and available freely, high level of regulation and higher end consumer price hampers beer sales in In dia. Uniform tax regime for beer in all states will be a boon for the industry. If implemented, it will help the beer industry by rationalizing end consumer pri ces in all states, as is in the case of other consumer goods. In addition to eco nomic contribution, a uniform tax structure will also create increased agro link ages that are beneficial to a country like India. It is important to realize tha t the beer sector can contribute immensely to the agricultural sector, as beer i s an agro-based product. Also marginal barley farmers, particularly stand to ben efit from the growth of the beer sector. BOSTON CONSULTANCY GROUP MATRIX (BCG MATRIX) It is a widely used portfolio management method for evaluating the performance o f business units. There are four quadrants in a BCG matrix: question marks, star s, cash cows and dogs. On the X axis, market growth is measured, which indicates the level of market attractiveness On the Y axis, market share is measured, tha t serves as a measure of the company's strength in the market STAR Stars are high-growth, high-share businesses. Very often, they need heavy invest ment for financing their rapid growth. Eventually, their growth slows down and t TAJMAHAL BEER:- Taj Mahal Premium Lager beer is prepare hey turn into cash cows. d with finest malt made at United Brewery own malt house using premium quality b arley. It has a distinct aroma and unique taste. The demand of this beer is main ly in abroad (australia, france, usa) as it is premium priced and have bitter ta ste which is not liked much in india though it is served in some premier hotels in india. The demand outside is very good and it accounts for good market share in the exported beer in india.

KINGFISHER STRONG:- spectacular growth of 36% is seen in strong beer (against a market growth of 16%) was witnessed. Kingfisher Strong has now achieved the numb er one position in the strong beer segment. CASH COW Cash cows are low-growth and high-share businesses. Such established and success ful business lines require less investment to maintain their market share. They generate a lot of surplus that a company can use to pay its bills, or invest in other businesses. KINGFISHER LAGER BEER:- it has witnessed a market growth of 13 % in comparison to the lager beer industry growth of 9.4%.in the lager beer segm ent, UBL is the market leader in all the 10 largest states of the Country. UBL c ommands a market share of around 40% with 67% of the market share in the lager b eer segment. QUESTION MARK Question marks are low-share business units, in a high-growth market. They requi re a lot of cash, for maintaining the market share. Any business has to think be tween building a question mark into stars or whether they have to be phased out LONDON PILSNER:- it has witnessed a market growth of more than 20% and targeting a market share of 15% . (Indiantelevision.com)

KINGFISHER DRAUGHT:- this beer has less water in comparison to other beer type. it has good market growth as it is proving success in its 2nd year still the mar ket share is less. (thaiindian.com) KINGFISHER BLUE:- this is launched around 89 months before to tap those customer who wants less alcoholic beer in compariso n to strong beer but more than mild. It has around 6% alcohol content. Since it has launched sometime before hence the market share occupied is less as strong b eer and lager beer segment is increasing very fast however market growth rate ma in up. DOG Dogs are low-growth and low-share businesses. They may generate enough surplus t o maintain themselves, but do not hold out the promise to be a large source of c ash. UB ICE BEER:- this beer is launched for trendy people in 330ml can.It was d ifferent from the traditional lager beer as it was made using a unique refrigera tion process which involves the formation of ice crystals which were filtered ou t giving the brew a crisp, clear and strong taste. It did'nt got good response as it has very low market growth instead people are drinking more the lager and str ong beer. KALYANI BLACK LABLE:- one of the oldest brand launched in 1969. It has low market share as it is only popular in east india and it assumed to be econo mical . the market growth for this brand is not good as people are shifting towa rds other beers such as London pilsner which is also economical brand. ANSOFF MATRIX To portray alternative corporate growth strategies, Igor Ansoff presented a matr ix that focused on the firm's present and potential products and markets (custom ers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible productmarket combina tions. MARKET PENETRATION The firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. KINGFISHER LAGER PREMIUM:- it has witnessed a market growth of 13% in comparison to the lager beer industry growt h of 9.4%.in the lager beer segment, UBL is doing market penetration in all the places by promoting the beer in every state. UBL commands a market share of arou nd 40% with 67% of the market share in the lager beer segment.

