Major Challenges Entrepreneurs Face While Starting a Beer Franchise in India
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Beer is the world's oldest beverage, possibly dating back to the 6th millennium BC. It is also the most widely consumed alcoholic beverage and the third most popular drink overall after water and tea.
The Indian market is expected to grow by 13.2 % in recent years. The growth rate for the beer industry is an indication of the huge scope of opportunities available for breweries and beer brands manufacturing and franchising in India. But the beer industry is fraught with many challenges; some of them are listed below.
Ban on Advertising
Advertising of liquor products is banned in India. Liquor companies can promote brands only at points of sale. The beer franchisees have to resort to surrogate advertising tactics to keep their brands alive in the minds of consumers. Beer or alcohol is not projected directly to consumers but rather masked under another product under the same brand name so that whenever there is a mention of that brand, people start associating it with its main product. Many companies opt for sponsoring a team, event or show to promote their beer business. Due to the ban on advertising in this sector, the franchising is difficult.
India is a diverse country. Distribution of beer varies by state. In some states, the government acts as a distributor (Tamil Nadu, Kerala and Delhi) and markets it through its own shops. While in some, distribution is semi-controlled by state governments. In other states, such as Maharashtra and Goa, distribution is free. Whereas four state governments (Gujarat, Bihar, Nagaland, Lakshadweep and some parts of Manipur) have banned the sale of liquor within their territories. Moreover, it is illegal to transport beer across state borders. Thus, distribution is a key entry barrier for beer franchisees who want to expand their business.
The beer industry is highly regulated. There are 26 different alcohol-specific taxes in India. This constitutes about 50% of the consumer price which is amongst the highest in the world.
Import duties across states
Every state in India has their own system in terms of taxation and labour requirement. Beer franchisees are required to pay excise duty for selling liquor across states. Liquor manufactured and sold within a state attracts lower excise duty. Also, these ‘imports’ are allowed only through a quota system, which restricts the quantity being imported.
This article was originally published on Franchise India by Sneha Santra.