Whyte & Mackay, the Scotch whisky group owned by India's United Spirits, may cut its deal to supply bulk Scotch whisky to Diageo in favour of more lucrative contracts with smaller distillers.

Whyte & Mackay's contract with Diageo is up for renewal within the next 12 months and the group is in negotiations to reduce supplies to the drinks giant, or potentially exit the deal altogether, a source familiar with the situation has told just-drinks.

United Spirits, which is part of Indian billionaire Vijay Mallya's UB Group, believes contracts with smaller Scotch distillers may yield higher returns on Whyte & Mackay's bulk Scotch supplies.

Earlier this week, India's Economic Times newspaper reported United Spirits' CFO, Ravi Nedungadi, as saying that Whyte & Mackay could get up to 50% more return from signing contracts with smaller players. 

A spokesperson for Whyte & Mackay declined to confirm or deny the report to just-drinks today (16 September).

"We win - and lose - contracts all the time. It's the natural way and churn of the whisky industry. We never comment on our arrangements with individual customers, but I can say we are always looking at the best way to get maximum value from our stocks," the spokesperson said.

It is possible that Diageo, as the largest Scotch whisky company, may retain a deal with Whyte & Mackay, but at reduced supply.

Diageo declined to comment on the matter when contacted by just-drinks. "As a matter of policy Diageo does not discuss the details of its commercial arrangements in public," a company spokesperson said. "These are commercially sensitive - as they would be in any business - and must therefore remain confidential."

Last month, Diageo announced that its talks with United Spirits over a potential stake buy had collapsed.

United Spirits is looking to reduce debt accrued by its US$1.18bn buyout of Whyte & Mackay in 2007, which involved the firm taking out a $625m loan.

The firm is actively pursuing investment of up to $300m from private equity groups.