Mallya may opt for home brew

Plans to focus on 30 "millionaire brands".

United Spirit, the new entity to be born out of the merger of McDowell and Shaw Wallace, will stop sourcing from distilleries not owned by it. While 15 distilleries run by third-party contractors will be closed down, 37 other third-party distillery contracts will be terminated. The company will retain only 25 distilleries that are currently owned by McDowell and Shaw Wallace.

The company is also planning to focus on 30 "millionaire brands" among the 159 brands in its portfolio at present.

The company, which has an extensive product basket, is planning to license out about 100 non-core brands and the rest will be discontinued. Over 90 per cent of the group's revenue will be generated from 35 brands, including the Shaw Wallace brands.

With new market positioning, the company would be able to scale up production to optimum capacity in these 25 distilleries owned by the group, said UB Group President and Chief Financial Officer Ravi Nedungadi.

He said the brand rationalisation would take place by the end of this financial year on account of existing commitments to the Beverages Corporation of India.

The amalgamation of the two companies will also help reduce costs because of brand promotions, including trade margins. Since there is no stiff competition, the merged entity can save almost 50 per cent of promotion spends. Currently, the group is spending over Rs 300 crore every year on brand promotion, including trade margins.

"The UB group will now have an increased bargaining power with monopolistic customers that consist of government and private players. They account for 65 per cent and 16 per cent, respectively," Nedungadi pointed out.

The company would also have an added bargaining power with suppliers of key inputs such as glass containers as well as traders, which the company could capitalise on, he said.

As part of this exercise, the company will also explore the possibility of developing select regional brands. These products would not necessarily feature in the national branding exercise, he said.

Asked about manpower rationalisation, he said it was inevitable in every amalgamation exercise and that this would happen in United Spirit as well.