just the answer – United Spirits
Like prominent Indian companies in many sectors, spirits producer United Spirits India has not only benefited from the rapid development of its domestic market but is also expanding its own international horizons. In this month's just the answer, Chris Mercer spoke with United Spirits' president Vijay Rekhi.
just-drinks: United Spirits' volume sales rose 18% in the last year. Do you hope to continue at that pace in 2009/2010?
Vijay Rekhi: We sold 90m cases last year, and we're looking to sell between 100m and 105m next year. We plan to reach 115m cases within the next two years, so we're optimistic about the future.
j-d: What about profitability? How is your bottom line?
Rekhi: Our profits are not comparable with the big international players, which is why we prefer to focus on case sales.
[Subsequently, United Spirits has announced that profits fell by 14% in the fourth quarter to INR556m (US$11m), with sales rising by 21% to INR9.23bn]
j-d: The Indian spirits market appears to have resisted the global economic downturn a little better than some others around the world. Have you seen any evidence of consumers trading down?
Rekhi: It is quite possible that people will downgrade. The question is which products will get downgraded. We don't make liquid, we make brands, and these will be the last to be hit in terms of momentum. Those hit the worst will be those who do not have a brand to hold on to. I do hear some rumblings from my sales team, but nothing more. We have seen no effects from the economic downturn so far.
j-d: How easy is it to maintain brand loyalty on spirits in India?
Rekhi: There are many, many opportunities in our country if you can sustain a level of investment that will get you noticeability. But it cannot be distribution and pricing alone; you have to pay attention to brand building. For example, many years ago, we began an association with golf clubs in India and this now includes all the golfing clubs. We also support a committee of all the golfers.
j-d: Do India's tough advertising rules for alcohol hamper progress on building brand awareness?
Rekhi: There is an alignment in the industry as to what is acceptable and what is not. We have been inspired by the Portman Group [the UK drinks industry self-regulatory body]. While alcohol has to be promoted, we all have a responsibility to see that it does not get into the wrong hands, or that people do not abuse alcohol.
j-d: In this year's elections in India, some have raised the prospect of tougher restrictions on alcoholic drinks sales, even prohibition. Is this a concern for the industry?
Rekhi: We have many cities and many states in India. People are free to have their own ideas, but I don't think Indians really suffer from the worry that there will be prohibition. It would be impracticable to enforce. If industry is collaborative then I have no worry about this in India whatsoever.
j-d: The Scotch Whisky Association has been critical of the higher taxes imposed on imported spirits, compared to domestic products, in different states. Meanwhile, you have a stake in Scotch yourself, with Whyte & Mackay. How do you view the current situation?
Rekhi: The Government has the right to tax what is imported. But India's justice system does not allow states to discriminate between one product and the other. There is no discrimination.
j-d: Some Scotch whisky distillers might take issue with that.
Rekhi: We don't want Scotch to be discriminated against, or any product. Sometimes there are issues; we are having currently our own issues in Delhi with our Black Dog Scotch whisky. In India, we don't take people to court, we just go down to the offices and talk some sense into them. Actually, the authorities have already come around.
j-d: It is well documented that you also see trade barriers to United Spirits bringing its Indian whisky portfolio to markets in the EU, which has strict rules on the definition of whisky. Does your opinion on this remain the same?
Rekhi: Europe is a very attractive market for us. Indian whisky sells 110m cases annually, so one for one we are selling more whisky than the Scottish. Who is it to say that Indian whisky cannot come into Europe? The EU should come out with a new definition. If our whiskies were made from grain substances [instead of molasses], they would be acceptable in Europe.
In addition, Europe has created 70cl bottles for whisky, and so introduced protection for the glass industry. What is the logical basis of 70cl? Why can't it be 75cl like everyone else? It would be a huge investment in bottling for us to be able to supply to Europe.
What we are saying is that Indian whisky has a right to exist. I think there are fossilised views on both sides that need to be dismantled.
j-d: Finally, it is common knowledge that United Spirits is in talks with Diageo about a potential tie-up in India. We understand that progress has been slow. How would you describe the state of negotiations?
Rekhi: We do not have anything more to say on this. We have said that we are in talks and those talks are continuing. When there is something more to say, we will say it.
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