ECONOMIC ANALYSIS

ASSIGNMENT- DEMAND ANALYSIS OF BEAR

Submitted To: Dr Geeta Jaglan H-34

Submitted By: Nitish Yadav Nitish Rathor H-37 Rahul Gupta H-29 Gaurav Sharma H-

21

INTRODUCTION

In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay. The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time. Economists record demand on a demand schedule and plot it on a graph as a demand curve that is usually downward sloping. The downward slope reflects the relationship between price and quantity demanded: as price decreases, quantity demanded increases. In principle, each consumer has a

demand curve for any product that he or she would consider buying, and the consumer's demand curve is equal to the marginal utility (benefit) curve. When the demand curves of all consumers are added up, the result is the market demand curve for that product. If there are no externalities, the market demand curve is also equal to the social utility (benefit) curve. Elements of the Law of Demand As Melvin and Boyes note the law of demand is defined as: 1. The quantity of a well-defined good or service that: 2. People are willing and able to buy. 3. During a particular period of time. 4. Decreases/increases as the price of that good or service rises/falls 5. All other factors remain constant.

FACTORS AFFECTING DEMAND

Price of the Product: There is an inverse (negative) relationship between the price of a product and the amount of that product consumers are willing and able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand. The Consumer's Income: The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we're talking about. For most goods, there is a positive (direct) relationship between a consumer's income and the amount of the good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will increase; when income falls, the demand for the product will decrease. We call these types of goods normal goods. The Price of Related Goods: As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we're talking about. Think about two goods that are typically consumed together. For example, bagels and cream cheese. We call these types of goods compliments. If the price of a

bagel goes up, the Law of Demand tells us that we will be willing/able to buy fewer bagels. But if we want fewer bagels, we will also want to use less cream cheese (since we typically use them together). Therefore, an increase in the price of bagels means we want to purchase less cream cheese. We can summarize this by saying that when two goods are complements, there is an inverse relationship between the price of one good and the demand for the other good.

The Tastes and Preferences of Consumers: This is a less tangible item that still can have a big impact on demand. There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this may increase the demand for a product. On the other hand, if a new health study comes out saying something is bad for your health, this may decrease the demand for the product. Another example is that a person may have a higher demand for an umbrella on a rainy day than on a sunny day. The Consumer's Expectations: It doesn't just matter what is currently going on - one's expectations for the future can also affect how much of a product one is willing and able to buy. For example, if you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you (and other consumers) may decide to wait to buy an iPod until the new product comes out. When people decide to wait, they are decreasing the current demand for iPods because of what they expect to happen in the future. Similarly, if you expect the price of gasoline to go up tomorrow, you may fill up your car with gas now. So your demand for gas today increased because of what you expect to happen tomorrow. This is similar to what happened after Huricane Katrina hit in the fall of 2005. Rumors started that gas stations would run out of gas. As a result, many consumers decided to fill up their cars (and gas cans), leading to long lines and a big increase in the demand for gas. This was all based on the expectation of what would happen. The Number of Consumers in the Market: As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers (in general) are willing and able to buy. Etc...

ELASTICITY OF DEMAND

Elasticity is the ratio of the percentage change in one variable to the percentage change in another variable. It is a tool for measuring the responsiveness of a function to changes in parameters in a unit less way. Frequently used elasticities include: price elasticity of demand, price elasticity of supply, income elasticity of demand, elasticity of substitution between factors of production and elasticity of intertemporal substitution. Some of these are explained below: Price elasticity of demand: Price elasticity of demand measures the percentage change in quantity demanded caused by a percent change in price. As such, it measures the extent of movement along the demand curve. This elasticity is almost always negative and is usually expressed in terms of absolute value (i.e. as positive numbers) since the negative can be assumed. In these terms, then, if the elasticity is greater than 1 demand is said to be elastic; between zero and one demand is inelastic and if it equals one, demand is unit-elastic. A perfectly elastic demand curve is horizontal (with an elasticity of infinite) whereas a perfectly inelastic demand curve is vertical (with an elasticity of 0).

