E-Malt.com News article: India: Patenting bottles should help improve UB and SABMiller’s margins

India’s largest brewers United Breweries Ltd (UB) and SABMiller are patenting their bottles, which they say would help them get a handle on rising bottling costs, Trading Markets reported on July, 19.

Once patented, only UB and SABMiller - which together corner 80% of the Indian beer market - can buy back their respective bottles. "This will help us have a control on the availability and pricing of second-hand bottles," said Shekhar Ramamurthy, deputy president, UB.

The two firms have applied to the controller general of patents, designs and trademarks to patent the specific shapes and designs of their bottles. Even while the patents are pending approval, the law prevents other beer makers from reusing UB's or SABMiller's bottles.

Beverage companies such as PepsiCo India and Coca Cola India Inc. pioneered the patenting of bottles in India, a practice now followed by other industries such as pharmaceuticals and spirits.

UB taps cheaper second-hand bottles for 75% of its bottling needs. Bottling accounts for 40% of UB's total costs, said Ramamurthy.

But the second-hand bottle industry, market experts say, is unorganized and dominated by middlemen, who hoard used bottles. Second-hand bottle prices have risen by a dramatic 30% in the last two years.

Most beer makers use generic bottles. "We realized only UB and SABMiller were getting bottles produced...this way (by patenting), everyone has to produce their own," said Sundeep Kumar, director, corporate affairs and communications, at SABMiller India.

The decision to patent the bottles was also driven for branding reasons and the need to increase manufacturing efficiency, he added.

"This (patenting) should help improve margins and it will stop local players from cannibalising their bottles, which would mean rising costs for local players," said an analyst at a foreign brokerage who didn't want to be named. What's more, "rising costs for local players could mean higher prices (for their beers) and customers switching loyalties from local brands to larger brands like UB or SABMiller."

UB worked with its bottlers to create a unique design and rolled out the new bottles in April in Maharashtra and northern India. SABMiller has started its initiative in Andhra Pradesh and is evaluating which state to target next.

Both firms plan to introduce patented bottles across India in a gradual manner to prevent creating a glut.

Second-hand bottles sell for between Rs3.50 and Rs5 per piece, depending on the time of the year and the state, while manufacturing a new bottle costs Rs8.50 per piece.

Input prices of malt barley, bottling and energy - the three main cost components for the beer industry - have been on the rise. UB's cost of raw materials rose 17% to Rs25.21 crore and cost of packing materials jumped 29% to Rs51.14 crore for the year ended March.

But many Indian states control liquor prices and often do not pass on the increase in consumer prices to the brewer. For instance, "Since 1997 till February, Andhra Pradesh gave only a Rs10 increase to us, while input costs went up by Rs90 and consumer prices were jacked up by Rs120 (per case)," Kumar of SABMiller said.


21 July, 2010