United Spirits focused on Whyte & Mackay brands

United Spirits focused on Whyte & Mackay brands

United Spirits didn't buy Whyte & Mackay for the group's bulk Scotch whisky business, as is now being demonstrated.

When Vijay Mallya parachuted into Scotch whisky and dug his claws into Whyte & Mackay, there was an obvious strategic advantage for the Indian billionaire. Apart from the symbolism of United Spirits reversing the custom of developed market firms riding into emerging markets on the back of native wannabes, the Whyte & Mackay deal filled a crucial hole in Mallya's whisky jigsaw.

Scotch makes up a tiny amount of overall whisky sales in India, but it sells for prices much higher than local spirits can hope to achieve in the forseeable future. Whyte & Mackay, then, offered United Spirits legitimacy and an opportunity to develop a high-end portfolio of genuine Scotch whisky brands.

It is in this context that one must read Whyte & Mackay's latest full-year accounts. For the 12 months to the end of March, Whyte & Mackay's net profits slid by 54% on the previous year, to GBP10.25m (US$15.8m), according to figures filed with Companies House just before Christmas.

Net sales fell by 20% to GBP169.5m. For the year and the one before it, meanwhile, group redundancy costs have totalled almost GBP3.14m.

However, the company is keen to assert the slump in results is part of a cunning plan to reduce the firm's bulk whisky business, leaving it as a lean, mean, brand-focused machine. Group finance director Hemanth Menon said in a statement: "Whyte & Mackay is conscious of the short-term impact on profits and turnover, but strongly believes the company should be 'brands' led rather than bulk business."

He added: "We have the support of all the stake holders and a testimony to this was our ability to refinance the entire debt at favourable terms. Further, the results of this shift in strategy has also resulted in fantastic tangible results for the brands." 

Examples of early successes, he said, are that Jura and Dalmore are two of the top three fastest growing malts in the world. In addition, the group recently sold a bottle of Dalmore 62 for US$200,000 at Singapore airport. For United Spirits, this is what Whyte & Mackay is all about.

The group is not alone in wanting to refocus on brands at the expense of bulk. Glenmorangie Co, owned by Moet Hennessy, has also spent the last couple of years streamlining its business by cutting out bulk, third-party and blended whisky operations in order to focus solely on single malt Scotch.

We are in a boom period for Scotch whisky sales globally and it is being driven by demand for key brands. Many of the major brands are blended whiskies. But, key single malt brands are experiencing strong growth alongside the blended big-hitters, and they command a price premium. Single malts account for only 8% of Scotch industry volumes but 17% of industry value worldwide, according to Sanford Bernstein.  

For United Spirits, its acquisition of Whyte & Mackay has been far from smooth. The deal landed Mallya with debts that have, at times, threatened to sink the integration process and force him to consider selling a stake in the United Spirits business. At one stage, the firm was briefing off-record that it would consider floating Whyte & Mackay on the stock exchange to gain outside investment.  

Today, meanwhile, Mallya's UB Group empire is under threat from the deterioration of its Kingfisher Airlines business and this could yet impact the drinks arm. Perhaps financial uncertainty across the UB Group business, including United Spirits' travails with debt, have influenced the pace and extent of the streamlining at Whyte & Mackay. 

However, this is really a side story. After a few years of uncertainty, what's clear is that we are now seeing what United Spirits wants Whyte & Mackay to become.