Income elasticity of demand: Income elasticity of demand measures the percentage change in demand caused by a percent change in income. A change in income causes the demand curve to shift reflecting the change in demand. IED is a measurement of how far the curve shifts horizontally along the Xaxis. Income elasticity can be used to classify goods as normal or inferior. With a normal good demand varies in the same direction as income. With an inferior good demand and income move in an opposite directions.

Cross price elasticity of demand: Cross price elasticity of demand measures the percentage change in demand for a particular good caused by a percent change in the price of another good. Goods can be complements, substitutes or unrelated. A change in the price of a related good causes the demand curve to shift reflecting a change in demand for the original good.

MATHEMATICAL DEFINITION: The definition of elasticity is based on the mathematical notion of point elasticity. In general, the "x-elasticity of y", also called the "elasticity of y with respect to x", is:

The approximation becomes exact in the limit as the changes become infinitesimal in size. The absolute value operator is for simplicity generally the sign of the elasticity is understood as being always positive or always negative. However, sometimes the elasticity is defined without the absolute value operator, when the sign is may be either positive or negative or may change signs. A context where this use of a signed elasticity is necessary for clarity is the cross-price elasticity of demand the responsiveness of the demand for one product to changes in the price of another product; since the products may be either substitutes or complements, this elasticity could be positive or negative.

What Is Demand Analysis? Study of sales generated by a good or service to determine the reasons for its success or failure, and how its sales performance can be improved.

BEER IN INDIA

Beer in India has been an import since the early 18th century and brewed natively since the late 1820s. History Beer began to be exported to India in the early days of the British Empire, including porter and India Pale Ale, also known as IPA. The first brewery in India was set up in Kasauli, in the Himalaya mountains, near Shimla, in the late 1820s by the Englishman Edward Dyer. Dyer's brewery produced Asia's first beer, called Lion. The brewery was soon shifted to nearby Solan (close to the British summer capital Shimla), as there was an abundant supply of fresh spring water there. The Kasauli brewery site was converted to a distillery which Mohan Meakin Ltd. still operates. Dyer set up more breweries at Shimla, Murree, Rawalpindi and Mandalay. Another entrepreneur, H G Meakin, moved to India and bought the old Shimla and Solan Breweries from Edward Dyer and added more at Ranikhet, Dalhousie, Chakrata, Darjeeling and Kirkee. In 1937, when Burma was separated from India, the company was restructured with its Indian assets as Dyer Meakin Breweries, a public company on the London Stock Exchange. Following independence, in 1949 N.N. Mohan took over management of the company and the name was changed to Mohan Meakin Ltd. The company continues to produce beer across India to this day and Lion is still available in northern India. Lion was changed from an IPA to a lager in the 1960s, when due to East European influence, most brewers in India switched from brewing Ales to brewing lagers. Today no brewer in India makes India Pale Ale. All Indian beers are either lagers (4.8% alcohol such as Australian lager) or strong lagers (15 % alcohol - such as Australian Max super strong beer). In various parts of north-eastern India, traditional rice beer is quite popular. Several festivals feature this nutritious, quite intoxicating, drink as part of the celebrations. The rice is fermented in vats that are sometimes buried underground. Elephants are known to attack villages, with the primary agenda of drinking from these vats. Following one such raid in north-eastern India, a police officer in Dumka was quoted

