Corporate

Gorkha Brewery on

Expansion Spree

In an exclusive interview with Business Age, Soren Thygesen, Deputy Managing Direcrtor of Gorkha Brewery (P) Ltd., shared the plans of the company. Excerpts:

How has the brewing industry been performing in recent past and what are the indications?

The last two years have been very encouraging for the brewing industry and this reaffirms the high degree of correlation between the economic climate and the brewing industry. The industry has grown from a level of about 175,000 HL (year 2054/55) to 210,000 HL during the current year (2056/57 BS i.e. 1999/2000). Going by the positive economic forecasts, we expect the industry to maintain an annual growth of 5% in medium term.

How has Gorkha Brewery performed during these years?

Gorkha Brewery has outperformed the industry by a wide margin. This is reflected in our market share, which has increased from 36% during the year 2054/55 to around 60% during current year (2056/57). The sales in HL terms have increased from about 63,000 HL in 2054/55 to approximately 120,000 HL (expected) in the current year. Both Tuborg and Carlsberg brands have witnessed a big demand and our products were in short supply throughout the year. The sales volume of the current year would easily have been higher by 15,000 HL had we had sufficient stocks.

Besides improving economic indicators, what other reasons do you assign to this positive growth in the industry and your company?

The pragmatic fiscal policies of His Majesty’s Govenment of Nepal, incremental tourist arrivals, favorable weather conditions and shifting consumer behavior are the main external factors for the growth. On our part, we have put in extraordinary effort in penetrating the distribution universe, increased the consumption by not increasing the prices and highlighted the link between moderate drinking and prosperity through our subtle advertising. Also, to some extent, the consumers have realized the benefits of beer vis-à-vis hard liquor. The growth in the industry and the company has been hard achieved and we want to be at the forefront to reap the benefits.

What do you plan to do to redress this situation of short-supply? We have executed a few capacity extensions during the recent and current years. With the help of these extensions, we have increased our installed capacity by about 58% during the current year. Now considering the future of the beer industry and for a better economy of scale, we are seriously looking to set up a new brewery close to the Kathmandu valley.

At which stage is this new brewery and what will be the capacity?

The new brewery is at an advanced stage of planning and the project is expected to take shape within the next three months. The commercial production from the new brewery could be available from mid 2058 BS. The expected start-up capacity of the brewery would be 100,000 HL p.a., extendible up to 200,000 HL with minimal investment. Our expectations would be to come close to 100% capacity utilization from the very first year as we – in addition to satisfying the demands of the domestic consumers – can use the combined capacity of the two breweries to serve the Indian export market in a major way. Moreover, we expect to pass on further benefits to our consumers by achieving greater economies of scale and higher productivity from both modern and efficient state of the art equipment.

Sales of Gorkha Brewery Pvt. Limited
in HL

Turning Around the Iceberg

A market leader of the past but a tail-ender today, this brewery company recently tried with a new management for some time.But the situation is now back to square one

Rumours of ownership and management of Himalayan Brewery Ltd. (HBL) and its associated company Tri-Shakti Distilleries (P) Ltd. being handed over to an Indian party spread across the market for some time. However, while it could not be confirmed as both the parties to the deal were not available despite repeated attempts to clear the details, now it is said that the deal itself is cancelled. Explaining the situation, BB Shahi, Marketing Director of HBL, says the Indian party from Rajasthan, India was given only the management responsibilities. As it was unable to show any positive signs of improvement in the business of the company even after two months of its involvement, it was asked to leave.

Domestic market of HBL had eroded considerably after the entry of international beer brands in Nepal. Shahi says, it was because of heavy discounts offered by the later entrans to the distributors. HBL did not like to match such heavy discounts, he explains. But its flagship brand - Iceberg - has got a good acceptance in certain regions as a premium brand and the company has to build up on that image to regain its position in both domestic and export markets. To do that the Indian party (The Malt Manufacturers Pvt. Ltd.) was said to have a strong backing of Shaw Wallace, a major liquor and beer company of India.

