Sales & Distribution Management

Final Project Report

Problems in Rural Distribution – AB InBev

Submitted To
Prof. Vibhava Srivastava

Submitted By

GROUP NO. 4 | SECTION – C | TERM – 4

Shailav Goel – 17P162
Tejas Salvi – 17P175
Yajan Sood - 17P180
Arpit Behl – 17P189
Himanshu Raghuvanshi - 17P237

PGPM 2017-19

MANAGEMENT DEVELOPMENT INSTITUTE

Gurgaon

July 2018
Table of Contents
About Ab InBev ....................................................................................................................................... 3
SWOT Analysis......................................................................................................................................... 3
Strengths............................................................................................................................................. 3
Weaknesses ........................................................................................................................................ 3
Opportunities...................................................................................................................................... 4
Threats ................................................................................................................................................ 4
Industry Environment Analysis ............................................................................................................... 4
Political Environment ......................................................................................................................... 4
Economic Environment....................................................................................................................... 4
Social Environment ............................................................................................................................. 5
Technological Environment ................................................................................................................ 5
Porter’s Five Forces Analysis ................................................................................................................... 6
Buyer’s Bargaining Power: .................................................................................................................. 7
Bargaining Power of Suppliers:........................................................................................................... 7
Threat of New Entrants: ..................................................................................................................... 8
Threat of Substitutes: ......................................................................................................................... 8
Summary:............................................................................................................................................ 9
Situation Analysis (5C Analysis)............................................................................................................. 10
Company ........................................................................................................................................... 10
Competition ...................................................................................................................................... 10
Context ............................................................................................................................................. 11
Collaborators .................................................................................................................................... 11
Customers ......................................................................................................................................... 12
Beer Distribution Channels ................................................................................................................... 12
1. Retail ......................................................................................................................................... 12
80% of all beer is purchased at the retail level. However, going the retail route requires a lot of
initial effort. ...................................................................................................................................... 12
2. On-Premise ............................................................................................................................... 12
3. On-Site ...................................................................................................................................... 13
Problem Statement ............................................................................................................................... 13
Challenges faced in Rural Distribution ............................................................................................. 13
Data Set & Analysis ............................................................................................................................... 15
Sales Trends ...................................................................................................................................... 15
Competitor Distribution ................................................................................................................... 16
Recommendations ................................................................................................................................ 17
Bibliography .......................................................................................................................................... 18

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About Ab InBev
AB InBev, is the largest brewer in terms of market size and one of the largest FMCG companies in the
world. Budweiser was introduced by Adolphus Busch in 1876. Anheuser Busch InBev is currently the
world’s largest brewing company; distributing more than 400 million hectoliters of beer annually and
dominates 90 % of the American Beer market and also has a growing presence in the Indian market. It
has a global market share of 28% and has a wide array of brands under its umbrella.
The company’s objective is to focus primarily on international sales to globally expand its trade market.
Budweiser, Bud Light, Michelob, Michelob Honey Lager, Busch and Busch Ice are some of the beers
available under its product line. Bud Light, is the world’s bestselling beer, and accounts for about 40% of
the annual sales with 36.7 billion in terms of revenue.
Spread over nine geographic zones, it targets a large set of consumers. The company has a focused
approach towards branding i.e. it uses a unique classification of its brands as global brands, international
brands and local champions. AB inBev’s clarity of vision, mission and goals help one associate with the
brand with ease owing to a ‘ten principles’ setup which entails the values and entities the firm believes
in, invests in and brands itself on. Budweiser is a part of the ‘global brands’ and is the highest selling beer
in the United States.
It has a presence in 80 markets worldwide. In an era where technology embraces marketing, the company
incorporates state of art research and data analytics to solve consumer and supply chain issues via its
‘bud business lab’ in Urbana-Champaign. Budweiser has always had catchy slogans, a presence in global
sporting events and uniqueness in packaging and this is what has helped it create a unique place for itself
in the minds of the consumers.