KINGFISHER STRONG:- The company is investing much in this product and also the c ustomers are increasing due to the more alcoholic content and it has registered spectacular growth of 36% in strong beer (against a market growth of 16%) was wi tnessed. MARKET DEVELOPMENT The firm seeks growth by targeting its existing products to new market segments. TAJMAHAL :- This beer is made mostly for export purpose and contain less alcoho lic content though the taste is unique due to its bitterness. The demand of this beer is mainly in abroad (australia, france, usa) as it is premium priced and h ave bitter taste which is not liked much in india though it is served in some pr emier hotels in india. LONDON PILSNER:- this beer mainly aims lower income group as it is economical beer and this beer contain less alcoholic content hence cat ering to all together different segment.

PRODUCT DEVELOPMENT The firms develops new products targeted to its existing market segments. KINGFI SHER DRAUGHT:- this beer contain less amount of water and comes in 500ml can. He nce creating a new product in existing market KINGFISHER BLUE:- this is launched around 8-9 months before to tap those customer who wants less alcoholic beer in comparison to strong beer but more than mild. It has around 6% alcohol content. It is also done to create a new product. KINGFISHER BOHEMIA:- Kingfisher- the b rand that has been synonymous with providing a "good time" to consumers have lau nched their own brand of wines in India "Kingfisher Bohemia". It is launched in 2008 to get the wider reach in the alcoholic drink market. KINGFISHER ULTRA:- Th is will be launched within some months. It is a new drink having sweetness in it .

DIVERSIFICATION This resulted in the company entering new markets where it had no presence befor e KINGFISHER LEISURE WEAR:- kingfisher is diversified in the leisurewear segment extending itself in the path of providing good time to customers. KINGFISHER AI RLINES:- kingfisher airlines had becomes a very well known company in itself.thi s is a full-fledged carrier providing comfort to its fliers. KINGFISHER SWIMSUIT CALENDAR:- kingfisher also launch its annual swimsuit calendar which is the sec ond costliest calendar in the world. SPORTS:- kingfisher also diversified in var ious sports Current such as in Formula 1, Rugby and Football. PORTER'S FIVE FORCE MODEL This model is developed by Michael Porter, this model analyzes the nature and in tensity of competition in an industry through five forces (rivalry, customers, s upplier, new entrants, and substitutes). These five forces are explained as belo w:BARGAINING POWER OF SUPPLIERS:- With increasing cost of raw material and decre asing cost of barley suppliers bargaining power was high but with backward integ ration by acquiring Maltex Malsters Ltd. And shifting their production of beer o n malt company has achieved a hold on its raw material and considerable reduced the supplier strenth and dependency. Company has aslo collaborated with Governme nt of pujab and haryana for supply of iits raw material.

RIVALRY:- Rivalry is the means through which competitors fight for position by u sing tactics such as price, competition, advertisement battles, and new product introduction, to lower the profits of competitors in the industry. A CAGR of 11% is expected for beer in the next 5 years many MNcs are eyeing the Indian market . Currently the major rivalry for kingfisher premium is Budweiser, Carlsberg, Fo ster and Tiger and for kingfisher strong it's Hayward 2000, Hayward 5000, Palone. SABMiller's who came to India by acquiring small breweries and made its hold as Be st-selling strong beer brand but still kingfisher being Largest-selling strong b eer brand (29%market share) is currently being supplied in 55 country. There are also some small local players that are in the market but does not provide much threat to kingfisher. THREAT OF NEW ENTRANCE:- Beer industry is in Growth phase with 11% CAGR, so it is attractive for the new players. But strong brands like k ingfisher and haywards which already have their brand recall and extensive adver tisement new entrants are expected to struggle to expand their consumer base as they try to penetrate the beer market in India. Foreign brewers have been eyeing the Indian market for some years now as India is widely acknowledged to be the last untapped big growth market Several