However, the task did not look so easy. Industry watchers say that compared to that of liquor, the beer market has been quite matured in Nepal. While there are only a couple of international liquor brands doing good business here, though facing equally strong competition from local brands, the situation is very much different in beer. With international beer brands – Carlsberg, Tuborg and San Miguel – firmly established in Nepal, Kingfisher – a brand from a giant like United Breweries Group – was not able to gain a reasonable share in the market. So was the case with Singha brand, though dispute with the foreign technical collaborator was also responsible for its failure. Still, HBL has some USPs that the company can use in its marketing strategy. Sprawling across some 50 ropanis of land, the brewery of HBL

is said to be a technically sound one. Though set up as early as in 1979, the plant of HBL is as good as new, and the location of the brewery is unique when seen against the fact that all the other breweries are in the plains where the climate is hot and humid. Located at the cool environs of Godavari – on the outskirts of the capital – HBL uses high mountain spring water, which gives the product a unique taste.

Though the HBL management had not been oblivious to this fact and was using this feature in all its advertisements, the product could not sustain the competition. The industry watchers think that this was because it was too much product–oriented rather than being consumer–oriented. It means that if a proper marketing strategy is followed focusing more on the consumers, Iceberg does have a chance of revival - because it is a good product quality-wise - or a new brand can be introduced. As for now, the company has started bringing out Iceberg ads with the slogan: "Iceberg, as good as you are". But how effective that will be to turn around Iceberg in the market is to be seen only in the future.

Despite having a premium image in certain markets, Iceberg also has an image of a strong beer. That may pose problems in positioning the product as a premium brand in all the markets of the country. Unlike in India where the market for the strong beer is said to be growing rapidly, Nepali beer consumers still prefer a product which is not considered strong though the stuff that they are consuming may be as strong as any other brand. This gives an agrument to bring in a new brand instead of trying to revive Iceberg. Since the Indian party was said to have good relationships with Shaw Wallace, one of the prominent players in liquor and beer industry in India, it would not have been difficult for HBL to do so. With the Kingfisher experience still fresh in the market, however, the efficacy of bringing in a new brand also was doubtful at least at present.

The name Iceberg is regarded to be very good for a beer. But many of the Nepali consumers may not appreciate it fully as they have never seen or heard of what an iceberg is. This gives a stronger argument in favour of bringing in a new brand while continuing Iceberg for exports.

HBL had in the past also gone into a joint venture and technical collaboration with Mohan Meakins of India, which had some 20% shareholding in the company and its brand Golden Eagle was being produced by HBL. However, that collaboration was terminated about two years back for reasons not disclosed.

The Indian party was said to be a well-known supplier of malt (the main raw material for whiskey and beer) to liquor and beer companies all over India like Khoday, UB and Shaw Wallace. And it was supplying malt to HBL too. Sources even say that this party was instrumental in developing a business relationship between HBL and Shaw Wallace. Only last year, HBL had started brewing and bottling Hayward-5000 brand of beer for Shaw Wallace. The product is exported 100% to India. Shahi says, HBL has also been exporting Inceberg to UK and Hongkong.

HBL's Standing vis-à-vis the Industry Volume

Source: Department of VAT

Brands of HBL

Brands of Tri-Shakti Distilleries

By Business Age Reporter

RS Interiors

An Artist's Business

Hopping from one business to another and working as an employee in one organization or other, this young entrepreneur artist now settles in interior and furniture business

Rajbhandari: Making a niche in interior works

Fulbari Resort, Grand Hotel, Bank of Kathmandu, NIC Bank, USAID-Nepal, SBI Bank, Thai Airways, a suite in Nirmal Niwas and a number of residential homes. Quite a varied assortment of names. But they all have one thing in common – the major interiors in all of them are from RS Interiors, a firm that Ruban Man Rajbhandari owns.

Of all these, however, Rajbhandari rates his work at the Fulbari Resort as the most challenging one. Because even though his first major client came in the form of the Bank of Kathmandu and he also had the honour of designing and supplying furniture to a suite in Nirmal Niwas for the wedding of Prince Paras, it was with this Pokhara based five-star resort that he really came of age. And it was this project that gave him confidence to say, "Yes, I can now make any kind of designers furniture and interior job for a property of any size." That is an achievement if one believes his claim that he has not undergone any formal training as such in the field.