in the press as saying: "Tribals who love rice beer brew the liquor at home. Elephants too are fond of this beer. Often it is found that, attracted by the strong smell of the liquor, wild elephants tear down the tribal houses where the brew is stored." Industry The Indian beer industry has been witnessing steady growth of 10 - 17% per year over the last ten years. The rate of growth has increased in recent years, with volumes passing 170m cases during the 2008-2009 financial year. With the average age of the population on the decrease and income levels on the increase, the popularity of beer in the country continues to rise. Consolidation The Indian beer industry has witnessed a big change during the last five years. The industry was previously dominated by competition between the Kamlesh Mallya-controlled United Breweries Group and the Manu Chabbria-controlled Shaw Wallace. The scenario changed, however, with the entry of SABMiller in India. The international beer giant started by acquiring small breweries in the south but then completely changed the landscape with the acquisition of Shaw Wallaces beer portfolio for a reported US$264m in 2003. This gave SABMiller ownership of strong brands like Haywards, along with its existing brands. After the acquisition, SABMiller focused on spreading its footprint across India, including opening new breweries in states where Shaw Wallace did not have a presence. On the other hand, rival UB bolstered its presence in the country in 1999 by creating sister company Millennium Alcobev, which produces beer brands like Zingaro and Sandpiper. Today, this is a joint-venture between the UB Group and Scottish & Newcastle (S&N). The company started as a 61:39 joint venture between the UB Group and Ravi Jain, a friend of Mallyas. In January 2002, this was expanded to accommodate Scottish & Newcastle (when it became a 40:40:20 joint venture between UB, S&N and Ravi Jain). In early 2006, Ravi Jain ceased to be an equity partner and Millennium Alcobev became a 50:50 joint-venture. The SABMiller acquisition of Shaw Wallace gave the company a good position in the strong beer sector (beer with an alcohol content of 6% or

more) which is the fastest-growing segment in the market. While SABMillers Haywards 5000 is the biggest-selling strong beer brand (a fact hotly contested by UB Group), UBs Kingfisher is the largest-selling beer brand overall in the market. But, In Indian market hard drinks are more accepted ones

DEMAND ANALYSIS OF BEAR

The Indian beer market was estimated to be 6.7 million hectoliters (hl) in 2002-03. Beer consumption has been growing rapidly at a CAGR (Compound Annual Growth Rate) of 7 per cent over the last 9 years, while growth in 2002-03 was 11 per cent. Indian growth rates compare favorably with the global beer industry, which grew by about 2.6 per cent in 2001-02 Apart from providing strong growth, India also provides attractive profit margins due to the consolidated nature of the industry a comparison between China and India, for example, reveals that the Chinese beer market is marked by intense competition, with several players being marginalized. In China there are about 400 brewers, of which the top 10 account for only 45 per cent of the market. This has resulted in low profit margins for the Chinese beer players. In contrast, the top two beer players in India account for about 75 per cent of beer sales in India and the industry stands a chance to see more consolidation in the near future. The effect of this consolidation can be seen in the fact that beer prices in India rarely go down with the competitive pressures of new product or brand launches. In the past, whenever beer prices have gone down, it has been due to either the lowering of duties by the government or the deregulation of distribution (leading to lower margins for the distribution channel partners). In neither scenario have the margins or revenues of beer manufacturers been affected. Per capita consumption in India is hovering around a measly 0.5 litres per annum. These figures pale into insignificance if one compares them with those of Czech Republic that has the highest per capita consumption of 156.9 litres per annum. Per capita consumption is directly related to the taxation, according to an industry observer. For instance, in Maharashtra there is a direct 100% excise duty on Beer. An equivalent 650 ml bottle is available for approximately Rs 8 in China. Which is why the per capita consumption in China is a high 16 litres per annum.

The Indian beer market has been growing rapidly over the last 10 years, due to the positive impact of demographic trends and expected changes, like:
1.

