India: Diageo may decide to dispose of some USL brands - sources

Diageo Plc, the world’s largest distiller, has initiated a formal review of its Indian portfolio, which may lead to the hiving off or sale of several of its low-margin liquor brands, The Economic Times reported on April 12 citing people familiar with the matter.

The maker of Johnnie Walker whiskey, Smirnoff vodka and Captain Morgan rum has roped in investment bank Morgan Stanley to help streamline its sprawling empire of brands, many of which it inherited via the acquisition of United Spirits (USL) from Vijay Mallya. Popular mass brands such as Bagpiper and Green Label are likely to be part of this review, while the largest-selling McDowell’s brands will be kept out of the reorganisation process, sources said.

One of the options is franchising brands, said one of the persons cited above. This would involve giving the brands to franchisees in return for a fixed royalty fee. Diageo owns 55.94% of USL.

Popular whisky brands such as Bagpiper sell six million cases annually. Royal Challenges sells 5.5 million cases and Director’s Special sells four million cases annually. Diageo sells 18 million cases of popular brands such as Johnnie Walker, and three million cases each of J&B and Black & White globally. USL’s prestige and above segment contributed 65% of its total net sales and 51% of total sales volume while the tail-end popular segment represented 49% of total volumes for the same period. USL’s prestige and above segment net sales was flat while popular segment net sales declined 4.1% overall in FY20.

These popular tail-end brands gain 8-12% margin from sales while the prestige and above segment brands have a margin of 15-35%. Prestige brands such as Royal Challenge and McDowell’s are the largest-selling ones in the USL portfolio. USL sells about 52 million cases under the largest McDowell’s range of brands.

Diageo declined to comment.

12 April, 2021