SWOT Analysis
Strengths
 A stable and established brand legacy lends it immense recognition and a clear competitive
advantage
 Advertising know- how – Easier to communicate with the right audience
 Core competencies in marketing, distribution, production and procurement owing to vast
global expertise
 Lower overall unit cost – Economies of scale

Weaknesses
 Intense global competition and a plethora of domestic players mean limited market share
growth

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  Budweiser not seen as a premium brand, even though this is how they wanted to position
themselves
 Limited Stock Keeping Units results in slower distribution expansion

Opportunities
 Rising disposable income and changing lifestyle preferences
 Expanding product line for new areas and to accommodate changes in tastes and preferences
 Introducing a line of premium non-alcohol beverages
 Potential to expand into the rural market

Threats
 Prevalent misuse of the brand name for selling fake beers affects brand image and perception
 Influenced/affected by religious beliefs in multiple states
 Dealing with legal issues arising from underage drinking- retailer’s license may be revoke or
suspended
 Competitors selling beer at lower prices

Industry Environment Analysis

Political Environment
 Across the country, different states have different rules for liquor sale and distribution. A few
states like Gujarat are dry states where the sale of liquor is completely banned, while some
have certain timing curfews post which sale of liquor is prohibited. A few other states
(example: Kerala) have restricted alcohol sales to state regulated outlets and luxury hotels
alone, thereby making it extremely difficult for small scale retail sale of alcohol.
 Since the Government regulates buying and selling of alcohol, getting a permit to sell alcohol
is an uphill task in the country. To get a permit, sellers end up paying heavy taxes, thus,
increasing the prices of alcohol.
 The more recent ban on the sale of liquor in establishments which were on or close to
national/ state highways have drastically affected the sales of multiple retailers in different
states.

Economic Environment
 With the introduction of GST, there is a possibility of the prices of beer rising by 12% to 15%.
Rather than a direct impact on beer production costs, other ‘inputs’ that supplement
production like glass bottles, barley malt, molasses and denatured alcohol will be taxed at 18

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 and 28 per cent. Most of the large scale beer manufacturers including Budweiser leverage the
lack of excise duty on ‘second hand bottles’. With the GST rates on ‘second hand bottles’ still
under speculation, the industry expects a price hike as high as 18% in case of an unfavourable
decision. Inputs / raw materials account for about 25% of the beer manufacturing costs and
hence, although alcohol has been exempted from the GST pyramid, increase in input costs will
likely push beer prices up, which will pose a challenge to beer manufacturers to keep their
consumer base intact and not let consumption levels fall.
 Beer sales in India are expected to see an annual growth of 7.5% over the next five years as
per multiple surveys despite regulatory hurdles, as rising disposable incomes in the hands of
a burgeoning young middle class will lead to higher spending.

Social Environment
 Increasing disposable income and changing lifestyle preferences of people, coupled with
specific demands for more variety, on premise locally crafted offerings facilitate Budweiser’s
top line enhancement as well as present multiple opportunities and challenges
 Concern about binge drinking and associated anti-social behaviour is on the rise
 Drinking beer for social and recreational purposes is a change that has been seen in the socio-
cultural trends. Studies establish millennials to be adventurous and brand loyal, although
open to trying multiple options and varieties.
 Recent upsurge in the number of pubs in the nation shows a cultural shift which establishes
that the Indian youth prefers ‘experiences’ over physical products and establishes true value
in the experiences co-created with the brand Budweiser.
 Budweiser can now probably start targeting rural markets as well

Technological Environment
 The Indian Beer Industry is heating up with a lot of foreign players entering the Indian market.
This technological knowhow and expertise has increased competition
 With modernisation in technology, a lot of companies and restaurants have opened their own
breweries
 Advancement in technology has also lowered the cost of production i.e. packaging and
bottling
 Communication about the beer industry has been made easier by more and more people
moving towards the digital media

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Porter’s Five Forces Analysis

Rivalry among Existing Competitors:

Degree: High
 The beer and alcohol landscape in the country is heavily contested by a plethora of highly
competitive players with strong global footprint and market shares, vying for specific consumer
tastes.
 With more than 300 million cases an year, the beer market has been displaying steady growth in
the past few years. From market leader UB (51%), and Carlsberg (15%), brands deploy a variety
of strategies to cater to their target audiences from differential temperatures (eg: SAB Miller’s
extra cold) to premium variants in intensity (eg: Tuborg’s ‘Strong’ and Carlsberg Elephant). AB
InBev acquired SAB Miller to increase its share to ~24% and has its offering primarily tailored to
the premium segment.