international brewers have currently built brand associations and are marketing their brands aggressively through various point-of-sale promotions throughout th eir distribution networks. But with strong players in the market the new entrant will face problems of a) Economies of scale For example benefit associated with bulk purchases and sales b) Cost of entry For example investment in technology c) Distribution channel For example ease of access for competitors d) Government Legislations introduction of new laws might weaken companies position e) Differ entiation For example certain brands that cannot be copied f) Supplier power Pos sibility of forward integration by supplier BARGAINING POWER OF CUSTOMERS:- It i s the extent to which customers are successful in forcing prices down, or securi ng high quality or more service at the same price. Customers tend to be powerful when the quantities they purchase form a large portion of the seller's total sa les. Buyer do not understand the quality of the beverages and as there are not m any players in the market the customer has less command over price. THREAT OF SU BSTITUTE:- India is predominantly a spirits market and beer is a minority prefer ence for those who consume beverage alcohol. So substitute is biggest threat as preference for beer among beverage drinker is less but the low penetration in be er consumption in comparison to international levels offers the expectation of s ubstantial and sustainable growth in demand for beer in years to come, particula rly given the youthful age of India's population. MICHAEL PORTER'S VALUE CHAIN

PRIMARY ACTIVITIES INBOUND LOGISTICS:- Beer is brewed in either the company's owned or non-owned Brew eries, with certain Breweries set up for certain functions. This also reduces th e cost and there is less treat of the suppliers. The company also has its franch ise for the production of the beer. The best example is of the Taloja plant situ ated in Mumbai. The experience of Kingfisher brand since 1915 adds to the experi ence and efficiency of the firm. The is thing is also very clear from its balanc e sheet as the EBITDA of United Breweries is 2675.2 Millions which is 35.61% mor e than previous year (2007-2008). The owned plant also has reduced the switching cost of the suppliers of Kingfisher. Higher prices and short supply of key raw materials like malt, hops and barley can reduce the profit margin and affect ope rations. Barley and glass bottles constitute 12% and 40% of the total operating expense of UBL. Any price increase in this two commodity has a direct bearing in reducing the overall operating margin. Due to price increase of barley by over 33% and increase in bottling cost, during FY2008 the net profit margin fell by 2 6%.[10] In states like Uttar Pradesh, Rajasthan and Madhya Pradesh which, accoun t for 80.34% of barley production in India, the area under cultivation is shifti ng to other crops like sugarcane. The barley production has declined by over 60% from 3135 KMT to 1220 KMT from 1975 to 2005. To hedge the risk on rising raw ma terial prices, UBL has entered into long term arrangements for sourcing of the v ital inputs. In addition it has extended its own contract farming initiatives in the state of Punjab. The 51% Equity stake in Maltex Malsters Limited, a manufac turer of malt, is also an initiative for vertical integration and excellence in inbound logistics. OPERATIONS:- Quality and hygiene are the key elements of the United Breweries' manufacturing philosophy. To this end, the Central Scientific Laboratory (CSL), headquartered at Bangalore sets standards for all its brewerie s. Quality Management Systems laid out along the lines of ISO 9000 are strictly adhered to, controlling quality at every stage of production, from raw materials to the end product. Also, besides controlling the production process, the CSL a nalyses the Company's beer taken off market shelves all over the Country, the co mpetition's beers and beers across the world. These beers are tested as per the standards laid down by the European Brewery Convention on 40 different parameter s. By these standards, United Breweries' beers don't just equal, but even surpas s, several Dutch and American beers. OUTBOUND LOGISTICS:- No internal distributi on/Use third party to distribute product. The channel is very strong. As we know alcohol is a state subject in India and hence each state has it own taxation, p ricing and distribution policies. No inter state movement of alcohol is allowed. Also since beer is not delinked from other spirits it is heavily taxed at over 42%. Since tax on alcohol contributes to over 17% of state revenues, the governm ent is hesitant to change the tax treatment. Any further increase in taxation on beer would shift consumer preference towards other alcohol products thereby red ucing the demand for beer. In states of Delhi, Andhra Pradesh, Karnataka, Tamil Nadu and Kerala government controls the distribution of alcohol. Whereas in stat es of Rajasthan, Bihar and Himachal Pradesh auction based distribution is used. Reforms in the distribution system in these states would increase the competitiv eness in the market and lead to increased sales as was demonstrated by the 400% increase in beer sales in the states of Punjab and Haryana after the distributio n reforms in July 2008. It has also