Rajbhandari’s interests have all along been linked with building and furniture designing. "I, in fact, used to design furniture since I was about fifteen", he claims. Even during his stints as an employee at USAID Nepal and Royal Drugs Ltd., he was engaged in such activities as drawing diagrams, charts, floor plans and the like, he recollects.

Rajbhandari’s potential as a designer of furniture also becomes evident from the fact that some of his furniture have been carried to places like America, Norway, England and Pakistan by diplomats visiting Nepal. "So although I don’t export any of my furniture, they have gone abroad as souvenirs," he proudly states.

A designer furniture from RS Interiors

However, furnitures and interior designing was not the first business that he undertook, though it had remained his hobby all along whichever field he chose. But the business as such he had started first was in imports. He entered imports even while he was an employee in USAID Nepal. He imported items from places like Hong Kong, Singapore, Bangkok and Dubai that were in demand. These items varied from readymade items to radios and refrigerators to cosmetics.

Started with an initial investment of some Rs. 50 or 60 thousand, Rajbhandari gradually shifted his interest from imports to marketing of marble in Kathmandu. He had made some Rs. 400,000 from the imports but the business started witnessing a gradual downfall, because one, there were too many people doing the business and two, India had also adopted the policy of liberal imports thereby limiting the market of imported goods that used to enter India from Nepal.

The marble business also did not call for much initial investment. It took Rajbhandari Rs. 100,000 or 150,000 to start it. "But I had to face great difficulties in getting the market. I had to sponsor shows and do advertisement campaigns to make people aware of the product," recollects Rajbhandari.

His toil, however, paid off. And he made about Rs. 4 million from the business. This money Rajbhandari put in to establish a restaurant, Serene Hut Café and to acquire distributorship of Vadilal ice cream in Nepal.

These latter ventures proved loss incurring for Rajbhandari. Because it was at this very time that he was linked with the Fulbari Resort. He, however, does not regret this move one bit. "For with Fulbari, I had the opportunity to show that a Nepali had the potential to handle big and creative jobs. It was not about money but about making a name," says Rajbhandari.

And was he ever successful in creating a niche for himself. Because all of a sudden he was flooded with offers for interior works from hotels, banks as well as from the residential sector. He was in fact so occupied that he had to say no to a client as big as the Hyatt Regency Hotel.

"This goes to prove that the market for interior works in Nepal has grown up," Rajbhandari points out.

Rajbhandari has given up the Vadilal ice-cream distributorship as well as his restaurant and marble business. Now he is also involved in manufacture and supply of wooden parquets. According to him, apart from a factory at Hattiban spread across 10 ropanis of land and a showroom which features all types of furniture and handicraft items in Jawlakhel, he also has a modern plant for timber seasoning with a steam system. However, the infrastructure alone do not make much difference in such business. What is needed is the creativity and imagination. "That I've a lot in the form of my craftsmen and designers that are the best available in the market. I also have good links abroad as well as here," he says. But he does not like to speak loudly about the brilliant knowledge he himself has about the job. Rather he wants to give all credits to his people.

But like any other sector, this sector too has its problems, relates he. The most vexing one being the short supply of raw material. Seesam, Chaamp, Haldu, Asana, walnut and teak are the only timber varieties available domestically, but they too are in short supply, while other qualities of wood like the Burma teak, rose, rubber, steam-beach, mahogany, burl and oak are unavailable here, according to him.

This is not about all the problem the sector faces. The current government policy does not allow furniture factories, other than the ones already established, to be set up within the city. Rajbhandari suggests that rather than take such a measure, factories could be permitted to be opened in sparsely-populated areas where they are unlikely to create too much disturbances. And such areas are available even within cities, he points out. "Other criteria could be set, like allowing certain activities during certain period of time, or allowing certain machienes to be used only during particular hours," recommends Rajbhandari.

As far as future business plans go, Rajbhandari intends to expand his establishment, RS Interiors, which at present employs some 150 people. "If I do anything new, it will be related to interior and furniture business," he says.

-By Business Age Reporter