Per capita consumption of beer in India may currently be small but SABMiller believes demographic and economic factors point to exciting long-term potential for the market. Chris Mercer reports from India on the opportunities and challenges facing SABMiller's senior management team in the country.

SABMiller stole a march on its international competitors by jumping into the Indian beer market early.

It transformed its presence in the country in 2003 by entering a joint-venture with Shaw Wallace Breweries for US$132m. Now, having bought out Shaw Wallace in 2005, it claims a 38.5% market share. SAB and main rival United Breweries produce more than 80% of all beer consumed in India.

There is a long road ahead, however. To talk of India as an emerging market for beer is true, but in reality it is in its infancy.

Per capita consumption stands at little more than one litre. It would be a mistake therefore to sit the nation around the same table as the likes of China, which has developed commercially at a faster pace and boasts per capita consumption of closer to 20 litres. Czechs are the world's biggest beer drinkers, ploughing through around 170 litres each annually.

By contrast, almost all alcohol consumed in India today is spirits.

What excites brewers about India is the long-term potential. A large proportion of its much-touted 1bn population is under 30 years of age, and industry figures show that 80% of beer is consumed by people under 35.

SABMiller believes that beer is becoming an "aspirational" beverage, a sign of financial and social success among a growing urban middle class. Disposable incomes are set to rise further still. There is a strong sense of economic destiny among many young, urban Indians; an unflinching belief that the country will be one of the world's largest economies within the next 50 years.

A PricewaterhouseCoopers report predicted earlier this year that India's economy would grow to 90% of that of the US by 2050. As the west tilts towards recession, India's GDP growth is expected to dip yet remain above 6% in 2009 and 2010, according to the Economist Intelligence Unit.

Jean-Marc Delpon de Vaux, the French CEO of SABMiller India, says he would be "surprised and disappointed" if India's per capita beer consumption does not reach five litres within the next five years. In ten years, he believes it can double again.

According to SABMiller, the Indian beer market has shown annual volume growth of 23% over the last three years. The brewer's annual sales in India now stand in excess of US$300m and Delpon de Vaux expects growth of between 15% and 20% for the current fiscal year.

While he says there are several barriers to growth, he adds that these are predominantly practical issues, rather than cultural. "It is not religion or culture that is preventing growth in India," Delpon de Vaux says. "The real issue is quite clearly in areas of pricing, linked to regulations on pricing, availability and, finally, the lifestyle of the consumer."

A major problem is India's bureaucratic jungle. The country's division into 28 states and seven provinces results in a maze of rules, regulations and taxes, all of which must be navigated by any firm wanting to work nationally. And to make matters worse, as Indians often point out, "every rule here has an exception".

States have differing regulations on pricing and distribution, as well as fluctuating excise charges, which foster inefficiency and devour brewers' profit margins. SABMiller claims that half of India's states set beer prices, while average duty tax on beer is more than three times the global average of US$4.

Delpon de Vaux says: "Across India, there are 12m hectolitres produced by 65 breweries. You could easily produce the amount of beer drunk in India with two, three or four breweries. The reason there are so many is the legislation. Transporting beer is expensive, so you need breweries in the different states."

Lobbying for a more harmonised system is a big part of SAB's strategy, and something it believes can make beer more affordable. It has joined forces with its rival, United Breweries (UB), to sue the state of Andhra Pradesh over authorities' pricing of beer, in what the brewers hope will prove a test case. SAB receives nearly a third of its revenue from beer sales in this state alone.

The company argues that the regulatory system is the main reason why beer is such an expensive drink in India. Most working Indians cannot afford a standard bottle of beer after a day's pay on the minimum wage, while the likes of SAB's Foster's and Peroni Nastro Azzurro brands are only within reach of the higher-earning elites.

Still, Delpon de Vaux admits that brewers have a responsibility to improve the marketplace for themselves. "Beer is not part of the repertoire of drinks for most consumers in this country and so the ball is in our court to change this," he says, adding that the number of outlets serving beer, both on and off-trade, needs to rise.

Times are changing on the marketing front. Beer advertising, where allowed, is still heavily male-dominated, accounting for the fact that less than 1% of women in India say they drink alcohol. But, SABMiller's Knock Out brand, which perhaps does not set the ideal tone on responsible consumption, is being pushed to the back of the queue in favour of a greater drive on newbie Indus Pride and strong beer Haywards 5000.

Apurv Nagpal, SABMiller India marketing director, says Indus Pride, the 100% malt beer launched in Rajasthan and key cities in October, "is growing much faster than we expected". The group wants Indus, which is a mild beer and sells for between US$1 and $1.50, to challenge UB's Kingfisher beer as India's leading brand. Kingfisher has swooped in to grab top spot over SAB's strong beer Haywards 5000 in recent years, reflecting a market shift from strong to mild beers.

Exposure to emerging markets, generally a euphemism for poorer nations, also brings greater scrutiny of corporate social responsibility.

Last year, SABMiller India set up a scheme called "train the trainers", which aims to promote awareness of HIV among brewery staff, and has now extended this to include lorry drivers - considered a high-risk group. Up to 3m people in India were living with HIV/AIDS in 2006, according to World Health Organization figures.

SAB is also proud of its growing relationship with India's barley farmers. It says it paid a 10% premium on the market price last year, and has worked with authorities to devise a new farmer partnership scheme called the Saanjhi-Unnati Program.

Member farmers get seeds and support through the scheme, but are not forced to sell their barley to SABMiller if they can get a better price elsewhere. SAB estimates that around 60% of the farmers are selling their produce back to the brewer.

A fairer deal for workers, after all, is likely to mean more loyal consumers in the future.