Rising income levels: India is home to nearly one-sixth of the global population and is one of the most attractive consumer markets in the world today. Various research studies have shown that a rise in the income levels has a direct positive effect on beer consumption. The National Council for Applied Economic Research (NCAER) projects India's 'very rich', 'consuming' and 'climbers' classes to grow at a CAGR of 15 per cent, 10 per cent and 2 per cent respectively. With this growth in income levels, Indian beer consumption is expected to continue growing, at the very minimum, at the growth rates witnessed in the last decade. Changing age profile: As a consequence of the high birth rates prevalent until the 1990s, a large proportion of the Indian population is in the age group of 20-34 years. This age group is the most appropriate target for beer marketers. This population trend will give a further boost to the growth of beer consumption in India. Many global players are planning to enter the Indian beer sector and they realise that a partnership with a local player is important to establish a successful presence in India in a short time frame. Changing lifestyles: A deep-seated traditional social aversion to alcohol consumption has been a traditional feature of the Indian society. However, as urban consumers become more exposed to western lifestyles, through overseas travel and the media, their attitude towards alcohol is relaxing. Social habits are undergoing a transformation as mixed drinks are becoming more popular. The greatest evidence of this trend is the increase in beer consumption among women. More and more women are consuming beer the penetration in metropolitan areas is almost twice as high as the penetration in other large cities implying that the greater tolerance towards alcohol consumption in metropolitan areas facilitates the consumption of beer. With increasing urbanisation, this acceptance is only going to rise. Reduction in beer prices: The Indian consumer typically values an alcoholic beverage on the basis of its 'kick' factor versus its price. The following two factors therefore, affect the market for beer. Firstly, as most states do not have a differential tax structure based on the alcohol content, strong beer...

2.

3.

4.

5.

In India the future of beer industry is very much optimistic because: 1. India has predominantly a warm/hot climate. 2. The beer-drinkers in the country are much younger than the average beerdrinker elsewhere in the world. This makes them more likely to carry the brand with them for a lifetime. 3. Increasing exposure to beer and wine drinking, mainly due to media and consumer mobility. 4. Many domestic and foreign premium brands are finding the interests of young urban working class. 5. Premium beers are priced about a % higher than regular brands. All these factors combined make the scenario very promising for beer industry and are 'in sync' with their strategy for India.

UB (United Breweries Ltd.) is the market leader in the Indian beer market with 48%. SABMiller is with 38% and others are 14%.

1 .8 1 .6 1 .4 1 .2 1 0 .8 0 .6 0 .4 0 .2 0 B e C n u p n nM n ) e r o s m tio (I illio s

19 95 20 04

19 96 20 05

19 97 20 06

19 98 20 07

19 99 20 08

20 00 20 09

20 01 21 00

20 02 21 01

20 03

Liters Per Person Beer(In Millions)

Years Beer 1995 0.5 1996 0.52 1997 0.64 1998 0.645 1999 0.710 2000 0.742 2001 0.753 2002 0.775

2003 0.798

2004 0.800

2005 0.850

2006 0.980

2007 1

2008 1.234

2009 1.215

2010 1.370

2011 1.537

India is one of the largest markets for alcoholic beverages in the world. The sales volume of beer amounted to 1074 million litres in 2008. 56 units are engaged in manufacturing beer under the licence of the Indian Government. Sales volume of spirits has grown very fast within the last five years from 800 million litres in 2004 to 1234 million litres in 2008. The annual growth rate of beer volume sales will reach 12 percent.

DEMAND ELASTICITY OF BEER

Price elasticity: The following points are notable: The own price elasticity of demand for beer shows the least variation with estimates falling between 0.12 and 0.9459. The own price elasticity of demand for wine varies between 0.2083 and 1.85; The own price elasticity of demand for spirits varies the most, with estimates lying between 0.16 and 2.03. Cross price elasticity: The cross price elasticities of demand for beer range from 0.84 to 1.57 with respect to wine and from 0.59 to 0.92 with respect to spirits. Income elasticity: The income elasticity of beer is (+) 3.04.

INTERPRETATION: From the figures of price elasticity, it is clear that there is very less variation in the quantity demanded with respect to the price changes. Similarly, from the figures of Cross price elasticity, it is clear that quantity demanded shows less variation with respect to the price changes of others. Overall, the demand of beer is independent of price variations. Whereas the income elasticity figure shows that there is drastic change in the demand of beer with respect to change in the income levels.