The Snake Charmer

In 2006, Lord Karan Bilimoria, CEO and founder of Cobra Beer, announced that the company was extending the number of breweries that produced Cobra under licence in India from one to five.

It was the latest step in a journey stretching from Hyderabad in India to London and back again. In the process, Bilimoria has created one of the world's leading beer brands, winning 20 medals at the Monde Selection World Quality Awards 2007. Now, Bilimoria is taking his 'less gassy, extra smooth, premium lager' back to its roots in India, as part of an ambitious global expansion plan.

Yet when Bilimoria first came up with the idea, he could not have imagined how successful it would prove: in 2006, Cobra's retail sales were £126m.

It has been a rollercoaster ride to success. Were it not for Bilimoria's innovation and can-do attitude, the Cobra Beer business would have run dry long ago. Through all the setbacks, and there have been many, Bilimoria and the Cobra team have remained resolute as they sought to turn problems encountered into opportunities.

A BETTER POSITION

For some entrepreneurs, business ideas come as a flash of inspiration; for others, it is a gradual process. For Bilimoria, the idea for Cobra Beer was the result of dissatisfaction with an existing product.

Brought up in India, where his father was an officer in the Indian Army, Bilimoria travelled to London in 1981 to complete his accountancy studies. He discovered English lager at a local Indian restaurant and took an instant dislike to the brands on offer. "I found them very gassy, fizzy, bland, harsh and bloating. Basically, they were difficult to drink," he recalls.

Bilimoria felt the restaurant owners were missing a trick. "The combination of fizzy lager and spicy food bloated you, making it quite an unpleasant experience, and I couldn't eat or drink as much as I wanted. There was an obvious business opportunity here. The restaurant owner could be selling me more food and beer."

By 1989, Bilimoria had a chartered accountancy qualification and a Cambridge University law degree. Realising that developing his beer would need capital and business experience, Bilimoria started an import business with business partner and friend Arjun Reddy. Among other things, the pair also imported polo sticks from India and sold them to Harrods.

It was a lucky discovery that led Bilimoria to his beer business. While researching the possibility of importing seafood, he realised that the seafood company he was looking into was owned by a division of an Indian company, Mysore Breweries, which produces the well-known Indian beer, Pals.

He originally approached Mysore Breweries with the idea of exporting Pals to the UK. However, not only are the names of its two beers – Pals and Knockout – unsuitable for the UK market, neither fitted Bilimoria's concept of a "premium beer of about 5% alcohol by volume that combined the smoothness of real ale with the refreshing qualities of a lager".

Bilimoria's solution was to get the Mysore Brewery to brew a new export beer to his taste specifications. After travelling to India, and with the help of Mysore's master brewer, he managed to develop a lager beer with exactly the right taste.

PREPARING TO STRIKE

Getting the right taste was least of Bilimoria's challenges. Distribution in the UK fell through and he had to sell the first shipments himself. Consignments of Cobra were transported in Bilimoria's battered old Citroen.

"It could carry exactly 15 cases of Cobra Beer," says Bilimoria. "You could see the road through the floor of the car. Most days it required a push start. Eventually it failed its MOT." Bilimoria sold directly to Indian restaurants with an ingenious pitch. Cobra was not an easy sell. It was £1 a case more expensive than the competition, and Bilimoria always insisted that the minimum order he would accept was five cases. Then there was the size of the bottle. The restaurant owners were used to the smaller 330ml bottles of draught beer and they baulked at Cobra's 650ml bottles.

"People would say, 'You have something unknown, more expensive, and you are saying I have to take five cases?’," he recalls. "In response, we would say, ‘Look, the secret of this product's success is in its smoothness and its drinkability. The reality is, because it is smoother, your customers will eat more and, if they want to, they will drink more. So you are going to make more profit. Forget about the £1 additional cost, because we are going to make you many pounds more profit.’"

In two years, Bilimoria and Reddy progressed from a simple idea to a business delivering more than 1,000 cases of Cobra to over 100 restaurants a month. In 1993, during a financing round, the business was valued at £1m; today, after several more innovative rounds of financing, Bilimoria is running a business empire valued at over £100m. And he still retains 67% of the equity.

