United Spirits hopes relaunch of whisky brands will help regain market share
Bengaluru: India’s largest liquor company United Spirits Ltd is betting on relaunches of its top whisky brands and brand extensions to drive growth in a market that has been sluggish for more than five years.
United Spirits chief executive Anand Kripalu said in an interview that the company, owned by Diageo Plc., has “renovated” most of its important old brands. In addition, he said “there’s innovation—when you bring something new to the market. When we started this (innovation) journey it took 2.5-3 years to turnaround a product innovation. Today we can do it in 18 months. There is a need to innovate even faster, stay nimble-footed and agile”.
Over the past 18 months, the company, which owns more than 140 brands, has redesigned the look of McDowell’s No.1, Royal Challenge and Signature and backed the relaunches with extensive advertising. This year United Spirits has done the same with Captain Morgan rum and will do it with a few more brands. The company has also introduced a honey variant of McDowell’s No 1 whisky and an espresso-flavoured Royal Challenge whisky.
The Indian liquor market, which consistently grew by more than 10% a year in the 2000s, has seen growth slowing for at least five successive years now, primarily because of rising state liquor taxes and a regulatory clampdown. In terms of sales volumes, growth has tapered to 1-3%.
At the top, United Spirits has been the worst-hit so far by the slowdown. It has consistently lost market share to Pernod Ricard India Pvt. Ltd and Allied Blenders & Distillers Pvt. Ltd over most of this decade. Kripalu, however, suggested that the company is starting to win back share, helped by the recent whisky relaunches. Whisky is the single-largest product category in liquor, accounting for anywhere between 55% and 65% of all liquor sales in the country.
Wearing a checked white shirt with the United Spirits logo, Kripalu, 58, said industry growth is unlikely to drop further, though it will still be a few years before it starts accelerating rapidly again.
“It’s very hard to say when growth rates will increase again but I think it will take a couple of years for the whole industry to get into a state of equilibrium. But it has to happen—look at the per capita consumption, look at economic growth, look at attitudinal barriers to alcohol coming down,” he said. In addition, he added, there is a strong trend of “premiumization”, with people graduating to more expensive offerings.
Kripalu joined United Spirits as CEO-designate in October 2013, months after Diageo acquired it from the UB group. Since then, United Spirits has been battered by corporate governance scandals and some politicians adopting the prohibition platform.
The company delayed reporting its earnings three times in 2014 and launched an internal probe into its accounting practices. In April 2015, United Spirits revealed that the probe suggested financial irregularities and fraud at the company for several years when it was run by Vijay Mallya and his team.
After a 10-month-long boardroom battle, Mallya quit as non-executive chairman of United Spirits in February 2016 after Diageo agreed to drop all charges of irregularities under his watch and pay him $75 million over five years.
Clearly, the troubles with Mallya have hurt United Spirits, becoming the central issue of the first few years of Kripalu’s tenure. Kripalu, a former senior executive at Unilever Plc. and the former managing director of Cadbury India, admitted that things didn’t turn out the way he expected.
“At the end of three years are we exactly where we wanted to be in terms of our P&L (profit and loss)? No. Our profitability is lower than what we would have liked and that’s primarily because of the fact that pricing did not happen in the last two years. The only variable where there’s a gap versus expectations is pricing from state governments,” Kripalu said, referring to the fact that liquor companies can’t increase product prices without getting approval from individual states.
For the three months ended December, United Spirits returned a profit of Rs147.7 crore (a year-on-year increase of over three times) on revenue of Rs7,082 crore, a 6% rise over the year-ago period. The net profit numbers aren’t really comparable because of an exceptional expense in the year-ago period.
Kripalu added that while the company has been hampered because of the accounting probe and issues with Mallya, it has instituted strong corporate governance practices, adopted sound operating procedures, hired quality talent and diversified its leadership team at the senior and middle levels
Asked if the corporate governance issues from the Mallya era were now a thing of the past, he replied: “In no company can you say everything is finished and done. So I don’t think I would ever say that here that everything is sorted out and done. Is a lion’s share of stuff done? I think so.”