Sunday, September 18, 2011

Sri Lanka Cargills to double beer production

Sept 18, 2011 (LBO) - Sri Lanka's Cargills group is to double production at a brewery it acquired earlier this year as a post-war economic boom spurs demand from both locals as well as an influx of tourists.

A group subsidiary Millers Brewery bought McCallum Breweries (Ceylon) in February 2011 for 1.4 billion rupees.

"Millers will more than double capacity over the next 18 months," a source told LBO.

He said he estimates there will be investments of around 30-40 million US dollars to expand brewing capacity by all three local brewers, including Millers Brewery.

"All the breweries in the island are working at full capacity and still the market is under-supplied. All three brewers are struggling to meet demand - in fact they are failing to meet demand."

Millers Brewery will also consider exporting beer once capacity has been increased and the local demand is met.

"We would like to export beer particularly to countries which have no local production like the Maldives," the source said.

The source attributed growing demand to accelerating economic growth after the end of the island's 30-year ethnic war in 2009 which also led to a boom in tourist arrivals.

"There's a feeling of optimism, people are more relaxed, they are going out and entertaining more often - it's the general buzz. And people are moving slowly from hard liquor to soft liquor," he said.

"Also more tourists are coming and bringing with them their own drinking habits."

The Cargills beer unit also plans to introduce new products or re-launch existing ones made by the former McCallum Breweries.

"There's a lack of variety now," the source said. "There are only a limited number of beer styles available in Sri Lanka now. But as consumers become more sophisticated and more foreigners arrive with their drinking habits, we expect demand for new types of beer."

A noticeable shift towards soft liquor, despite being taxed more heavily than hard liquor, will also drive demand.

Hard liquor consumption in Sri Lanka is believed to be as high as over 90 percent in sharp contrast to most other markets where drinking habits are more skewed towards a preference for soft liquor which accounts for about 80 percent of demand.

Illicit liquor consumption is also high in Sri Lanka with excise taxes remaining high and usually raised with each budget.

"It's not just taxes. It is more to do with the distribution and availability of soft liquor," the source said, adding that concern over excise duty was a "bit of a red herring. If you have a good product and a good distribution network your product will sell.

"The issue is more with distribution and licensing restrictions," he said.

"There are only 2,400 licensed outlets. If restrictions are lifted, by allowing people better access to soft alcohol through perhaps supermarkets and hotels not needing licences, the sale of soft alcohol will go up and consumption of hard liquor will fall.

"Beer is affordable in this country. Beer is not as expensive as wine."

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