Diego Vs Ub

Mumbai: Diageo Plcs purchase of a majority stake in United Spirits Ltd gives it control of more
than half of Indias 250 million cases a year liquor market, turning the country at one stroke into
a bastion of the London-based distiller.
With no big Indian companies newly entering the market, the local spirits market, which is
projected to have an exponential growth in the next five years, is left open for the global
players, said an industry expert with a foreign consulting firm who did not wish to be identified.
The other two key segments of the alcoholic drinks market beer and wine -- are already
dominated by foreign entities, said the expert.
The deal, announced after Indian stock trading ended on Friday puts the Indian liquor market,
worth an annual Rs.35,000 crore and growing at al pace of 15%, on the cusp of the next phase of
its evolution, driven by an expected wave of foreign investment.
In the new evolutionary phase, parameters such as market size, valuation and customer dynamics
have undergone a sea change from what they were a couple of decades ago. The Indian liquor
market has grown rapidly from the 1970s, when the country had no distilleries and a few small
units bottled so-called Indian made foreign liquor (IMFL) with license from overseas distillers.
Currently, there are 325 distilleries in the country with an installed capacity of about 4.5 billion
litres of liquor.
United Spirits, formed in 2005 after the merger of nine United Breweries group companies
including Phipson Distillery Ltd, Herbertsons Ltd, Triumph Distillers and Vintners Ltd ,
McDowell International Brands and Shaw Wallace Distilleries Ltd, is currently the worlds
largest spirits maker by volume.
The UB Group, which was originally founded by Scotsman Thomas Leishman in 1857, took its
initial lessons in manufacturing beer from South India-based British Beweries.
At the age of 22, Vittal Mallya, father of Vijay Mallya, was elected the companys first Indian
director in 1947. The group made its initial impact by manufacturing bulk beer for British troops.
Kingfisher, the groups most visible and profitable beer brand, made a modest entry in the 1960s.
During the 1950s and 1960s, the company expanded greatly by acquiring other breweries. First
was the addition of McDowell as one of the group subsidiaries, a move which helped United
Breweries to extend its portfolio to wines and spirits.
The company, after acquiring UK distiller Whyte & Mackay in May 2007 for 595 million
(Rs.4,800 crore), followed by another foreign acquisition in Bouvet Ladubay in France, entered
the global league of distillers. Currently, the company has 22 millionaire brands (selling more
than a million cases a year) in its portfolio and enjoys a strong 59% market share.
The domestic market is complex in terms of regulatory structure and market dynamics. As liquor
is a state subject as far as regulations are concerned, there is no uniform tax structure for the
industry across the nation. Secondly, there exists a widely varied drinking culture in different
regions.
This makes the market unique, and building a fully integrated national network has been always
a difficult task for liquor makers. The diversity has also been responsible for keeping the sector
largely unorganized, with a number of small and regional liquor makers that boast of successful
local brands in their portfolios with no presence beyond their borders.
Consolidation is quite imminent in the market, said Dilip Banthiya, chief financial officer of
Radico Khaitan Ltd, the countrys second largest liquor maker.
Regional production bases, strong brand building capabilities and pricing are the crucial
requirements for success in the Indian liquor market.
United Spirits, which enjoys about a 55% market share, operates through at least 40 distilleries
across the country at present, though it had rationalized its outsourcing network in 2005-2006,
discontinuing several regional partnerships.
One of the most important synergies that Diageo is seeking through the acquisition of United
Spirits is the Indian companys widely spread distillation network and distribution channel in the
country apart from market share.
The limited spread of production centres and a weak distribution network have posed growth
constraints for existing global beverage makers in India including French distiller Pernod Ricard,
US-based Beam Global Spirits and Wine and Bacardi Ltd of Bermuda.

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