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  Thousands of varieties of beer, a lot of brewers, perishable nature of product and low switching
costs for the consumers. This pushes the brands to either reduce their costs to get consumers of
other beer brands to switch to theirs, or come up with innovative ways to promote their product
in order to occupy a differentiated place in the minds of the consumers.

Buyer’s Bargaining Power:

Degree: High
 The buyer holds high bargaining power as they have a wide variety of beer that they can choose
from. Also, with the disposable income increasing, lifestyles have changed and now-a-days,
people want more of everything, thus, there is constantly a demand for new varieties of beer.
 Cost of switching is low and so, consumers tend to switch easily
 Consumers of premium brands of beer remain well informed about pros and cons and multiple
offerings shaping up in the industry.
 For a brand like AB in Bev, the onus is to keep itself differentiated via the following:
o Quality – the brand’s commitment to quality via prudent and selective supplier selection
as well as living up to its mission to produce ‘strong’ beer
o Strategic partnerships and collaborations to tailor its offering to regional markets
o Continued focus on innovation and customisation

Bargaining Power of Suppliers:

Degree: Moderate
 In the beer industry, the supplier occupies a key position in determining the health of the
business predominantly owing to the symbiotic relationship shared with the manufacturer. In
the case of large scale manufacturers like Budweiser, owing to the large volumes of raw materials
purchased, firms and suppliers engage in long term commitment or contracts thereby ensuring
that the odds of ‘switching’ are low for the supplier.
 Suppliers provide the equipment for brewing as well as the ingredients. The ingredients that go
into the brewing of beer cannot be replaced and therefore, suppliers are always trying to keep
the industry afloat.
 There are multiple suppliers and that is where their bargaining power goes comparatively low as
firms would switch to the supplier who gives the best deal to them.
 At the same time, owing to the immense importance of the availability of quality raw materials
like yeast in the requisite quantities for the manufacturer, the onus of a healthy working
relationship is as much on the manufacturer as the supplier. For global players like AB in Bev,

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 suppliers offer end-to-end services like dedicated regional sales managers equipped to
collaborate in long term planning and better understanding of markets.

Threat of New Entrants:

Degree: Moderately high
 The beer industry in India, rather than witnessing new ‘players’ in the premium market is
witnessing a paradigm shift in a plethora of small scale players coming up in the ‘craft beer’
segment which involves non mechanized manufacture of beer in microbreweries. The two year
old ‘Bira 91’, albeit commanding a meagre 2% market share at present, aims at striking a cord
with the premium consumer segment via specific offerings in the ‘strong beer’ category with a
differentiating focus on taste via deploying wheat in beer brewing.
 Other players offer customers options to participate in the brewing process via independent
breweries to add an extra flavour of customisation in their portfolio. The fact that AB in Bev’s
market share has taken a slight dip in the latest quarter to ~20% from its previous 24% should be
attributed to the increasing threat imposed by smaller, fragmented players arriving in the market
and attracting young, upmarket audiences with nuanced demands and a penchant for new,
varied experiences.
 Considering the existing competition in the industry already, the cost incurred by a company to
set up a beer company is high and so, to some extent, it acts as a discouraging factor for firms to
enter the industry.
 AB in Bev’s positioning as a globally renowned premium brand that caters to specific target
markets should be leveraged as a shield against newer competition, but options ranging from
‘brew your own beer’ to generating an experience focused rather than product focussed offering
should be explored in the medium term.

Threat of Substitutes:
Degree: High
 AB in Bev’s portfolio consists of other SKUs ranging from ‘Budlight’ to ‘Corona Extra’ for
consumers demanding a variation in flavour, aroma and balance which hedges its risk of losing
out owing to the consumer’s inclination for a change of taste vs. Budweiser, as well as a proclivity
towards beer with lesser calories.
 Rise of craft beer’s popularity should be perceived as an alternate option with more than 100
brewpubs coming up in the country’s major cities offering independent and customized brewing
services and rising players like Bira91 on the verge of faster geographical expansion through
setting up breweries at strategic locations in the corporate hubs of Maharashtra and Karnataka.

