After acquiring United Spirits in 2014 and cleaning up its balance sheet, UK-based alcobev giant Diageo is busy consolidating its position in India through a focus on premiumisation, strategic buyouts, and innovation
On the busy Vittal Mallya Road in central Bengaluru stands the UB Tower. The 20-storey tower, part of a commercial complex, is home to many high-profile names, including Diageo India, a subsidiary of the UK’s Diageo plc, which acquired United Spirits, India’s largest liquor company by revenue.
When United Spirits got under the Diageo umbrella, it was not just a new name for an old business. Diageo is a more aggressive organisation with a distinct multinational culture. The alcoholic beverages major, headquartered in London, has over 200 brands and a presence in 180 countries. For the financial year ended June 30, 2024, Diageo reported revenues of $27 billion, of which 40% came from North America and 24% from Europe. Asia-Pacific contributed 19%, with India’s share in the modest single digits.
Diageo has been trying to change this ever since it took over United Spirits a decade ago: it knows that very few markets offer the headroom for growth that India does. But the changes have come in fits and starts.
Hina Nagarajan, named Diageo India’s boss in 2021 after a similar role at its African business, is hastening the pace. Nagarajan, who prefers a low profile despite being the MD & CEO of a liquor giant, talks in terms of months, not years.
Sitting in her austere office, the MD & CEO pauses briefly to adjust her green blazer before recalling one of the early strategy meetings right after she took over in July 2021. Nagarajan’s table is clean, and her room is sparse (We are drinking tea, and there is no display of Diageo’s 63 alcohol brands in the room). Most importantly, she is relaxed, which is admirable given the complex regulations, tax rates and even bottle sizes across states. Some states depend heavily on taxes from liquor revenues.
“The first thing we asked ourselves was what we stood for. It was clear that we had to set ourselves a mission to be among India’s top-performing consumer packaged goods companies,” she says. Although a Diageo-owned company, it was yet to get out of the woods; Nagarajan had a tough job on her hands. Diageo acquired United Spirits from the flamboyant Vijay Mallya, a liquor baron who crash-landed in debt after his aviation venture ran into trouble. Mallya is out of the picture and left the country in 2016.
Nagarajan, Diageo India’s second MD after Anand Kripalu since its 2014 acquisition of United Spirits, found herself with an impressive brand portfolio that was struggling for traction. France’s Pernod Ricard, with brands such as Imperial Blue, Royal Stag and Blenders Pride, had been investing heavily and growing at the expense of Diageo. Pernod India’s revenue had grown from Rs 8,730 crore in FY14 to almost Rs 19,500 crore in 2021 when Nagarajan joined Diageo and surveyed her rivals. (Pernod India reported a turnover of Rs 25,039 crore in FY24). Other key players in the spirits market include Radico Khaitan (which owns Rampur and 8PM whisky brands, Magic Moments vodka, and Morpheus brandy), and Allied Blenders and Distillers, which owns whisky brands such as Officer’s Choice and Sterling Reserve.
Diageo set some targets for its Indian subsidiary, Diageo India. “We had to be the most trusted company with sustained double-digit growth and mid to high teen margins. Plus, we had to deliver value to all our stakeholders, be it our investors, employees, consumers and our communities,” says Nagarajan. The stock had not had it easy, and uncertainty on the way forward troubled the investor community. When Nagarajan took the helm in mid-2021, Diageo India’s market capitalisation was around Rs 46,000 crore. On September 5, it was Rs 1,07,135.14 crore.
She has made some hard decisions, like taking a close look at the diverse portfolio that United Spirits got when it was formed in 2006 by merging McDowell, Herbertsons, Triumph Distillers and Vintners and Shaw Wallace Distillers, among others. Most were “popular” brands such as Old Tavern, Haywards, Green Label, White Mischief, Honey Bee, and Romanov. In liquor, popular, prestige, premium and luxury categories are derived from price points.
“Some of the brands were flat or even declining, and we had to look at the future of the overall business,” explains Nagarajan. In September 2022, Diageo sold 32 brands in the popular segment to InBrew Beverages and franchised out 11 for five years. While taking the road to premiumisation, Diageo retained McDowell’s brandy, rum and DSP Black, which she terms “the first bridge from popular”.
Abhijeet Kundu, Senior Vice President of Research at Antique Stock Broking, thinks a combination of inflation and regulation on product pricing makes the mass segment a difficult business. “The effort you put in is never commensurate with the margins. The company’s profitability took off after the deal, and they clearly made the right decision.” Look at the numbers (see graphic ‘Big Shot’) and see how volumes declined from 72.5 million cases in FY23 to 61.4 million cases in FY24, dragging down revenues for a while but pushing up net profit margins steadily (up 50% between FY22 and FY24).