The Vijay Mallya-led United Spirits Ltd (USL), the largest spirits company in the world in terms of numbers, has initiated a total overhaul of its business structure, with a strategic shift in focus from mass selling brands to premium brands.
The focus has shifted to premium brands that would bring in a larger profit margin per case, almost 3.3 times more than the regular segment. The new approach to the business appears to be a leaf taken from the manufacturer of Royal Stag and Blender’s Pride whisky, French spirit behemoth Pernod Ricard, USL’s nearest rival.
For USL, the alarm bell rang in FY11 when Pernod Ricard, whose sales were around onefifth of USL’s, made a profit of about Rs 500 crore when the United Spirits Ltd’s profit figure hovered around Rs 400 crore.
Pernod Ricard India has led the way for the industry by generating handsome profits, from small volumes. The primary focus of Pernod’s business strategy is to focus on premium brands such as Royal Stag and Blender’s pride whiskies. The French company’s market share is less than one-fifth of USL, which controls 55% of the 250-million cases Indian spirit market.
An industry source said the French company generates profit of nearly Rs 350 per case while the USL’s average profit per case is around Rs 200 per case.
“USL’s premium brands share of the company’s overall contribution pie is at 55% today and expected to be up by another 5% by the end of this year. This is a significant increase from just 9% in 2005 and is an outcome of sustained premiumisation focus.
Specifically, we have brands cross-lined to Pernod’s brands — pricing of Signature is at par with Blender’s Pride nationally while McDowell’s No.1 Platinum is cross-lined with Royal Stag,” a senior USL official said.
It is the competitor’s success in generating larger profits from smaller volumes that had triggered off a new thought process within the top management of the USL. The focus has shifted to striking a fine balance between volume and margin.
The strategy, christened “premiumisastion”, has been changing the face of the group from one identified with its mass selling brands such as Bagpiper, the largest selling spirit brand in the world until recently, to premium brands such as Mcdowell No. 1 Reserve, Mcdowell No. 1 Platinum whisky, Mcdowell Celebration rum, Mcdowell No. 1 Caribou rum , Mcdowell No. 1, Royal Challenge, Signature Premier, Antiquity etc.
source: http://www.economictimes.indiatimes.com / The Economic Times / Home> News> News By Industry> Cons. Products / by M. Padmakshan, ET Bureau / July 30th, 2012