here comes the kingfisher
By Shailaja Neelakantan
(This article appeared in Forbes in July 1997).
JAMES BERNAU can't stop smiling. His Nor'Wester Brewing Co., based in Portland, Ore., was teetering on the brink of disaster when he received a call from Vijay Mallya, who was driving around the Napa Valley scouting vineyards. Bernau didn't know Mallya but Mallya told him he wanted to buy his company.
Mallya, 42, is chairman of India's United Breweries Group, which sells $1.2 billion worth of booze and beer in India, the U.K. and the U.S. For $5.5 million in cash, a 22% discount from book value, United Breweries is getting a 40% stake in Nor'Wester and its partly owned subsidiaries--Bayhawk Ales, Mile High Brewery and Aviator Ales. The name has been changed to United Craft Brewers; Bernau will be president and 10% owner. Nor'Wester's old public shareholders will own the remaining 50%.
United Craft is also acquiring Mendocino Brewing Co., of Hopeland, Calif., and Humboldt Brewing, based in Arcata, Calif.
So-called craft brews are immensely popular. From almost nothing they have gone to 2.5% of the $58 billion U.S. beer market, and some people think that number could become 6% in a few years. Unfortunately, it is very easy to get into the business, and so many of the entries, like Nor'Wester, are in trouble (see table below). Mallya sees this as an opportunity. "I'm going to make many, many more acquisitions," he says. "Put a lot of them together into a network, and you get economies of scale."
Mallya has a strategy: operate nationally, but sell locally. Each micro-brewer will sell in a local market but buy raw materials and consolidate orders on a national scale. "The prices at which Bernau was buying glass bottles were ridiculous. If I control 15 or 20 microbreweries, I can negotiate better prices," Mallya insists.
But beer is a tough business. Can a newcomer hack it? If self-esteem will do it, Mallya's got it. When we interviewed him, he was sitting, lordlike, in an ornate chair on his 165-foot yacht, Indian Achiever, moored at the Chelsea Piers in New York. He proved himself at an early age, after becoming chairman of his family's United Breweries at 28. India was then dotted with small breweries, and Mallya set about acquiring as many of them as possible. In 1992 he bought the U.K.'s Wiltshire Brewing Co., then on the brink of receivership, refinanced it with his own money and sold out at a handsome profit.
Meanwhile, he was pushing his company's Kingfisher beer outside India. In the U.S., 15,000 barrels a year are sold by about 115 distributors. "It's my baby," he says, thumping his chest on a shirt that bears the Kingfisher logo.
But is he ready to tackle the likes of Anheuser-Busch and Philip Morris? There's little similarity between beer distribution in India and the U.S. Unlike India, in the U.S. there are no government-owned shops that carry all brands. "Busch usually wants to put the brakes on distributors, saying 'You have to sell only our products,'" says Thomas Dalldorf, editor of Celebrator Beer News, based in San Francisco. "The microbreweries suffered, because distribution is essential to microbrewery survival."
Mallya waves aside such objections. "I'll have a lot more clout going in with five or six brands, each distinct and not similar. I'll make sure of that," he says. Mallya, cocky as ever, is already thinking beyond microbreweries. He has plans to start what he calls microdistilleries in this country. In the works are flavored gin, rum and an exotic liqueur made of herbs from what Mallya claims is a 500-year-old royal recipe. He says he has original recipes for East India Rum, Calcutta Dry Gin and India Pale Ale. "I'm going to bring all this to the U.S.," he vows.
Lots of luck, Vijay.
(This article appeared in Forbes in July 1997).
JAMES BERNAU can't stop smiling. His Nor'Wester Brewing Co., based in Portland, Ore., was teetering on the brink of disaster when he received a call from Vijay Mallya, who was driving around the Napa Valley scouting vineyards. Bernau didn't know Mallya but Mallya told him he wanted to buy his company.
Mallya, 42, is chairman of India's United Breweries Group, which sells $1.2 billion worth of booze and beer in India, the U.K. and the U.S. For $5.5 million in cash, a 22% discount from book value, United Breweries is getting a 40% stake in Nor'Wester and its partly owned subsidiaries--Bayhawk Ales, Mile High Brewery and Aviator Ales. The name has been changed to United Craft Brewers; Bernau will be president and 10% owner. Nor'Wester's old public shareholders will own the remaining 50%.
United Craft is also acquiring Mendocino Brewing Co., of Hopeland, Calif., and Humboldt Brewing, based in Arcata, Calif.
So-called craft brews are immensely popular. From almost nothing they have gone to 2.5% of the $58 billion U.S. beer market, and some people think that number could become 6% in a few years. Unfortunately, it is very easy to get into the business, and so many of the entries, like Nor'Wester, are in trouble (see table below). Mallya sees this as an opportunity. "I'm going to make many, many more acquisitions," he says. "Put a lot of them together into a network, and you get economies of scale."
Mallya has a strategy: operate nationally, but sell locally. Each micro-brewer will sell in a local market but buy raw materials and consolidate orders on a national scale. "The prices at which Bernau was buying glass bottles were ridiculous. If I control 15 or 20 microbreweries, I can negotiate better prices," Mallya insists.
But beer is a tough business. Can a newcomer hack it? If self-esteem will do it, Mallya's got it. When we interviewed him, he was sitting, lordlike, in an ornate chair on his 165-foot yacht, Indian Achiever, moored at the Chelsea Piers in New York. He proved himself at an early age, after becoming chairman of his family's United Breweries at 28. India was then dotted with small breweries, and Mallya set about acquiring as many of them as possible. In 1992 he bought the U.K.'s Wiltshire Brewing Co., then on the brink of receivership, refinanced it with his own money and sold out at a handsome profit.
Meanwhile, he was pushing his company's Kingfisher beer outside India. In the U.S., 15,000 barrels a year are sold by about 115 distributors. "It's my baby," he says, thumping his chest on a shirt that bears the Kingfisher logo.
But is he ready to tackle the likes of Anheuser-Busch and Philip Morris? There's little similarity between beer distribution in India and the U.S. Unlike India, in the U.S. there are no government-owned shops that carry all brands. "Busch usually wants to put the brakes on distributors, saying 'You have to sell only our products,'" says Thomas Dalldorf, editor of Celebrator Beer News, based in San Francisco. "The microbreweries suffered, because distribution is essential to microbrewery survival."
Mallya waves aside such objections. "I'll have a lot more clout going in with five or six brands, each distinct and not similar. I'll make sure of that," he says. Mallya, cocky as ever, is already thinking beyond microbreweries. He has plans to start what he calls microdistilleries in this country. In the works are flavored gin, rum and an exotic liqueur made of herbs from what Mallya claims is a 500-year-old royal recipe. He says he has original recipes for East India Rum, Calcutta Dry Gin and India Pale Ale. "I'm going to bring all this to the U.S.," he vows.
Lots of luck, Vijay.
posted by Shailaja at 5:13 AM
