Belgian brewing and beverage company Anheuser-Busch InBev is parting ways with its New Delhi-based joint venture partner RJ Corp. , as it seeks to gain full control of its India operations, the maker of Budweiser and Corona beer said in a media statement on Monday.
AB InBev will exit the joint venture, paying anywhere between $100 million and $150 million to Ravi Jaipuria-owned RJ Corp., according to people familiar with the deal, before operating independently in the country through its wholly owned entity Crown Beers India Pvt. Ltd.
The move will allow AB InBev to expand in India independently through additional brand investment and capacity expansion.
“We see long-term opportunities to grow our business in India,” said Michel Doukeris, AB InBev zone president for Asia-Pacific, in the media statement.
“The strong foundation provided by our Indian JV with RJ Corp. will allow us to now plan on further growing our premium brands in India and giving consumers increased access to our portfolio of great beers,” he added.
Following completion of this transaction and a short transitional period, staff and operations will continue with Crown Beers India.
“AB InBev and RJ Corp. have had a successful partnership with Budweiser in India. Today, in its new growth phase, we wish AB InBev a great run ahead,” added Jaipuria, chairman of RJ Corp.
AB InBev and RJ Corp. entered into a 49-51 joint venture in 2007, where the latter agreed to bottle and distribute AB InBev’s popular beer brand Budweiser, apart from importing and marketing beer brands such as Stella Artois, Leffe and Hoegaarden.
Budweiser is locally bottled in India out of two plants in Maharashtra and Telangana.
In 2013, AB InBev had revenue of $43.2 billion, selling over 200 beer brands globally, including as Stella Artois, Beck’s, Leffe and Hoegaarden among others.
According to people familiar with the deal, the beer makers’ ambitions for the Indian market outweigh those of RJ Corp. The latter, according to industry experts, is trying to focus on its core business as American beverage maker Pepsico Inc.’s largest bottler in the country apart from building a steady fast food business.
“We wish to focus on our existing business for now, i.e., soft drinks and food,” said Chris White, president and group chief executive officer at RJ Corp, indicating that the split was a “mutual decision”. In November last year, PepsiCo India divested its stake in four bottling plants in the north to RJ Corp. for an undisclosed sum.
The split comes at a time when brewers in India have been hit by weak demand over the past two years. Last year, rising prices on account of tax hikes by states as well as weak economic growth led to the lowest sales growth for brewers in more than a decade.
Analysts and industry executives expect that beer and spirits will be excluded from the proposed Goods and Services Tax (GST) since they are such large revenue generators for states.
Industry experts reckon that the maker of Budweiser will focus on its core brand in the country where it competes with United Breweries, SabMiller India and Carlsberg India.
United Breweries, maker of Kingfisher beer, is India’s largest brewer followed by SABMiller and Carlsberg. Budweiser, however, has been gaining in popularity especially after the launch of the strong beer Budweiser Magnum.
The beer market in India is estimated at 270-280 million cases per annum.
Market experts suggest that going solo will raise the profile of Anheuser-Busch InBev.
“Ab InBev is one of the world’s largest beer makers and they will bring in much more marketing muscle power to their brands here,” added Rahul Singh, chief executive officer and co-founder of The Beer Cafe, a chain of close to 20 bars across the country.
For now, however, Ab InBev’s focus will be on expanding the Budweiser brand.
“Clearly they want to grow and invest aggressively in India,” added a person familiar with the deal, on condition of anonymity. “The focus for now will be to grow the Budweiser brand in the country.”
The two companies did not, however, comment on the terms of the agreement, which is expected to close by March.
Over the past few years Ab InBev has been expanding its market share actively through global acquisitions. In 2008, it spent $52 billion to acquire Anheuser-Busch making it the largest deal in the sector. In September 2014, Wall Street Journal, reported that the company was in talks to finance a deal that would help it buy SABMiller.