The game plan at the USL is shifting from volumes to margins. And this can be seen in the spirits company’s focus on high-end whisky.
Whisky maker turns focus to higher end segments for better margins
BANGALORE: The game plan at the United Spirit Ltd (USL) is shifting from volumes to margins. And this can be seen in the spirits company’s focus on high-end whisky to push up the share of premium segment in its total revenues.
Lately, the company has initiated several market actions in this direction by widening the reach, offering competitive pricing and launching new brands.
United Spirits president and managing director Vijay Reiki says the three sub-segments — super premium, premium and prestige - are set to take off in India.
“With rising disposable income, aspirations of Indians are also moving up. It gives them a good reason to celebrate with premium brands. All our focus is currently on the premium market,” said Reiki.
In keeping with this change, brands like Antiquity, Royal Challenge, Signature, McDowells No 1, Royal Mist and Directors’ Special Black (DSP Black) are at the centre of its marketing effort.
The company stretched the reach of its super premium product, Antiquity Blue, nationally in new packaging and improved perception. At the same time, the weighted prices of its premium products — Royal Challenge and Signature — have been raised by 3-4% and 2-3%, respectively.
McDowells No 1, one of its fastest growing products (30% annually) in the prestige segment, has been rolled out nationally, while DSP Black has been repositioned with sharper brand communication.
The prestige segment has also seen the introduction of the new brand — Royal Mist. Analysts expect such a move to propel the company’s sales volumes and revenues from these three segments, and since these are higher realisation segments, it would eventually improve the profitability of the whisky company.
This, many analysts feel, would help align United Spirits’ valuation with spirits majors like Diageo.
According to broking firm SSKI, currently, 5% of Diageo’s valuation accounts for 60% of United Spirits’ volumes.
A recent report of UBS Investment Research has estimated that the sales volumes from these three segments will account for 20% of the company’s total volumes in this fiscal (FY08) as against 18% last year, while their share in total revenue will move up to 34% from 30%.
“We have increased our volume estimates in these three segments significantly. We had built in 12-15% volume growth rates. However, market action and consumer uptrading is helping these segments to grow at 30-35% volume growth,” states the report authored by analysts Sunita Sachdev and Sandeep Bhatia.
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