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Rules sour microbrewery efforts to set up in India

Two years ago, James Garstang, a brewer at the Kernel Brewery, one of London’s most popular microbreweries, was approached by a friend about an opportunity abroad.

“He said: ‘If you are interested in some karma and curry, then I have a potential job for you,’” Mr Garstang recalls.

Less than a month later, the Londoner was living and working in Gwalior, a midsized city in India five hours by train from Delhi, at the forefront of what he hopes will be a craft beer revolution in the country.

Mr Garstang is helping to set up White Rhino, India’s first small-scale craft beer to be sold in bottles around the country.

With an increasingly affluent middle class changing India’s consumption habits, small-batch beer is just starting to take off in the country, as it did several decades ago in Europe and North America

But in a market dominated by whisky and mass-produced lagers, where taxes are high and regulations complex, those championing the industry often feel they are fighting a losing battle.

“It is very, very hard to do, and takes a lot of time and investment,” Mr Garstang says. “The laws just aren’t set up for people of our ilk and size.”

India’s alcohol market is the third largest in the world. Sales of lower-alcohol drinks, such as beer, are growing, especially among younger members of the burgeoning middle class.

“India is a spirits-based economy,” says Rahul Singh, founder and chief executive of the Beer Café chain of bars. “People want the high, so they drink whisky. But men and women in the big cities are starting to care far more about the taste and having a good time.”

Overall beer sales rose more than 96 per cent from 2010 to 2015, to $6.2bn a year, according to Euromonitor. There are no definite numbers on the country’s nascent craft brewing sector, but according to estimates from the All India Brewers Association, sales are increasing at roughly 20 per cent a year. 

That is despite regulations that often make it difficult to sell alcohol at all, including high and localised taxes, licensing restrictions and a blanket ban on directly advertising the product.

Despite a government push to make it easier to do business in India, alcohol often faces particular difficulties, in part because its constitution demands that politicians attempt to discourage drinking altogether.

Most small-scale craft beer in India is sold in so-called brew pubs, bars with their own brewing set-ups to sell on-site only. In 2008, there were just two of these; now there are about 80.

But microbreweries are only allowed in a small number of cities across India, including Mumbai, Bangalore and Gurgaon, which borders Delhi — but not Delhi itself, despite a promise by the municipal government to begin licensing them. 

“Microbreweries have been in Gurgaon since 2008 but Delhi still does not have a licence,” says Jay Jafa, partner at RJ Brewing Solutions, which supplies equipment and services to microbreweries across India. “It is very frustrating for people who are looking to grow in this industry.”

Those that want to sell off-site find it even more difficult: most states do not allow small breweries to do so at all because they find it difficult to calculate the tax revenues they would owe.

And where transporting craft beer is allowed, it must almost always be pasteurised, something many western craft brewers shun, because refrigerated transport is unreliable in India.

For small breweries such as White Rhino, the regulations can be hugely burdensome.

This month, the company was due to deliver its first truck load to Delhi, a process that involves tagging each bottle by hand before generating a barcode for each case. That barcode must then be scanned and the information sent to Delhi excise officers, who will check every case at the state border.

Because of a software glitch, White Rhino’s first delivery to the capital was nearly sent back, and was eventually delayed so long that its state import licence almost expired.

The company is hard at work on a third type of beer, a hoppy India Pale Ale in the style that has become popular in the US and the UK but ironically not yet in India. To register a new label in Delhi, however, would cost the company Rs1.5m ($22,000), unaffordable given the relatively small market for IPAs.

“Companies like this are more exposed to local politics, local administration issues and local disruption,” says Andrew Macintosh, executive director for South Asia at Control Risks, a global risk consultancy.

Ishaan Puri, White Rhino’s founder, puts it another way: “Brewing is just a small part of what we do — most of it is logistics.”

Nonetheless, Mr Puri is optimistic about his company’s future. Having started with funding only from his family, he hopes to raise money next year and break even in two years.

His colleague Mr Garstang has an even bolder ambition: to change India’s beer tastes for good.

“I feel like people here are getting duped; they don’t how good beer can be,” he says. People need to drink the good stuff so they don’t drink the garbage any more.”

Via FT