Beam Global Spirits & Wine is a company better known perhaps by its brands. Laphroaig, Teacher’s, Cockburn’s Port, and Canadian Club are just some from a long list of popular brands of the company. Its flagship brand, Jim Beam dates back to 1795. The spirits company's popular cognac Courvoisier was billed the ‘Cognac of Napoleon’ and continues to be one of the leading cognac brands in the world. 

It is the fourth largest premium spirits company in the world. The company has a single vision, which is to build brands that people want to talk about and its strategy in achieving its vision is to be bold, innovative, creative and unique.

In an interview with CNBC-TV18, Matthew J Shattock, President & CEO of Beam Global Spirits & Wine, who joined the company in March this year, spoke about the business, the road ahead for the company and the opportunities India presents to it. 

Here is a verbatim transcript of the exclusive interview with Matthew Shattock on CNBC-TV18. Also watch the accompanying video. 

Q: When you joined as CEO in March this year, it was a tough market. When do you think the consumer is going to come back? 

A: I wonder if the old consumers will come back. I think consumers have been through an interesting experience during this recession, and I think they will emerge from it with a much greater sense of looking for a genuine value in term of authenticity and quality of brands they buy rather than perhaps in the past buying brands purely on image alone. 

Q: You said that what you are seeing in your industry is that consumers, lots of them no longer go to a bar and order a drink; they’d rather pick up a bottle; take it home and open it there. So obviously the value proposition becomes far more important. How do you cope with that? 

A: There certainly has been a shift in the consumption of the consumer in a number of our markets, what we call the on premise in bars to the off premise where they buy in stores and take it home. And certainly there is quite a slow recovery in a lot of markets taking place; I do not see that changing.

Our business is fortunate; we have quite a significant bias towards the off premise. That’s where the roots of our business lie. And so going forward we have to adapt to that and make sure we focus the right effort and resources on the right channel. 

However at the end of the day, I do not think consumers in any markets are going to give up having a good time. I think they want to go back and as they feel more money in their pockets, I am sure the balance will be restored. 

Q: When do you think that will happen? Are you saying that the economic crisis gets over, you see the consumer going exactly back to what you were doing earlier or do you think something is going to change in him? 

A: I see a bit of both. I think certainly they will loosen up in terms of their spending habits and have a greater propensity to go out and enjoy themselves. However I do not think they will be as extravagant as they were in the past and I think they will be more conscious about the value they are getting no matter what the spending situation. 

Q: Is it more so of the consumers in the developed market or is it true for consumers across the world? 

A: It is a universal phenomenon that is going on. But clearly the depth of the impact felt in a particular market will correlate to the change we are seeing taking place. In markets like India whilst there has been an impact, it has continued its growth during a recession when many other GDPs have gone into reverse. 

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Q: You took over in March this year at a time when the company saw sales dip. When do you think the highs of say three years ago coming back for a company like yours?

A: I think we have to adapt to the reality of the situation we are facing. We have talked earlier about some of the strategies that we will adopt there and making sure we focus our efforts on the right channels and give the consumer the right value proposition.

But I am confident, as we go through next year confidence will be restored, hopefully unemployment will start to come back and the consumer will feel more confident to spend more money on our brands in the places where they used to go.

Q: You’ve got eight brands in the top 100 liquor brands. Do you see a reshuffling of brands? Do you see that as a consumer changes you are going to see some of your brands drop out of the 100 and new brands come into that 100?

A: It’s a very interesting picture. I think in the spirits industry a new brand is one that is built in the past 15 years and not in the past 15 minutes and that’s an interesting dynamic.

But certainly at the moment in the context of consumers looking for authenticity and for value and for credibility in the brands they are buying. We are seeing for example Bourbon in North America growing disproportionately. So, our presence in that category through brands like Jim Beam and Maker’s Mark is doing very well.

Q: Is that growing at the cost of something else?

A: Yes, I think certainly some of the very high-end brands and the brands that I said earlier were built on image, some of the vodka brands, are certainly finding the going a little tough at the moment.

