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Premium Blend

United Spirits is back on the growth path with Diageo’s focus on premiumisation

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The story of the beleaguered liquor baron and his company reads like a Bollywood masala — debt piling on, hundreds losing their jobs, mud-slinging and hysterical news anchors. In came a knight in shining armour — the world’s biggest distillery by sales — Diageo. Its long-standing interest in buying controlling stake in United Spirits worked as a lifeline for Vijay Mallya and UB Group. 

Mallya sold 14.98% stake in United Spirits to the British multinational and, with this Rs.20 billion deal, the latter became the owner of premium whisky brands in the country such as McDowell’s and Royal Challenge. Completed in July 2013, the deal looked like a happy ending for all parties involved and Diageo became the largest shareholder with around 25% stake. But, like any interesting plot, there came a twist.

The takeover wasn’t smooth — from cleaning up the books and forcing Mallya to resign to replacing his allies from the top spots— Diageo had to fight at multiple fronts between 2012 and 2016. It finally cut ties with Mallya and had just put internal squabbles to bed when, almost immediately, demonetisation and Goods and Services Tax (GST) rollout entered the scene. It was another setback, followed by the ban on alcohol sale within 500 metres of state and national highways. If Diageo was a believer, it would have gone shopping for a good-luck charm. Instead, the new management at United Spirits put its shoulder to the wheel and handled these crises admirably.

Rebuilding from scratch 

Led by Anand Kripalu, the team has scripted a turnaround story with sales growing at five-year CAGR of 22.42% to Rs.288 billion in FY19. This was achieved by revamping nearly all functions — marketing, supply chain, governance, cost structure and brand portfolio. But analysts believe the strategy that has led to a sharp improvement in the company’s performance is Diageo’s decision to focus on the premium prestige-and-above (P&A) segment (See: Premiumisation drive). It includes well-known brands such as McDowell’s No.1, Signature, Royal Challenge and Antiquity Blue, along with Diageo’s global brands Johnnie Walker, VAT 69 and Black & White. “The focus on the premium end is bearing fruit

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