lowered the barriers to entry present in the industry and thus brings a more com petitive environment in the industry. But the quality and its channel is so stro ng that it doesn't find any threat from the new entrance. The corporate strategy o f kingfisher to demonstrate the complete plant to any of the distributer reachin g the plant has improved the brand loyalty and increase the switching cost for t he users. It has a network of 23 distilleries across the country to meet the req uirements at the regional level giving it an unparalleled distribution reach wit hin India. MARKETING/SALES:- Lot of focus on quality marketing as well trained s ales force to sell the product in India is carried by the Brand. Vijay Mallya, t he flamboyant CEO of United Breweries the company that owns the Kingfisher brand - is one of the most flamboyant CEOs in Asia. Vijay Mallya believes in leading his brand from the front by leveraging his personality. Vijay Mallya is referred to as India's Richard Branson. A great part of the personality of the Kingfishe r brand is based on Mallya's personality. He is credited with having single hand edly changed the image of his beer brand from a commodity to a lifestyle brand. Hence he carry so strong brand marketing that it is said that at every second 4 bottles of Kingfisher bottles are sold. Sales force is trained and highly experi enced. SUPPORT ACTIVITIES PROCUREMENT:- Choose high quality ingredients to ensure higher quality end resul t. Heavy reliance on this process. TECHNOLOGICAL:- In technology advancement the y have automated the complete plant in 2000 by the Allen Bradley system. This ha s considerably reduced the cost and increase the rate of production. The cycle t ime is reduced to half of the previous statistics. INFRASTRUCTURE:- Very strong management with a good understanding for competition and zeal for staying on top of industry. Its infrastructure is good as it is backed by the parent brand of UB Groups. PORTERS GENERIC STRATEGY Companies can achieve competitive advantages essentially by differentiating thei r products and services from those of competitors and through low costs. Firms c an target their products by a broad target, thereby covering most of the marketp lace, or they can focus on a narrow target in the market. According to Porter, t here are three generic strategies that a company can undertake to attain competi tive advantage: cost leadership, differentiation, and focus. Kingfisher is follo wing a differentiated strategy by introducing a product range in all the categor ies like premium beer, mild beer and strong beer cater to all the segments in th e market. They also differentiated their product through marketing their product by associating their brand with major events, like sponsored West Indies team i n world cup 1996 by showing a spirit of team, IPL, east Bengal football club, Mu mbai marathon, Bangalore open. With the company target to youth segment it also

used the focus strategy by associating with events that youth likes such as Form ula one race where it showed and given the brand a sense of excitement and a sen se of thrill. Various sports club of kingfishers are sponsor by youth brands lik e Reebok, Nike etc. They have also introduced products specific to region like, kalyani black in eastern india, UB exports is famous in Karnataka in order to fo cus on their customers. GE MATRIX STRONG-HIGH UNITED SPIRITS LIMITED:- With considering the fact that the Spirits market is gr owing at a rate of 20% and United spirits have also shown a remarkable growth of 20% by volume. This is a strong area for the company and company should invest and grow in it UNITED BEVERAGE LIMITED:- Largest in India with a market share of 50%. Beer Market is also showing a growth pace of 10-12% and the industry is pr ojected to grow between 15% to 18% in the next two years. The regulatory framewo rk across key markets in India is undergoing a progressive change. The liberaliz ation of policy is expected to result in an increase in retail outlets as well a s rationalization of pricing.