Q: And is it also because in the American market the consumer is getting older so perhaps Bourbon suits them more than white spirit. Is it anything like that there?

A: There is a little bit of that. There is an ongoing demographic shift, but those tend to happen slowly over time. So I think in terms of discontinuity it’s been the economic impact that’s really driven the short-term change.
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Q: Before you joined as CEO of Beam, you were with Cadbury. You were President of a region that almost accounted for a third of Cadbury’s turnover. You were with Unilever before that and you headed divisions that were multimillion dollar divisions and you were a Tank Commander before that. So what has been your toughest job?

A: I think probably driving a tank. After the first one they gave me, they put me up in the turret, and said it would be a lot safer there.

Q: Did you actually see action?

A: No I didn’t. I was stationed in Germany. In fact before the Berlin Wall came down it was a very different world in the 1980s to what it is today.

Q: From the tank to the corporate room. How did that shift happen?

A: I think that the two things they have in common and I think the one thing that has served me and others well is the concept of leadership. And I think understanding what motivates people, driving them towards a single minded objective and motivate them and aligning them behind a cause is something which is at the heart of modern business. And I must say when I joined back in the ‘80s; leadership was not the heart of the business management. Today, I think today it is everything.

Q: Getting back to lessons you learnt and let’s come to India – Teacher’s is a brand that’s been in India for a long time. It is possibly one of the most popular foreign brand bottles in India at the moment. Are there lessons that you learnt from the US market – can you transport those lessons into India or is it very difficult given the very different demographic. You’ve got most Indian consumers under 29; you got the US consumer, which is much older. Can you transport lessons from there here?

A: Absolutely. I think the fundamentals of building great brands in our industry are the same around the world. Understanding your consumer with deep penetrating consumer insights, positioning your brand in a very specific and articulate way, and expressing that positioning in a way which is creative and compelling in a very crowded world is the same in India as it is in the US, or any other part of the world.

And then the second part of success in our industry is taking those brands and activating them at a point of purchase and a point of consumption; making sure that you have presence available in the store, in the bar but also making sure that you merchandise it in the right way and sold at the right price points. Those fundamental disciplines in fact are the same around the world. But clearly their adaptation for the local market is what is very different.

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Q: What could the market be a little different, is it more difficult as you said you need to create excitement around the brand. But you aren’t allowed to advertise here, so how do you get through that?

A: I do think that’s an invitation to be more creative and actually it’s potentially a source of competitive advantage because of those difficulties. We are celebrating the 9th Teacher’s Achievements Awards. This has been a tremendously successful sponsorship programme. It has been going on for the past nine years, it’s been pioneered by Teacher’s and it really has become now a national entity. It’s a wonderful example of below the line activation.

Q: I know Beam as a company is involved in high powered campaign. You won a SAMMY recently, you invited people across to make a spoof of the famous girlfriend ad from Jim Beam and you won a SAMMY for that. You cannot do that in India. Can you? Does it make a little difficult for your team of Harish and others?

A: There is a phrase in advertising in which they talk about the freedom of a tight brief. I think it certainly encourages our marketing team to be creative.

And of course as the new media come into force and with mobile technology and the enablers coming in with the likes of G3, I think that will open up a whole universe of opportunities to promote our brands. So yes, conventional advertising per se is out, but there are plenty of other things that we can do to connect with consumers.

Q: How difficult is it to launch a new brand in India. You’ve got Teacher’s which has traditionally been a popular brand even before you brought it into India. How about a brand that you launched just now Teacher’s Origin which I believe you are pitting against Black Label? How do you build-up excitement around a brand like that?

A: Teacher’s Origin is a very interesting example for a number of reasons. Firstly it borrows from the Teacher’s equity that built a new dimension. It will be our highest mark in the Indian market and it has a very unique product formulation.

