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Mallya takes on global brands

Mallya takes on global brands
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First Published: Sat, Jun 09 2007. 12 26 AM IST

Updated: Sat, Jun 09 2007. 12 26 AM IST
Vijay Mallya calls himself the “King of Good Times”, and he has the credentials.
The biggest maker of both whisky and beer in India, he wears gold necklaces and a diamond bracelet, surrounds himself with film stars, and holds liquor-soaked parties on his 165ft yacht, once owned by Elizabeth Taylor.
Such behaviour didn’t square with the anti-alcohol ethic in India when Mallya inherited a family liquor business 24 years ago. Some states required a doctor-signed “liquor permit” to buy alcohol.
But as India opened up to world trade in the past decade and its economy boomed, a new urban generation began to embrace partying, travel and free spending. Mallya’s flashy image became an asset that helped turn his empire into a commercial giant. Protecting it, meanwhile, were import duties of up to 550% on foreign liquor.
Now, the same liberalizing forces that changed India and propelled Mallya to riches threaten his dominance. Western spirits companies that long ignored India because of its attitudes and its tariffs are coming in.
Britain’s Diageo Plc., France’s Pernod Ricard SA and Fortune Brands Inc. of the US are offering locally made brands here. They’re ramping up marketing and building Indian distribution networks. And they’re mounting a legal attack on the tariffs, determined to make their premium Scotches and other famous brands affordable in India, where many covet but can’t afford them.
The prize in this competition—the world’s largest market for whisky by volume, one long largely closed, but now starting to open.
Western whiskies cost about $40 (Rs1,640) a bottle here because of the duties, a stiff price even for those who can afford to go to nightclubs.
But even at that price, sales are rising. Kishore Frederick, owner of a high-end club and restaurant in Mumbai called Seijo and the Soul Dish, says the piles of empty bottles of Johnnie Walker, Bacardi and Absolut behind his bars get larger every weekend.
“People have dismantled the myth about alcohol being taboo. India has shed its inhibitions,” Frederick says. His favourite drink is Cutty Sark (made by two UK firms) and soda. For Indians like him, “what used to be a treat has now become a necessity”.
In March, after intense lobbying by Scotch makers, the European Union petitioned the World Trade Organization (WTO) to consider ruling against India’s tariffs. The US has also petitioned the WTO. A panel of the organization is now examining the case. If it rules against India, it could force New Delhi to slash its tariffs within three years. Indian officials have hinted they might cut them pre-emptively.
Mallya says he doesn’t care about the emerging threat of foreign whiskies. His top-selling Bagpiper brand goes for about $5 a bottle, far less than any imported one. He thinks the gap will keep his consumers loyal. “The combined annual sales of all of the multinationals operating in India is less than the incremental growth that I’ve got each year,” Mallya says. “That’s how much of a dent they’re making.”
But Mallya is also working hard to shore up his position. He is applying some of the foreigners’ marketing tricks, such as holding tastings at bars, and he is pressuring his distributors around India to shun foreign brands.
Mallya’s business empire is the world’s third-largest seller of spirits by volume, after Diageo and Pernod, although because of low Indian prices it is far smaller by sales. United Spirits, the main liquor company in a group of businesses he controls known as the UB Group, has just acquired a Scottish whisky company, Whyte & Mackay Ltd.
Another Mallya-controlled company makes Kingfisher beer, which dominates the Indian market. A third runs an airline also called Kingfisher. It features flight attendants in red skirts called “models of the sky”. Echoing the line about liquor, the airline’s ads tell people to “fly the good times”.
Mallya, a 51-year-old billionaire, owns lavish homes from Mumbai to Monaco to Marin County, California, along with a castle in Scotland. He travels in a private jet and a helicopter, both bearing the bright-red Kingfisher logo. In London, he keeps a gold-coloured Maybach luxury car with the licence plate “UB1”. Mallya is known for flashy moves like pulling out a $100 bill and writing a goal for managers on it, promising rewards such as round-the-world plane tickets for hitting targets.
“What I do is what (Donald) Trump or (Richard) Branson do,” Mallya says. “I use myself as the brand ambassador. We’re talking about lifestyle brands, and this is what the youth of India perceive as my lifestyle.”
Cultural changes
“People want to be like Mallya. They want to party and have a nice time,” says Vikram Kapoor, a 30-year-old real-estate agent in Mumbai who has seen the sweeping social changes.
“India is full of cultural changes. We’ve now got more multiplexes, malls, extramarital affairs and divorces... It has become the American way,” Kapoor says. “In the 1990s, there were three places to go” to drink and dance in downtown Mumbai. “Now on every other road there is a lounge or a discotheque, and they are so full you can’t even walk properly in them.” He drinks Kingfisher beer in the summer and in the monsoon season he switches to McDowell whisky, also from Mallya’s companies.
Whisky has a long tradition in India. It arrived in colonial times and remained the drink of the country’s high society after independence in 1947. (It also retained the British spelling; the liquor is called whiskey in the US). When the British left, Mallya’s father bought up some British-owned alcohol companies.
Alongside this tradition was Mahatma Gandhi’s ascetic vision of an alcohol- and tobacco-free India. As recently as 1977, India tried to implement nationwide prohibition, and alcohol is still banned in Gandhi’s home state of Gujarat. Mallya’s father added to his business by acquiring distressed local sellers of spirits. His death in 1983 left the business to Vijay, then a 27-year-old party boy whom many expected to fritter it away.