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  A growing niche segment in AB’s target markets, moving towards non-alcoholism is leading the
promotion of non-alcoholic substitutes to beer, although the same is currently perceived as a
relatively minor threat as well as a factor at the industry and not the product level.
 There are various other substitutes as well such as wine, vodka, rum and whiskey. Therefore,
there are constant innovations in the product that beer brands need to come up with in order to
avoid losing consumers to these other substitutes.

Summary:
Metric Summary/ Conclusion

Rivalry within the industry High, innovative offerings by multiple players

Buyer’s bargaining power Reasonably high, nuanced demands on tastes
and strength, although brand loyalty continues to exist
Supplier’s bargaining power Moderate, heading towards a symbiotic
supplier manufacturer relationship
Threat of new entrants Moderate to high, with the advent of craft beer and
its increasing popularity
Threat of substitutes High, risk hedged via multiple options in Bud’s own
portfolio as well as others forms of alcohol such as
wine, vodka, rum, whiskey etc.

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Situation Analysis (5C Analysis)
Company
Anheuser-Busch InBev is the leading beer brewer in the world and one of the top five consumer
products companies in the world. Their brewing heritage dates back more than 600 years, spanning
continents and generations. The company is geographically diversified, with a balanced exposure to
developed and developing markets. AB InBev has a diverse portfolio of over 500 brands including
global brands like Budweiser, Corona and Stella Artois. The company aims to achieve its dream of
bringing people together for a better future.

Competition
The largest selling beer in India is United Breweries’ Kingfisher. The major breweries in India are
Bangalore based United Breweries, Carlsberg, SAB Miller India, Som distilleries and AB InBev. United
breweries has a market share of about 43% followed by SAB Miller (18%), Carlsberg (13%). AB InBev
has managed to gain 5% market share.

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Context
In terms of volume sales, the Indian beer market is around 285-286 million (cases or bottles) strong.
Per capita consumption of beer, however, is not more than 1.9 liters per annum in India, lower than
most other countries in the world (Per capita consumption of beer for Czech Republic is 141 liters).
Also, there is trend for strong beers in India, which accounts for 80 per cent of the sales volume in
contrast to the global trend of mild beers, the dominant category.
AB InBev has a low penetration in the Indian rural market owing to a weak distribution network and
presence of other major and local players in the rural market.

Collaborators
Collaborators are usually the external stakeholders who team up with the company in a mutually
beneficial partnership. The major collaborators in the beer industry are the shareholder and investors
in the company, suppliers of raw materials such as barley, wheat, bottling plant owners etc., and
advertisement and marketing agencies as they market the products to the consumers. Other
collaborators include distributors, transportation companies and retailers as they help in making the
products available to the end customers. It is extremely important to understand the capabilities,
performances and issues of various collaborators to better identify various business problems.

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Customers
Knowing the customers/target audience is a major part of understanding a business. In India, 70% of
the population abstain from drinking, of the remaining population, 25+ years aged beer drinkers are
the target market for the company. Targeting new customers could open new avenues for the
company.

Beer Distribution Channels

One of the keys to creating a successful brewing operation is to focus on a distribution strategy that
defines you as a brewer and also allows you to maximize your sales efforts. Building a better
mousetrap does not mean consumers will beat a path to your door. Assuming you are making great,
consistent beer and have excellent branding, you still need to consider how you’ll distribute your
beer.

Where will you be selling your product? There are numerous ways into the beer market and you need
to be aware of the requirements for each. Below are the 3 most common beer distribution channels.

1. Retail
80% of all beer is purchased at the retail level. However, going the retail route requires a lot of initial
effort.

In many cases, you have to apply for a listing with the retailer. This could be time-consuming and may
take as long as nine months to get approval. Once you have approval, now the hard work really begins.

You should design your sales strategy to focus on the locations that are geographically important to
your brewery. You need to ensure good placement in each store, which means hiring a sales force that
understands the nuances of retail. Sales calls need to be made and a regular schedule should be kept
to create and nurture relationships with retailers.