What’s interesting about this particular innovation is it is a high end premium scotch brand. In fact it has been developed here locally by our Indian team in partnership with our global organisation and it is upon the success in India that it is going to be rolled out around the world. It is probably the first time we have used a developing market to actually launch a new premium entity.

Q: How difficult is it to promote it? What kind of trouble do you run into promoting a new brand in a market which doesn’t allow advertising?
A: We have a very strong consumer base. And at the point of sale in terms of the stores and in the bars, we have some extremely creative activation going on. We actually have a mini red carpet with sachets; we’ve great point of sales. We’ve put our effort; we’ve put our investment there. Maybe that would’ve gone into media in a different market. In this market that’s where we are going to create the theatre, that is where we are going to create the awareness and that is what we are going to create what we call the talkability. Early signs were very encouraging.

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Q: This really is a tough market, it doesn’t allow advertising, you’ve got taxes that all of us think are too high, you’ve got varied taxes; there are restrictions on moving liquor from state to state. There are prohibitions in some states and in certain states the government as the only buyer. It is possibly one of the most difficult markets for a liquor company to operate in?

A: It is certainly one of the more tightly restricted regulatory environments. But I would come back to the point that I do think that is an invitation for us to create capability and drive competitive advantage.

For example the regulations in the various states require us in our factory in Rajasthan to have in line processing of different labels for those different regulatory environments. Those are the rules and we must play by them. Our ability to do that by bottling our products in the Indian market gives us a source of advantage.

I suppose the proof of the pudding is in the eating. The Teacher’s brand has been going at 20% for the past three years and that is twice the rate of the market. So I think the team here is doing something right.

Q: What percentage of the sales does India account for?

A: India is somewhere in the region of 2-3% market for us at the moment. So it is relatively small. But in the next 10 years it will rise very rapidly at the league table.

Q: Most marketers look at India and say structurally a brilliant market, per capita, consumption of alcohol maybe 1/3rd of China, or a tenth of the developed world. So they see this huge potential there. But how much of the potential you think you could realise in a market like India?

A: Our recent growth rate suggests that we are realising that potential. We are ahead of our expectations and are growing at 20% over the past couple of years and we foresee that going forward. I think it is very exciting

I am very intrigued by some of the statistics I’ve learnt over the past week, this core middle class of consumers who earn between USD 4,000-11,000 a year, the number of households with that income profile between 2005 and 2015 is going to go from 11 million to 55 million. That is a huge number of consumers who I think will be new entrants into this market, and therefore we have got to invest for the long term.

Q: What country would that compare with?

A: Certainly I don’t see any market in the world where there is a bigger opportunity and I would include China in that. I think this is a very exciting market and the success that we have seen in the past few years with consistent investment in terms of information, technology, supply and in terms of brand building is serving us well. I’d like to do more of it going forward.

Q: What is the closest market you would compare with, Brazil perhaps?

A: It’s very hard to make direct comparisons. You could certainly compare this market in some way with the US where you have 50 states and all have their own very tight regulatory environments. But obviously the consumption profile is very different.

And then you’ve got markets like China, like Brazil where you’ve got very large landmasses and focusing your resources on the right cities and the right centres to make sure you get the right returns is something that is very akin to that.

So the concept of top city strategy which many companies execute in China is very similar to the city strategy we have here. Our tier-I strategy so far has been in those cities with a million or more people. In the next phase of our strategy we would take brands like Teacher’s down to tier-II and tier-III cities and build them from the ground up.

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Q: Your last big acquisition was when you bought out the Allied Domecq brand and that catapulted you into the league table as the fourth largest manufacturer of spirits in the world. Are you looking at anything in India?

A: We have made recently a couple of interesting acquisitions just over a year ago. We bought Cruzan Rum. It is a very interesting property for us. It has got an interesting prominence based in the Virgin Islands and we are beginning to grow that.

And just recently this year we bought EFFEN Vodka which is a small Dutch Vodka brand which is present in a number of cities in the states. We will continue to cultivate it there. So we are always on the lookout for the potential bolt-on acquisitions.

