Daybreak - Once the toast of town, Bira is now brewing more trouble than beer

Episode Date: July 23, 2024

In 2015, Bira 19 introduced India to craft beer. In the process, the brand started the conversation around taste and quality. It very quickly blew up and became the cool new beer to drink at a bar or a party. The craft beer brand also managed to become a hit among investors. It bagged $450 million in funding from the likes of Japanese beer and beverage company Kirin Holdings and venture capital giant Peak XV Partners, formerly known as Sequoia Capital. But somewhere along the way, the brand seems to have lost direction. In the last few years, Bira has been in short supply at liquor retailers and pubs. And to make matters worse, former Bira executives and industry insiders say that the company’s dealing with a  major cash crunch and its supply chain is in a dire state. All of this at a time when the company is reportedly planning to go public. Bira CEO Ankur Jain recently said that Bira is planning its IPO in 2026. But will he be able to get his business in order by then? And more importantly, what went wrong?Tune in to find out. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Until about a decade ago, if you had gone to a bar and ordered a beer, you would have likely ended up with a nice cold pint of Kingfisher or Carlsberg. Or if you were of the busier variety, maybe he wouldn't have minded splurging on a Corona or a Hoagarden. Don't get me wrong, All four are perfectly good beers.

So good in fact that for the longest time, they were the only options available on the average liquor menu. This largely had to do with the brewing companies that were manufacturing these beers. So United Breweries for Kingfisher, AB Inver for Hogarth for Hogan and Corona, and Carlsberg. These three multinational brewing companies

dominated the scene for a really long time. And they were so big that there was very little room for anyone else to thrive in the brewing space. Unfortunately, that also meant there was very little room for experimentation. So for quite a while, the beer scene in India was honestly pretty boring. They were all essentially the same thing in different packaging. And that's not just me talking, that's what Oliver Schoff, co-founder of Dulali,

the 15-year-old Mumbai-based craft brewery, told the Ken recently. Now, all of that changed after 2015 when Beera was launched. and beer suddenly became cool again. You see, Beera introduced India to craft beer. For the uninitiated, craft beer is generally made in smaller batches, which usually allows its makers to experiment with ingredients and flavors. Before Beera, there were a handful of craft and premium beer brands in India, but unfortunately, until then, they were very, very niche.

Beera managed to make craft beer mainstream. The brand started the conversation around things like taste and quality. and it very quickly blew up and became the cool new beer to drink at a bar or at a party. The craft beer brand also managed to become a hit among investors. It bagged $450 million in funding from the likes of Japanese beer and beverage company, Kieran Holdings and venture capital giant peak 15 partners, formerly known as Sequoia Capital. But somewhere along the way, the brand seems to have lost direction. In the last few years,

Beera has been in short supply at liquor retailers and at pubs. And to make matters worse, former Beera executives and industry insiders say that the company is dealing with a major cash crunch and its supply chain is in a dire state. Now, this couldn't have come at a worse time because Beera CEO Ankur Jain recently said that Beira is planning its IPO in 2026.

But will he be able to get his business in order by then? And more importantly, what went wrong? Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahil Filippos and I'll be joining my colleagues Ticka Sharma every week to bring you one business story that is worth understanding and worth your time. Today is Tuesday, the 23rd of July. You know how we were just talking about craft beers and how at the core of a great craft beer is great taste and great quality? Well, that's also at the core of Beera's brand.

Except to maintain that quality, Beera took a few calls pretty early on that didn't work out so well in the long run. You see, when it started out in 2015, Beera was brewing its beer in Belgium. This is because the company didn't believe India had good enough breweries. And people in the business seemed to agree.

In fact, Dullali co-founder Oliver Schoff said that's exactly what set Beera apart. That's why its quality was so amazing, at least initially. But of course, in the long run, importing costs were just too high. And as demand started to rise, the company decided to move its supply chain to India. So now, Beera had three options. Number one was setting up its own brewery,

where it would be responsible for supplying all the raw materials and also taking care of all the manufacturing. Number two was contract manufacturing. Here, it would supply the raw materials, but manufacturing would be taken care of by a third part of. brewer. Now before I tell you about the third option, which Beera eventually opted for, I'm going to tell you why these two options didn't work. You see, setting up its own brewery would have been way too expensive for Beera at the time, especially considering that it was

only a year and a half old. The second option, contract manufacturing, would mean that Beera had less of a say in how its beer was being manufactured. So it didn't think it would be able to make its characteristic, unique beer styles. And by default, this was ruled out too. For Beera, the brewery leasing model was its sweet spot. Here, it would be able to supply its own raw materials and also take care of manufacturing. Except it would do all of this in a brewery owned by someone else. And this is exactly where the company's problems began.