HOME MARKET

Now Bilimoria is returning to India to tap into the beer market there. Bilimoria, who is co-chairman of the Indo-British Partnership, an organisation with a mandate to increase bilateral trade and investment between the two countries, is very enthusiastic about the prospects for Cobra in India and for India's current economic progress in general, although he acknowledges the challenges it faces.

"India needs to open up much more. It has a way to go before approaching the free market we have here in the UK. There are still foreign direct investment restrictions – foreign banks are limited in the numbers of branches they can open, for example. Investment in many sectors is restricted. In that sense, it isn’t anywhere near the free market it should be."

There is also the complex political situation: a coalition government with 19 parties, and a federal system with 35 states and union territories. It takes time to get things done.

Then there is the poverty issue. "There are 300 million people living on less than one dollar a day," says Bilimoria. "This is unacceptable. Some 700 million people are living in the rural areas, which only generate 20% of the economy; essentially, those 700 million people are poor."

"So India is facing huge challenges in improving its primary healthcare and education, developing its infrastructure and free market, and promoting sustainability and environmental protection. Yet, in spite of these challenges, India is working; it is succeeding and you can succeed by investing in India. India is making measured progress."

NEW ATTITUDES

A lot of India's new success is down to a change in attitudes, according to Bilimoria. In the old India – the inward-looking, closed economy – consumers wanted choice and better quality while industry wanted protection. Then a change in mindset began, and industry started to embrace globalisation, acknowledging that it helped Indian companies improve quality – just what the consumer demanded.

This new-found confidence has encouraged Indian companies to become major players on the global stage. "Just a few years ago, the maximum foreign exchange an Indian company could have for a takeover was $2m," remarks Bilimoria. "You can't make a multibillion-dollar bid for Corus when you’re not allowed to. Now those restrictions have gone, Indian companies are going global. The £300m Tetley Tea takeover by Tata was a big deal at the time, but that has been dwarfed by Tata Steel's multibillion Corus buyout."

There is no escaping Indian companies as they expand their activities around the world. Bilimoria says that just before he made a recent visit to Israel an Indian pharmaceutical company, Sun Pharma, acquired an Israeli company for $500m. While he was there, another Indian company, Jain Irrigation, bought NaanDan Irrigation Systems, one of the largest irrigation companies in Israel.

Gone is the idea that doing business with India is only about business process outsourcing and IT. People have woken up to the fact that it has a first-class manufacturing base.

PASSAGE TO INDIA

So Bilimoria is heading back to India with big plans for capturing a share of the Indian beer market. To give an indication of the market's potential, beer consumption in India is only a litre per person per year compared with the US, where it is 100 litres per person per year.

"I am excited about our prospects in India," says Bilimoria. "I think very soon it is going to overtake all our worldwide sales put together. Indian brewing capacity is nowhere near enough to cope with the growth of the Indian beer market. The beer market growth in India is way ahead of GDP growth, which has now crossed 9% year-on-year. Beer market growth is in double digits."

Cobra is on a sustained growth path in India for the next two decades, Bilimoria believes, because that is how long it will take the beer market to mature to the level of a country like China, where there are several hundred breweries. India will need hundreds more breweries, and Bilimoria sees Cobra as playing a part in that growth.

Cobra has brewed for the Indian market under licence in Rajasthan since January 2005, and in late 2006 Bilimoria announced further licensing agreements with breweries in Goa, Bihar and Uttar Pradesh, with another planned for Orissa. Between November 2006 and May 2007, Cobra’s beer sales in India increased tenfold.

Plus, Bilimoria has committed to build a brewery from scratch on a greenfield site, which will be majority owned by Cobra, with Cobra doing the brewing directly, not under licence. "Our first brewery is in Punjab, and I hope and believe it is going to be the first of many," he says.

Bilimoria is proud of the way his achievements are recognized in India. "There is the advantage that in India, people see Cobra as both a British brand, doing very well in Britain, but also of Indian origin, much like I am a person of Indian origin. So whatever success we have over here in Britain, India is proud of that success."

It is another sign of shifting attitudes in India. There is an Indian expatriate community of 25 million people around the world, and India's attitude towards them until a few years ago was ambivalent, seeing them as part of the Indian brain drain. "That attitude has changed now," says Bilimoria. "Today India celebrates the success of its non-resident Indian community around the world. It embraces them, welcoming them back to India to exchange ideas, and to do business."

And that's something Bilimoria is certainly intent on doing.