As far as India goes, the opportunity for us here however is to leverage our global portfolio. We have 5 or 6 very large international brands that haven’t yet been established in this market. So our first priority is to look at those and bring those in. I’ll never say never to acquisitions but at the moment I can tell you no more than that.

Q: Are you going to bring them in bottled outside or are you going to bottle them in India like Teacher's?

A: It will really depend upon the nature of the brand and the size that we will get to. In the initial phase it will be best to just bring them in as they are but if you build critical mass and there is a platform there, we have shown with Teacher’s that we have the assets to do that.

Q: We have Indian taxes, the French complaining that it doesn’t comply with WTO regulations, hopefully for people like us you see those taxes being dropped. But how hopeful are you that the Indian administration would be responsive to what will ultimately be the need under the WTO?

A: We have seen some progressive reforms already. So it is not as if the government and the states have been static. There is a lot more to do and certainly we would like to see less than 2/3rds of the price of the bottle of spirits going towards taxation. But we are confident going forward that reform will come and we will participate in that when it does.

Q: You had two sets of projections, one for taxes at these rates and one for if taxes drop. Can you share what the difference is?

A: No we don’t. We just have a business plan. We have set some very aggressive targets and we will play to the rules as they are set and we will continue to do so.

Q: You launched one local whisky brand in India some time back, DYC, you had to reposition and change the price of it after you launched. What has been your experience with DYC whisky and are you looking at launching any more local brands or do you think that the market really is in bringing foreign brands into India?

A: It is going to be a very interesting example for us. We launched it in a very entrepreneurial way. I think we were very much listening for the consumer response. We have made some adjustments. I must say going out into the market this week looking at the pack, looking at the product which is excellent in quality and its pricing, we are very excited for that product.

I think that is going to do very well for us going forward. And certainly if it does then the lessons we learn going forward should inform what we do in other segments.

Q: For local brands you would look at whisky or other segments?

A: It depends on where we see the opportunities at the moment. We are very much focused on whisky and that is what we are as a business. There is a lot of growth in the brands that we have both in DYC and Teacher’s going forward as well as the malt. But if we think adjacent tiers are opening up and there are opportunities for us to leverage our strengths, we will certainly do that as well in the future.

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Q: Are you going to look at a partner for all of this or would you be making investments in standalone as Beam?

A: As things stand, we have a very good standalone infrastructure. We have a supply chain which is working very well; it has got a lot of flex capacity. We have an excellent sales force, which we will expand as you roll out to more cities. We will never as I said, close the door to any opportunity in acquisition or in partnership. But it looks our standalone strategy is working pretty well.

Q: The Indian beer market is large; does the beer market tempt you at all because it is a completely different market?

A: No, it is a different market and though we acquired the Allied Domecq brand back in 2005 we divested the wine from that part of the portfolio. We will be very much focused on the spirits business. There is plenty of scope there for us.

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Q: Has the team come and told you this is a good brand to buy, are you considering anything to buy from the Indian market or are you just looking at nothing in particular?

A: We have a watching brief. But I can’t tell you there is anything on the immediate horizon.

Q: Have you set any money aside?

A: No. We have the benefit of being a large global company. When the opportunities come up and if the teams make the right case and we think they are a good fit with our overall long-term strategy then we will make it happen.

Q: Assuming there are no acquisitions in the next four or five years, can you give us an idea of investments that you plan in India?

A: I think the investments that we will be making are really at two levels. One is to continue to build our infrastructure. And I do believe that if we need to extend our factory footprint, or our distribution capability or our salesforce network, those are very good investments and they will pay us back.

And the second is in brand building. As we introduce new brands it takes a lot of time and money to build a brand. There are awards for that and we can see in Teacher’s. And today is a very good shining example of a proud long term brand building. I would like us to bring more brands to this market. We need to do it with discipline without distracting the focus from our core. But for me that’s where the primary investment of our business will go in the coming years.

Q: How different is it selling spirits versus selling chocolates and confectioneries?