BackAs USL grapples with boardroom battle, rivals grab market share
USL, which is yet to publicly announce Q4 results, reported a slight decline in sales volumes for FY15
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Bengaluru/Mumbai: India’s largest liquor company United Spirits Ltd, which is in the midst of a boardroom battle over suspected accounting irregularities, faces an uphill task in reversing market share losses that have continued through last year, according to two people familiar with the matter.
United Spirits, which is yet to publicly report its March quarter results, reported a slight decline in sales volumes for the year ended March, according to the two people.
Many of United Spirits’ large brands such McDowell’s No.1 Celebration rum and Bagpiper whisky reported volume declines and lost out to rival products last year, the two people said on condition of anonymity. Only a few key brands scored significant gains. McDowell’s No.1 whisky reported an increase in sales volumes of more than 10% and two pricey whiskies, Antiquity Blue and Royal Challenge, grew volumes by more than 25% last year, the two said. United Spirits had cut prices of McDowell’s and Royal Challenge whiskies in late 2013 to boost sales.
Because of the overall decline in sales volumes at United Spirits, it lost more market share to key rivals, Pernod Ricard India Pvt. Ltd and Allied Blenders & Distillers Pvt. Ltd. Pernod and Allied Blenders have grown significantly faster than United Spirits in three of the past four years, Mint reported on 8 December.
Last year, Pernod reported an increase in sales volumes of more than 15% while Allied grew volumes at nearly 30%, the two people said. Growth at both companies came from taking share from United Spirits and others, as overall liquor demand was weak because of high prices.
The sales decline at United Spirits came amid an internal probe that led to the company’s board asking for the removal of chairman Vijay Mallya. P.A. Murali, chief financial officer, quit the company late last month ahead of the public release of some of the findings of an inquiry that looked at suspected accounting irregularities.
A United Spirits spokesperson declined to comment on the sales numbers, citing its upcoming earnings announcement, but said the company expects to increase its market share in the so-called prestige liquor category, which offers relatively higher margins.
“We are neck and neck with our closest competitor (Pernod Ricard) in prestige with a share of 48.9% versus 48.6 % (Pernod). With increase in focus and investments in our brands and the route-to-market, we expect that we will widen the gap soon," the spokesperson said.
In December, United Spirits chief executive officer Anand Kripalu said the company would focus on increasing sales of some 15 power brands out of the company’s large portfolio of 140. United Spirits is also focusing on pushing its products in states such as Karnataka and Maharashtra, which are are relatively more profitable, rather than Tamil Nadu and Andhra Pradesh.
“We have a clear strategy to continue to build our power brands through increased investment, innovation and renovation. This strategy will not only leverage the premiumisation trend (as consumers trade up within a category) but will also improve our margins significantly," the United Spirits spokesperson said.
This power brand strategy is new and it’s unclear whether it will pay off.
Pending issues such as potential accounting irregularities, the fight with chairman Mallya and potential regulatory action will make it difficult for United Spirits to pull off any strategy successfully, analysts said.
“These issues will take up a lot of the management bandwidth," said an analyst at a Mumbai-based international brokerage. “How do you run a business when you’re dealing with issues like potential regulatory action, accounting problems and boardroom fights? Clearly, they’re up against the odds to turn around their business, especially as Pernod and ABD (Allied Blenders) are gaining share in key categories."
But the United Spirits spokesperson indicated the boardroom fight and the internal probe were not affecting the company’s performance. “USL is a strong, resilient organisation of over 10,000 people, each of whom have a distinct role to play. They are going about their roles with efficiency and focus. There are only a handful of people who form the core team involved in managing the current developments, so that it is business as usual for everyone else," the spokesperson said.
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