The Ken spoke to multiple former Beera executives and none of them knew what the intent was behind the strategy. There were no tax breaks or incentives for doing it. In many ways, it actually ended up backfiring. For starters, when the company eventually ended up bringing its supply chain to India, despite its best efforts, it couldn't maintain the original quality and taste. Someone who runs two microbreweries here in Bangalore told the ken that this was largely because of the quality of malt and water being used in the brewing process here in India. Then there was the huge operational expenses associated with staffing a third-party's brewery with its own labour.

not to mention the process of setting up the supply chain in India itself took two years to execute. So now, all these years later, Beera is doing exactly what it had avoided for so long. The company has now bit the bullet and has been working on setting up a brewery in the southern state of Carnatica and was expected to have been operational this year. And this brings us to Beera's other big problem,

a shortage of working capital. Stay tuned. Hi there. I'm just here to express my gratitude to you for listening to us and for supporting us. I have some great news. Daybreak is going to hit 1 million downloads this week. It's crazy. And obviously, it wouldn't have been possible without you making it a part of your day every single day.

Rahel and I would love to know more about how daybreak is a part of your daily routine. Do you listen to us in the morning while making breakfast or while going to work or when you're coming back from work? How do you feel when you listen to an episode? Anything that you'd like to share about your daybreak experience, we want to hear from you. You can write to us at podcast at the ken.com. I'll add the email to the show notes of this episode, or if you prefer, you can also send us your message as a voice note to the same email ID.

Let us know soon. Thank you and now back to Rahil. Up until pretty recently, no one would know that Beera was dealing with a major shortage of working capital. It had managed to sign some pretty impressive sponsorship deals, including one with the International Cricket Council or ICC. And nationally, its market share has only grown in the last few years. It's gone from less than 1% to nearly 8% for premium beer. But that's exactly where the problem lies. It hasn't been able to keep up with the surge in demand.

You see, the beer business is a tricky affair compared to other liquors because of low margins and shelf life. then there's also the added transport and logistics cost, and then of course there's also regulators to worry about, because each Indian state has its own laws and regulations around alcohol. All of this started adding up, and Bira faced a shortage of working capital. Ironically, the company had also invested heavily in setting up new plants, but wasn't able to pay its dues to suppliers and marketing partners. The result?

Well, former employees say the breweries didn't have the raw materials, to stay afloat and would end up sitting idle for days. And then there were the vendors. The company in some instances was unable to pay royalty fees and promotional expenses to marketing partners. So employees recall messy situations where vendors landed up at the corporate office in Delhi and raised hell over unpaid dues.

And as the crisis snowballed, issues started surfacing internally too. Salaries were delayed and senior leadership started resigning. But despite all of the crisis, of this, Beera CEO Ankur Jain is still optimistic. He insists that the company's volumes have grown nearly 3x since pre-COVID levels and revenues are growing too. And what really helps is that investors don't seem to have lost faith in the brand.

More on that in the next segment. It is in the habit of setting some unattainable targets for itself. And more often than not, it misses them completely. Like in 2020, when Beera planned to break even on an ebita basis by 20. Spoiler alert, that didn't end up happening. But that didn't deter Jain in 2023 from saying that the company would attain abeta profitability within that fiscal year. If anything, its EBITA losses have only widened to 43% of the top line in June 2020. But for some reason, it still keeps managing to raise funding continuously, sometimes even multiple times a year.

Most recently, it was able to raise 25 million. dollars earlier this year. This is how the company keeps making things work. Some people say Jain is persuasive enough to convince people to invest in his company even though they should know better. A former executive said that the company is still betting on the market to turn around for itself. So instead of shutting down some plants, the brand is now trying to launch new categories, like strong beer, ciders and hard-seltzers. But what after all that? Well, one former Beera executive said that the next step would be an acquisition by one of the big three or its largest shareholder, Kirin. But Jain says that that is completely out of the question.

Instead, he's planning on an IPO in 26, contingent on meeting its internal operating milestones. But one thing is clear. It's going to take a lot more than just optimism for Beera's fate to change. Daybreak is produced from the new news. Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website.

Today's episode was hosted by Rahil Filippo's produced by me, Snigda Sharma, and edited by Rajiv Sien.