Diageo-Backed USL May Look To Sell Mass Brands Bagpiper, Old Tavern, White Mischief & Haywards

India’s largest liquor company United Spirits Limited, a unit of drinks major Diageo, has tasked investment bank Morgan Stanley to find potential buyers for select “popular” mass-priced brands as it looks to take on rivals like French liquor giant Pernord Ricard and adopt a premiumisation strategy, people with knowledge of the matter told Moneycontrol.

“Bagpiper whiskey, Old Tavern whiskey, White Mischief vodka and Haywards are some of the brands which are likely to be part of the proposed divestment exercise, though a final call has not been taken as yet. The margins are lower in these brands and USL wants to focus on the premium segment going ahead and drive profitability," said one of the persons cited above. Diageo has inherited many of its existing brands when it acquired USL from Vijay Mallya.

“This brand sale is part of USL’s strategic review of its portfolio. Morgan Stanley UK has come on board as the sell side advisor and the plan as of now is to find a strategic buyer,” added a second person.

“Possibly an international spirits player with no presence in India may look at an opportunity like this,” said a third person.

All three persons spoke to Moneycontrol on the condition of anonymity.

In response to an email query from Moneycontrol, Diageo said, “The firm is in silent period at the moment with our fourth quarter and annual results due in May,” and declined to comment beyond an earlier announcement made in February. Morgan Stanley declined to comment.

THE USL PREMIUMISATION STRATEGY

On February 23, 2021, USL announced that it had kick-started a strategic review of select brands in its portfolio.

“United Spirits Ltd is initiating a strategic review of selected Popular brands, continuing the strategy towards long-term profitable growth through premiumising the company’s portfolio. USL’s Popular portfolio comprises around 30 brands and the strategic review will focus on approximately half of this portfolio by volume. This review will not include McDowell’s or Director’s Special trademarks. The strategic review is expected to be completed by the end of the 2021 calendar year,’ the firm had said.

As part of the announcement, Anand Kripalu, Managing Director & CEO, United Spirits Ltd, commented, ‘This review reinforces USL’s & Diageo’s commitment to delivering sustainable long-term growth and improved profitability, through a sharpened focus on core Popular and Prestige & Above brands, including international brands.’ In December, Diageo had announced that Hina Nagarajan, MD of Africa emerging markets for the liquor firm would take over from Kripalu in July.

“Several outcomes are possible, including, but not limited to, an extension of the franchise model that we started some years ago, accelerating select brands by additional investment, potential divestment, and an organizational review of our operating model. The strategic review will assess all options considering the potential impact of each approach," Kripalu had added back then.

THE INDIAN LIQUOR MARKET: USL’S PEERS & PORTFOLIO’s

Other than Pernord Ricard, USL’s other global rivals in India include the likes of Bacardi & Beam Global.

Radico Khaitan (makers of 8 pm whiskey) , Allied Blenders and Distillers (makers of Officer’s Choice whiskey), Globus Spirits, Assoc Alcohol, GM Industries, Tilaknagar Industries and Khoday India are some of the local players in the breweries & distilleries segment.

In the popular and premium categories, USL’s brands Mc Dowells, Royal Challenge, Signature, Antiquity, Black Dog, Black & White and Vat 69 compete with Imperial Blue, Royal Stag, Blenders Pride and 100 Pipers which fall under the Pernord Ricard umbrella. In the vodka segment, Diageo’s Smirnoff, Ciroc & Ketel One compete with Pernord Ricard’s Absolute. Additionally, Diageo’s scotch whiskey Johnnie Walker counts  Pernord Ricard’s Chivas Regal as a rival.

For the year ended 31 March 2020, USL’s "prestige and above" segment represented 65.2 per cent of its total net sales and 51.3 percent of total sales volume. The popular (mass brands), on the other hand, represented around 49percent of total volumes for the same period, remaining flat over a year-ago period.

A recent ICICI Direct Research report on the liquor sector said, “While in the short to medium term, uncertainty continues to remain over the evolving situation in the on-trade channels and pickup in the home consumption, the longer-term growth aspiration and continued premiumisation trends remain key positives for the liquor sector. USL continues to invest in increasing its brand strength and propel its premium brands to a higher share of its revenues (currently at 70 percent).”