2. On-Premise
Selling to bars and restaurants seems like the easiest access to the consumer, but again, be prepared
to face many hurdles. As with retail, a dedicated sales team is vital. It’s crucial to equip your team with
the knowledge necessary to earn the respect of both customer and consumer. This includes product
knowledge, draught system knowledge, proper pouring and serving techniques, etc. This channel can
be the most competitive, with many small brewers all vying for the same space in ‘craft’-centric bars
and restaurants.

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3. On-Site
Selling beer to consumers from your brewery may be the most profitable, but bear in mind what kind
of environment you will need to create. Do you have a storefront? Is a tasting bar part of your
experience? Will you sell draught and packaged beer to consumers? Keep in mind that only 9% of beer
nationally is draught.

Problem Statement
AB InBev is leading beer brewing player in the world, however, its reach in rural parts of India is not
as great as United Breweries’ Kingfisher. There are various factors which contributes to AB InBev’s low
reach in rural region of India. Factors like inadequate transportation facilities, pricing, availability of
dealers, credit facilities, etc.
India’s 70% of the population out of 1.2 billion consists of rural population. There lies a huge
opportunity to tap this untapped market by addressing different challenges faced by the company in
rural distribution.

Challenges faced in Rural Distribution

Difficulty in reaching retail outlets
The major problems faced by the company are:
 Lack of adequate transportation facilities
 Lack of proper roads and large distance between nearby towns
The low density of population and inaccessibility makes the problem of servicing these villages
individually difficult and often uneconomical. Direct delivery of goods to even the top one per cent of
village costs twice as much as servicing urban markets.

Pricing of beer
Traditionally, India is a whiskey consuming nation and one of the major reasons is the pricing of
alcohol. In India, alcohol is taxed by volume i.e. tax on 600 ml of beer is same as 600 ml of whiskey
even though they vary in alcohol content. Pricing of beer therefore is naturally higher. Hence, AB InBev
being a premium beer brand is not able to compete with other Indian as well as local players on its
pricing.

Multilevel tiers, Higher costs and Administrative problems

A rural distribution chain typically requires a larger number of tiers, compared to an urban distribution
chain. The scattered locations of the consuming households and the long distances to be covered from

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the product points cause this situation. Multiple tiers and scattered outfits push up costs and make
channel management a major problem for the company. The least requirement for the rural
distribution chain includes a shopkeeper at the village level, a distributor at the mandi level and a
wholesaler/stockiest in the same or nearby town. In case of AB InBev they require a liquor shop and a
distributor which might or might not be located in the village territory.

Availability of Dealers
The major problem here is that there are a limited number of suitable dealers who can sell alcohol for
them. Even if the company is willing to start from scratch and try out rank newcomers, the choice of
candidates is very limited and a riskier option. The credit facility of the company is often misused
which leads a lot of bad debts for the company

Poor visibility of liquor shops

Liquor outlets in the rural market suffer a lot from poor viability. A familiar paradox in rural distribution
in general is that the manufacturer incurs additional expenses on distribution; still the retail outlets
find that the business is unremunerated. In case of AB InBev the distance between the manufacturer
and the distributor is even larger. The scattered nature of the market and the multiplicity of tiers in
the chain usually use up the additional funds the company is prepared to part with.

Inadequate credit facilities

Lack of institutional/bank credit is another constraint for liquor shop owner/distributors. Liquor
outlets are unable to carry adequate stocks due to lack of credit facilities which leads to a lot of bad
loans for the company. They are unable to extend credit to their customers. Thus there is a vicious
circle of lack of credit facilities and proper payment terms leading to inadequate stocking and loss of
business for the company, finally resulting in poor viability of outlets.

Distribution of liquor varies by state

In some states, such as Tamil Nadu, Kerala and Delhi, the government acts as distributor and markets
it through its own shops. In Uttar Pradesh, Andhra Pradesh and Karnataka, distribution is semi -
controlled by state governments. Governments act as distributors and the retail sector is not
controlled. In other states, such as Maharashtra and Goa, distribution is free, as with any other
consumer company such as Britannia Industries (biscuits), Colgate Palmolive India (toothpastes) or
HUL (soaps). Four state governments (Gujarat, Nagaland, Manipur and Mizoram) have banned the
sale of liquor within their territories.