Instead, he hired professional management, unusual for a family-run company. He steadily snapped up more local competitors, launched new brands and expanded the firm as the stigma attached to drinking faded. Two years ago, Mallya’s firms bought their main competitor, Shaw Wallace & Co. That gave them about half of the Indian spirits market, to go with their 50% of the beer market.
The deal also gave Mallya’s companies great influence with thousands of small shops. His more than 140 brands represent as much as 70% of many liquor store owners’ profits. The more than 10 firms in the UB Group, five of which are publicly held, also have stakes in other businesses, from software to soccer clubs to the US microbreweries.
Their annual revenue totals more than $2 billion. The biggest company, United Spirits, reported net profit of $123 million on $1.15 billion of revenue in the year ended 31 March. Mallya and his family control 39% of United Spirits, but 55% of the UB Group’s holding company, United Breweries Holdings.
As Mallya’s business grew, so did his image. Last weekend, Aerosmith gave a concert in Bangalore sponsored by one of Mallya’s whiskies. His Kingfisher calendar, featuring Indian models in bikinis, goes to a few thousand of his friends and acquaintances each year. For his 50th birthday in 2005, Mallya produced a heavy coffee-table book with tributes to him?from?Parliament members, a Bollywood actor, a cricket star and a religious guru.
Ravi Nedungadi, UB Group president and chief financial officer, says he tries to keep Mallya from taking on too much. “He is an acquisitory animal by nature, and he doesn’t like to sell things.” When Mallya came to him with plans to start the airline that became Kingfisher, Nedungadi says, he told his boss he needed to sell some minority stakes in other firms to lighten the debt load.
The airline grew quickly and has aspirations to fly internationally. It has ordered 20 Airbus planes, and it may soon announce further orders worth more than $1 billion. A company spokeswoman wouldn’t comment on the reports.
Similarly-named products are useful in marketing alcohol in India. The country bars beer and liquor advertising in almost every medium. But makers can get the names before the public by having like-named products that don’t face ad restrictions: Kingfisher Airlines, Smirnoff CDs. Royal Challenge advertises golf accessories with the name.
The first challenge
The first foreign challenge to Mallya came from Pernod Ricard. It saw that many wanted to trade up from local whisky brands costing only $2-5, but couldn’t afford imported Scotch. So a few years ago Pernod revamped a whisky made in India, put it in an impressive new bottle and priced it at $7-10. “It was bloody attractive,” Mallya acknowledges. He began changing the look of his own products, hiring a London design firm to provide fancier bottles and packaging. He also beefed up promotions in bars, a technique long common in the West, but not much used in India until recently.
Pernod has seen sales of its Indian whiskies grow at as much as 35% a year, although on a relatively small base. Now it has enough of a distribution network that if import tariffs fall, it can import and aggressively promote its premium Scotches, such as Chivas Regal and Ballantine’s.
Pernod’s success has attracted others. Diageo, which had abandoned India several years ago, is getting back in. A study Diageo did two years ago concluded that if India’s liquor duties fell by half, consumers would buy two-three million cases of imported Scotch a year, topping China, which now imports about 1.8 million cases of Scotch annually. In the longer run, India could become the world’s biggest market for Scotch. Last year, Diageo linked up with Mallya’s largest rival, Radico Khaitan Ltd, to make new Indian-made whiskies priced at about $10 a bottle.
At that price, they would have to taste better than local blends. Indian whiskies are usually made of sugarcane molasses, and can be bitter. Western whisky is made of grains. This is largely barley in the case of Scotch whisky, which, to bear that name, must be made in Scotland and aged in oak for at least three years. Indian molasses whiskies are rarely aged at all.
In February, Diageo launched an Indian-made whisky called Masterstroke. Like Pernod’s Indian-made entry in a fancy bottle, Masterstroke is distilled from Indian-grown grains, made by a master blender from Scotland. “It’s mellower and smoother. It doesn’t taste like petrol,” says the head of the UK company’s Indian operations, Asif Adil.
A United Spirits executive says it’s wrong to say molasses-based whisky doesn’t taste as good—what matters is “the quality of the distillation process”. It does make some whisky with grain and may make more because sugarcane has grown more expensive.
Mallya is trying to make life difficult for these foreigners. He has required some of his distributors to sign exclusivity agreements that bar them from carrying competitors’ products. The move is legal. “We have the largest clout in terms of distribution and we intend to use it,” he says.
Mallya has long since sewn up many key sports and entertainment sponsorships. Diageo tried to wrest away sponsorship of a major Mumbai horse race by offering more than a Mallya firm was paying. Race organizers declined to drop UB, citing a long relationship.
A few weeks ago, United Spirits paid $1.2 billion for Whyte & Mackay, the fourth-largest Scotch producer, which is also the largest supplier of private-label whiskies for retailers. He plans to use the firm several ways: Import its best brands by the bottle; relaunch some of its defunct names in India at lower prices; and bring in barrels of its Scotch to blend with Indian-made whisky to improve the taste.
As he battles back the imports, the king of good times’ persona seems to be an advantage in today’s world. “People aspire to be like him because they see him as a global icon,” says Frederick, the club owner. “His brutally blatant, aggressive display of wealth is kind of vulgar, but it works today.”
In High Spirits (Graphic)
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First Published: Sat, Jun 09 2007. 12 26 AM IST
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