Bagpiper punch for Diageo

United Spirits banks on its flagship brand to become the world's largest selling liquor company.

They are as different as chalk and cheese in terms of brand portfolio, but there is one thing common between them: both were potential collaborators till a couple of months back and have now turned bitter rivals in the market place.

For over a year, United Spirits and Diageo were in high spirits, firing up their stocks with talks of collaboration. Vijay Mallya-owned United Spirits (USL) wanted to sell a 14.9 per cent stake to the world’s largest liquor company Diageo. But the talks collapsed over valuation differences. USL is no match for Diageo in terms of revenue. Consider this: Diageo’s flagship brand Johny Walker’s global sales at Rs 21,000 crore were almost seven times that of USL’s largest selling brand, Bagpiper.

The gap is, however, much narrower in volume terms. Though Diageo is the largest spirits company in the world with a total volume of 110 million cases with Pernod Ricard coming in second at 97 million cases, USL is the third largest with 90 million cases following the acquisition of Whyte & Mackay, the fourth-largest Scotch whisky producer in the world, Balaji Distilleries and Shaw Wallace, among others. USL is now aiming to pip Diageo to become the world’s largest selling liquor company by March 2011 and is hoping to ride piggyback on Bagpiper to achieve that ambition.

USL’s President and Managing Director Vijay K Rekhi says USL has grown at an average of 20 per cent year-on-year over the last three to five years, a trend that is likely to continue and catapult USL to become the largest spirits company in the world within two-three years.

“The spirit to compete and excel is our hallmark. We can take on any challenge and push the boundaries to innovate and capture market share. The dialogue with Diageo did not make any dent in this spirit,” Rekhi says.

Rekhi is betting on USL’s competitive advantage with its production, distribution and marketing prowess. “Our robust brands portfolio at every price point across flavours (whisky, rum, brandy, vodka, gin), investment in premiumisation of our portfolio and securing our supply backend are the three key cornerstones of our growth strategy,” he says.

The company claims that Bagpiper is expected to sell 17 million cases this year and topple Johnie Walker (expected to sell 16.8 million cases) from the largest-selling whisky slot. Bagpiper sold over 15 million cases last year recording 18 per cent growth in volume over the previous year.

One of Bagpiper’s USP has been its innovative packs. For example, it launched a revolutionary “bullet” pack of 60 ml priced at Rs 22, having all the advantages of a sachet while retaining the image of a bottle. The new pack has helped shift consumers from cheap liquor and country liquor to Indian made foreign liquor (IMFL). Also, the brand imagery for Bagpiper, created by an English design house and huge investment by USL in the brand, has helped Bagpiper to grow quickly.

Whether it was the association with Bollywood macho stars (the Deols and Ajay Devgan) or the introduction of tetra packs, Bagpiper dared convention. “We have ensured that Bagpiper continued to increase its patrons over the years,” Rekhi says.

But experts say while a volume-driven growth is alright to some extent, it’s the revenue that matters. In any case, Bagpiper selling more than Johny Walker has no meaning as both the brands have different positioning. Johnnie Walker is a scotch whisky and caters to the premium segment. Bagpiper is a non-scotch whisky and is priced much lower. While the scotch is growing at about 4 per cent, whisky has grown by 10-11 per cent thereby leading to huge surge in sales of Bagpiper in the domestic market. In contrast, Johny walker is sold in 40 countries.

Also, the Indian brand sells for about Rs 200 per 750 ml quart while the cheapest variant of the scotch whisky -- Johnnie Walker Red Label -- costs Rs 1,200.

A Diageo spokesperson agrees that “Bagpiper is an important brand in India but there is no direct comparison between it and the world’s best-selling scotch whisky brand”. He is optimistic that the increased interest in the Indian whisky category will provide exciting prospects for Johnny Walker. “Experience tells us that a healthy local spirit category feeds into the growth of the international spirit category, and Johnnie Walker would be well positioned to benefit from that growth,” he adds.

Anand Ramanathan, Manager, Business Performance Services, KPMG, concurs that Diageo brands like Johnie Walker, Smirnoff and Baileys are targeted at the premium segment. USL brands, including McDowell’s No. 1, Royal Challenge, Black Dog, Signature, Whyte and Mackay, Bouvet Ladubay, Romanov and White Mischief, are mostly made keeping the Indian population and income levels in mind.

So even if Johnnie Walker’s iconic Striding Man falls behind Bagpiper’s turbaned ambassador in sales volumes, the former will still be miles ahead in revenue.