Drink to it

Whyte & Mackay will strengthen the firm's portfolio at home and give it distribution in Europe.

Vijay Mallya's favourite cocktail must be a mix of business and pleasure, in equal measure. The UB Group chairman's latest acquisition of the Glasgow-based Scotch whisky distiller Whyte &Mackay, for 595 million pounds, confirms that behind the flamboyance there's also a hard-nosed businessman.

With W&M in its fold, the Rs 2,712 crore United Spirits acquires the status of being a Scotch maker and also that of the third largest liquor producing companies in the world turning out 75 million cases a year.

United Spirits may have a 50 per cent share of the Indian liquor market, but its portfolio clearly lacked a Scotch brand, a presence in the premium space. Which is why the W&M' acquisition is such a good strategic fit for the firm.

Apart from the premium brands, what W&M brings to the table is an inventory of 115 million litres of Scotch, possibly the largest in the world, valued at around 350 million pounds. That will come in handy because premium Scotch whisky is becoming extremely popular in India today. Increasing at around 30 per cent every year, its consumption is way above that of other liquor, demand for which is growing at a more sober12 per cent.

Says Ritesh Chandra, executive director, Ernst & Young, " While premium Scotch may account for a small part of the liquor market today, the inventory is very valuable because demand is bound to grow with aspirations rising." Adds Sandeep Dhupia, executive director,KPMG, " What's also important is that a ready inventory will speed up the time to market and help the company compete with other Scotch brands in India."

It's not just the home market that United Spirits is eyeing. Demand for Scotch whisky is high emerging markets too and rising at an estimated 22 per cent in countries like like China and Russia, where consumption of premium Scotch whisky is on the rise driven, like in India, by higher incomes and changing lifestyles. Says Mallya,"We're looking at a bigger footprint and will be exploring markets like China and the middle East."

Access to inventories of Scotch has become crucial because while more people are drinking it, there's not too much being made. That's because distillers in the UK, especially those located close to urban centres, are unable to expand. With environment regulations becoming more stringent, some of them have been closed down and there aren't too many potential locations for new distilleries to come up. Even if a distillery was to be set up, it would be years before the product could actually be sold.

With supplies limited, prices of Scotch, according to industry sources, have risen by about 60-80 per cent over the past year, for an increase in volumes of just about ten per cent and are tipped to remain firm. In some places prices are up by as much as 100 per cent.

Interestingly, W&M has put options for a good part of its bulk Scotch; in other words, it has signed on contracts to sell Scotch at a certain price. To that extent, its revenues are protected for about four to five years.

Apart from bulk Scotch that can be used to blend whisky, W&M also bring to the table, some fine brands including Whyte &Mackay blended Scotch,The Dalmore, Isle of Jura, Glayva and Vladivar vodka. And United Spirits hopes to bring these to India very soon. As Mallya explains, "It's simply a question of leveraging the distribution network that we already have."

What's more, as E&Y's Chandra points out, United Spirits can use the distribution that W&M has in the European markets to sell some of its brands there. Whichever way you look at it, for United Spirits, this deal is a new high.