Diageo hit by weak demand for vodka in India

Johnnie Walker, VAT69 gaining market share

Diageo, the global spirits major which is best known for Johnnie Walker scotch whiskies and Smirnoff vodka, has said that its performance in India was held back by Smirnoff which is declining 2% in a weak vodka category. However, Diageo has added that they have strong underlying momentum in scotch with Johnnie Walker Red and Black growing in strong double digits.

Diageo, which is in the process of acquiring stake in India’s leading spirits player – United Spirits, relies on Smirnoff vodka for its volumes here and it is the largest selling brand for them here. In addition to Smirnoff, Diageo sells Johnnie Walker and VAT69 in good numbers, besides a range of few other brands which sell in small volumes.

According to industry observers, Smirnoff, which is present in the premium vodka segment in India, still controls around 80% of the market, but it has been hit by slow growth in the vodka segment as a whole. “Many people are opting for whiskies and that is one of the reason why the vodka segment is seeing sluggish growth,” an industry analyst noted.

Gilbert Ghostine, President, Asia Pacific, Diageo in recent discussion with investors said that  they are gaining share of the scotch category in India.  Diageo has said that they are able to gain good market share in the scotch whisky segment through the Johnnie Walker bouquet, which is a result of its continued F1 sponsorship programme and Step Inside the Circuit campaign. 

The global spirits major is also hoping that there will be some sort of a breakthrough on the ongoing discussions between the Indian government and the EU over FTA which also involves India reducing the high import duties on scotch. "On the EU FTA negotiation with the Indian Government, we keep hearing that things are moving in the right direction and the conversation is progressing positively. But, unfortunately, I cannot put a timeframe on this one because we have been in this place before, but they seem closer than they were in the past," he detailed.

According to Diageo, VAT69 also saw double digit depletion growth and in aggregate they are gaining share of the scotch category year-to-date. "Our emerging middle class scotch brands such as Rowson’s Reserve, Haig and VAT69 together are growing in double digits,” Ghostine  added.

Diageo has been growing at a decent clip in India over the past few years but has not been able to muscle up to a strong position and hence as and when it consummates the transaction with United Spirits, they will be getting to ride on the expansive and sturdy network across India through which their brands can ride on.

Diageo, post the $2.1 billion transaction announced during November 2012 in which it was supposed to get a controlling stake of 53.4 per in United Spirits, has so far managed 0.44% in USL and is expecting to get an additional 10% through a preferential allotment before end of May.  

Said Ghostine: “Post the MTO settlement, it will allow us to subscribe for the preferential allotment by the end of May. We believe that then it could put us in a position where we could complete the share purchase agreement by the end of the fiscal year – which is end of June 2013,” he added.