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Data Set & Analysis
Sales Trends
Demand for craft beer has been growing thanks to a consumer willingness to try out new products.
This has resulted in the opening of many micro-breweries in first-tier cities. Within a short period of
time the category has attracted a large customer base. The growth of micro-breweries is also being
driven by rapid urbanization and rising disposable incomes, but is also being supported by state
governments, which have allowed them to open. Over 2013-2017, micro-brewery chains including
Striker Pub & Breweries, Toit Pub & Breweries, District 6 Pub and Brewery, The White Owl Brewery
and The Brew Master opened outlets in various cities. Craft beers are expected to grow further over
the forecast period as urbanization in the country continues and more states agree to the opening of
micro-breweries. Furthermore, new companies such as Simba, White Rhino and Wit linger which
currently operate regionally have plans to expand into new territories.

As the graph represents, major chunk of the sales (close to 80%) comes from Off-Trade. This is
representative of the fact that the culture of pub & breweries i.e. On-trade is rising but not strong
enough to overcome the growth in the Off-trade sales. When it comes to rural distribution, on-trade
contribution is further lower. This brings in another issue of setting up better distribution network and
retail outlets for the rural market.

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Competitor Distribution
Kingfisher is present in almost all of the 90000 outlets across the country through the strength of
extensive distribution network and a diversified brand portfolio.
Kingfisher follows the traditional distribution channel where the product goes from the manufacturer
to the distributor to the retailers and to the consumers. Thus there is a two level distribution channel.
The reason for the adoption of two level distribution channel is the high number of outlets that the
company reaches out to. With the level one distribution channel the company would not be able to
maintain the adequate supply to each outlet and thus with the volume of sales and the product
portfolio two level distribution is the most suitable distribution channel. With the strong market share
and a good distribution network Kingfisher has been able to maintain good shelf space in the retail
outlets. Various outlets where the products reach the consumer includes the retail outlets, restaurants
and pubs.

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Recommendations
1. New Distribution channel:
With the increasing sales from modern retail, the distribution channel of directly supplying to the
modern retailers can be added. But since the modern retails have reach only in the cities the company
still needs to continue with the traditional two level distribution system.
2. Change in the Existing Credit Policy
Longer credit days for the distributor as well as the retailers so that they don’t have to look for credit
elsewhere at a high interest rate. The higher rates and policy of low days of credit makes the
distributors and retailers look for alternate suppliers
3. Increase Coverage per Sales Person:
Increasing coverage area per sales person will result in an increase in reach in the rural area.
4. Retail Link System:
Making use of technology such as retail link system which gives access to supplier to monitor goods
at stores and replenish inventories. The details of daily transactions are processed through this
integrated system
5. Introduction of Cheaper Variants
Introduce a cheaper brand for the rural market with increased alcohol content (stronger versions) so
that the people get more value for lesser money. (Include the taxed by volume part in this)
6. Hub and Spoke Model
Hub and spoke model for distribution, setup a stockiest/distributor at a point where it can serve
maximum number of villages efficiently and economically (studying the previous sales data of that
territory).

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Bibliography
 https://www.flandersinvestmentandtrade.com/export/sites/trade/files/market_studies/724
140307183847/724140307183847_1.pdf
 http://www.ab-inbev.com/investors/sabmiller/pressrelease.html
 http://www.ab-inbev.com/content/dam/universaltemplate/ab-inbev/investors/reports-and-
filings/annual-and-hy-reports/2018/03/ABI-Annual-Report-2017.pdf
 http://www.ab-inbev.com/content/ab-inbev/en/about-us.html
 https://www.financialexpress.com/archive/column-beer-is-about-distribution/551559/
 https://universalconsulting.com/landscaping-beer-distribution-market-india-defining-india-
entry-strategy-dutch-brewer/
 https://www.sciencedirect.com/science/article/pii/S0970389613000591
 https://www.businesswire.com/news/home/20180717005923/en/India-Beer-Market-
Overview-2018-2023---ResearchAndMarkets.com
 https://www.mnp.ca/en/posts/the-3-beer-distribution-channels-for-your-micro-brewery
 http://journal.beer/2016/09/21/ab-inbev/
 https://courses.lumenlearning.com/marketing-spring2016/chapter/putting-it-together-
place-distribution-channels/

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