Bengaluru: After cleaning up the books at United Spirits Ltd, chief executive Anand Kripalu can now focus fully on business—finally.
Since Kripalu took over as CEO in May 2014, United Spirits has been hampered by legacy corporate governance and accounting issues. In an interview, Kripalu said a “lion’s share” of those issues have been dealt with.
Kripalu also spoke about relaunching brands, United Spirits’ strategy towards its mass brands such as Bagpiper whisky and the slowdown in the liquor market. Edited excerpts:
What is your plan for the popular, non-premium segment with brands like Bagpiper, which was once the highest-selling brand in the country?
We’ve segmented the country into regions where we believe there is a big opportunity for strong, profitable growth of popular brands. And that we will continue to do fully—invest behind the brands, dedicated sales force, do whatever else we need to do. There are some states where we believe there is limited opportunity for profitable growth and those states we are franchising out but not selling the brands.
We are looking at adding some more states to the franchisee model. But Karnataka, which is 25-30% of our volumes, for instance, we will retain.
Are you looking at exiting any brands in the popular segment?
I’m not looking to sell the brands because I believe the brands are important for the future.
Is Diageo planning to increase its stake in USL?
I would never know if Diageo is planning to increase its stake in USL and rightly so. Diageo will decide if they want to or don’t want to. As USL directors we have no view and we will never know.
Are USL’s corporate governance issues from the Vijay Mallya era now a thing of the past?
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 (on the corporate governance issues). Is a lion’s share of stuff done? I think so.
For most of your tenure USL has been struggling with corporate governance issues of the past. Where do you stand today in terms of where you wanted to be when you took up the job?
At the end of three years where we are today, are we exactly where we wanted to be in terms of our P&L? 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.
When I look at the softer aspects of the organisation, I don’t think we had really sharp details of everything we wanted to be. But if I looked at brands, sales, cost, reputation, organisation – are we pleased about where we are on each of these five things? Actually, I am pretty pleased. I don’t believe there is a big gap.
The liquor industry has seen a slowdown in growth for more than five years now. Is this the norm or will the industry see a return of strong volume growth?
I don’t think it (the industry slowdown) will get worse before it starts to get better. I think it has bottomed out. What I cannot guarantee is what will happen because of the regulatory changes, which are still many and have to be sorted out. But I don’t think it will go any lower than this based on whatever modelling we have done.
The rate of volume growth has slowed down but there hasn’t been a slowdown in the rate of premiumisation. The premium segments continue to grow rapidly. I would expect it to bounce back in the coming years as this period of (policy) change becomes part of the past.
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. You are seeing all the right signals.
States have taken up excise duty ahead of consumer inflation. One of the biggest drivers of category growth is price relative to inflation. If your price is less than inflation, I think it will be a positive variable and (vice versa if your price is higher).
Which brands will drive growth for USL?
If I looked at contribution to growth, McDowell’s No 1 will always be there because of the size of the base. Having said that I expect the more premium parts of the prestige portfolio to contribute more than their fair share; so Royal Challenge, Signature and Antiquity, which we could renovate-innovate, and scotch after. I think premium rum we definitely see the opportunity but whisky is the battleground here.