BackAbout 40% of our luxury growth comes from non-metros: Diageo India MD
Abanti Sankaranarayanan believes there is opportunity to expand in both the premium and luxury segments in India
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Mumbai: The Indian consumer is uptrading across segments and across categories, says Abanti Sankaranarayanan, managing director of Diageo India Pvt. Ltd, the local unit of the maker of Johnnie Walker whisky and Smirnoff vodka. She believes there is opportunity to expand in both the premium and luxury segments in India. Sankaranarayanan, a speaker at the Mint Luxury conference, spoke of the challenges and opportunities of doing business in the country. Edited excerpts:
At what rate is the luxury spirits market growing?
The luxury spirits market in India is growing at about a rate of 25% and that has been pretty steady compounded growth rate for the last few years. It’s strong growth, steady and consistent. It’s certainly growing faster than the overall spirits category.
What is driving this growth?
It’s driven by certain consumer fundamentals, pricing, disposable incomes, desire to uptrade and consumers’ needs to improve the quality of life and higher aspirations. Also the fact that there is an enabling retail environment which is hotels, restaurants and bars. So, consumers can actually enjoy the benefits of different physical ambience and different kinds of lifestyle. Besides this, there is the demographic profile, where 50% of the population is below the age of 30. That’s where we see even bigger potential for luxury growth.
It is said that, in India, premium is doing better than luxury. What is the bigger opportunity for you?
The opportunity is both at the premium end and the luxury end. We have brands like Smirnoff, Vat 69 and Black & White Scotch which sit at the premium end. There is an opportunity for growth at that end of the business and equally there is an opportunity at the luxury end which is our deluxe Scotch, ultra premium vodka and our tequila and gin.
Is the Indian consumer buying these expensive spirits here or at duty free and during travels overseas?
He is buying them at the retail shelves here. The Diageo luxury retail business has grown 4-5 folds in the last four years. That has happened through the domestic market.
Is the Indian consumer uptrading? Has the slowdown impacted the choice of spirits?
The consumer is uptrading irrespective of which category or segment they are in. For Diageo India, the strategy is of premiumizing the consumer and staying with the consumer during this journey. We see the opportunity for Smirnoff, Johnnie Walker, Vat 69, the entire portfolio. We have just launched Smirnoff Black as a premium offering to Smirnoff Red. The opportunity is at both ends.
Is consumption of luxury limited to the metros?
About 40% of our luxury growth is coming from outside of the metros. The opportunity there is far bigger. It’s also not just about the percentage contribution, but about growing the size of the pie and we are looking at growing that far more aggressively with the distribution might that United Spirits Ltd has.
The regulatory hurdles regarding labelling and taxation are big constraints to operate here. What are you doing to ensure the availability of your brands across India?
The regulatory environment is what it is and Diageo respects the local laws and regulations of whichever market it operates in. I would describe it more as a constraint and a barrier to growth and harnessing the opportunity that India has. In terms of labelling, there has been a lot of concern not just from Diageo, but from the spirits industry and the larger foods industry as well. We are in a place where we will be bringing in FSSAI (Food Safety and Standards Authority of India) compliant labels shortly. The fact is that we have had to suffer a disruption in business; I don’t have a number on the impact. But we have had to work doubly hard on the rest of our portfolio as there are brands and certain stock keeping units (SKUs) that were not available in the market.
With India being a tough market and given the immense potential that the market holds, what would you choose to focus on—profitability or scale?
I would choose profitability any time. That is the only sustainable way to go behind volumes. (If) You don’t make profit in a sustained manner, then how can you get the volumes? We do play for scale, but the question is to what extent and for how long. So for instance, one of the things we have done as Diageo, we have consciously taken up prices for our brands this year between 5-15% depending on the brands. This is partly due to inflation, but also because we are looking at growing our business profitably and with high margins, and there obviously, pricing plays an important role.
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