KINGFISHER AIRLINES:- Kingfisher Airlines is No. 1 airline in India with a marke t share of 27.1% (December 2008). Nearest competitor airline is at 16.8% (Jet & Jetlite together have 24.4%). The CAGR of market growth from FY 2004 to FY 2008 has been 31%. Whilst market gr owth YoY dropped from FY 2007 to FY 2008, Indian airlines industry has shown a g rowth of 18% per annum, the reduction has been primarily on account of unmanagea ble ATF price increase leading to increase in fares.

Reduction in ATF prices resulting in reduced fares (implemented end Dec 08 and J an 09) will bring back customers to air travel MEDIUM-MEDIUM UB ENGINEERING LIMITED:- UEL UB Engineering is a engineering and construction co mpany catering to cross section of industries in power, steel, cement and petroc hemical sectors With a recessionary condition in the market there is a medium gr owth seen while company has shown triple digit growth in profit. MANGALORE CHEMI CALS & FERTILIZERS LIMITED:- Only Fertilizer plant in Karnataka, with a dealer n etwork of 2530 in South India and a well established brand MANGALA. With fertilize r industry showing a medium growth of 10-12% the company is also on growth path. Fe rtilize rs , 15% Engine e rin g , 3% Airline s , 6% Be e r , 17% Spir its , 59% SWOT ANALYSIS STRENGTHS Strongest Worldwide Distribution System Huge Finances backing from UB Group Olde st & Largest Player In India Worldwide known Brand WEAKNESS High Concentration on Strong Beer Market . Too much diversified. OPPORTUNITIES

Beer consumption is increasing Per capita beer consumption in India - 0.5 litres which is very low

Brand Extension Benefits

Changing lifestyles of middle class Increase in disposable income THREATS High Taxes & Regulations Prohibition on Advertising Indian Culture is a Major Hi ndrance Negative perceptions about alcoholic beverages widely prevalent Many International Player Entering In India This is a `regulated' industry COMPETITIVE ADVANTAGE MANAGEMENT TEAM Professional Managed Seasoned Professionals with Significant Ind ustry Experience SEGMENT MARKET PRESENCE Least Vulnerable to Policy Volatility d ue to Large Spread LOCAL SOURCING OPTIMAL, AS ALMOST COMPLETELY LOCALLY SOURCED MANUFACTURING TECHNOLOGY Largest Manufacturing Space Maximum Capital Utilization BRANDING Strongest Brand Significant Up gradation Value Chain Ownership Initiat ives Planned for Integrating into Retailing CORE COMPETENCY Strong brand image w ith continuous innovation and technology along with good marketing and distribut ion channel are the core strength of the company

FUTURE GROWTH In India the future of beer industry is very much optimistic because: 1. India h as predominantly a warm/hot climate 2. The beer-drinkers in the country are much younger than the average beer-drinker elsewhere in the world. This makes them m ore likely to carry the brand with them for a lifetime. 3. Increasing exposure t o beer and wine drinking, mainly due to media and consumer mobility. All these f actors combined make the scenario very promising for beer industry and are 'in s ync' with their strategy for India.

LEARNINGS Acquisition, Strategic alliance, joint ventures are important strategies to sust ain in the market, if there are large number of small players, threat of foreign company entry. Diversification and innovation are the key drivers for tapping t he market. Vertical integration helps to sustain in the market if production of raw material decreases and cost increases. The concept of umbrella branding is u sed consistently and successfully by kingfisher e.g. Kingfisher beer, Kingfisher fly. The industry analysis by five forces is an excellent tool one should use f or understanding the market. APPENDIX