‘I’m screwed,’ Abhishek Khaitan told his friend Shrawan Binani.
Shrawan looked at his best friend sitting next to him. He had never seen Abhishek this dejected. The two had been friends since they were fifteen, when they had met at a club in New Friends Colony in south Delhi. Shrawan, who used to play badminton, wanted to learn snooker. But the bigger boys would bully him, and he would be defeated easily by them. Looking for someone his age to play with, Shrawan came across Abhishek, who too was searching for a partner to learn the sport with.
Since then the two had been almost inseparable. Other than the time they spent in school — Abhishek was in Modern School and Shrawan in Birla Vidya Niketan — they were mostly together. One would call up to make sure the other was at the club for a game of snooker.
Later, as the friendship blossomed, Abhishek invited Shrawan over to his home and introduced him to his parents — Lalit Khaitan, promoter of Rampur Distillery and Kiran Khaitan. When Shrawan topped his class, Lalit called up his father and said, ‘I’m glad that my son has friends like Shrawan.’
After his schooling Abhishek went to Bengaluru to study engineering. The two friends kept in touch. Whenever Abhishek came home for the holidays, he would immediately call up Shrawan and announce, ‘I’m back!’, and the two would chalk out plans for the next ten days.
Now Abhishek had completed his engineering and was back. But the twenty-four-year-old had not returned to happy circumstances. Shrawan could only empathize with his friend.
It was 1995. The Khaitan family, consisting of G.N. Khaitan and his five sons, including Lalit, had just gone in for a division of the family assets. Based in Kolkata, the Khaitans were a well-known name among the Marwari business community. While one part of the larger Khaitan family consisted of lawyers and chartered accountants, the other half consisted of businessmen. G.N. Khaitan had dabbled in several businesses, and at the time of the division, the family had interests in fertilizers, real estate, construction and liquor.
The division of the family assets, which included the Rampur Distillery and the fertilizer units run by Lalit’s younger brothers, might have ended amicably. But there were tensions and disagreements over who would get what. In the end, Lalit received ownership of the distillery unit in Rampur, which was the biggest asset of all and had revenues of Rs 70 crore a year. But by the time Abhishek completed his higher studies, the distillery was running up losses of about Rs 10 crore a year. Rampur distillery was producing ENA (extra neutral alcohol) that was supplied to alcohol companies.
Not only that, one condition for ownership of the distillery, which accounted for 70 per cent of the combined revenues of all the family companies, was the assumption of its liabilities of over Rs 40 crore. This debt only worsened the company’s precarious financial health.
To make matters worse, Rampur distillery had also just lost its biggest client, Shaw Wallace. This Manu Chhabria company was its biggest bottling client. But Shaw Wallace had recently bought a distiller in Uttar Pradesh (UP) and no longer needed the services of its older supplier.
In a last-ditch effort to keep Rampur afloat, Abhishek accompanied his father to meet Vijay Mallya, the high-profile owner of United Spirits Limited (USL). Mallya, who had taken over the reins at USL at a young age after his father, Vittal Mallya, passed away, was fast gaining the reputation of a fierce competitor to Shaw Wallace, and his USL was steadily making its way up the pecking order in the Indian liquor industry.
Father and son were hoping to present a business proposition that would make sense to Mallya, and provide a lifeline to their company. But this was not to be. While the Khaitans were hoping to get a contract from Mallya to supply him alcohol, Mallya — always looking for a good deal — offered to pick up equity in Rampur Distillery in return for the contract. Lalit, who had revived Rampur with his grit and sweat, wasn’t agreeable to this.
He seemed to have reached a dead end in his endeavour to save the distillery. Abhishek was also at his wits’ end. The sorry state of the company had put to death a wish he had wish he had been harbouring, adding to his despair and frustration. He had always wanted to go for higher studies and was hoping to follow up his engineering degree with an MBA from the US. But such was the environment at home and the company that when his parents asked him to be at home to help out, he couldn’t say no.
There was one more thing.
In 1996, his parents got him engaged to Deepshikha Somany, daughter of Vikram Somany, promoter of Cera Sanitaryware, a fast-emerging company from Kolkata. Abhishek wanted some time to himself before tying the knot, but again bowed to his parents’ wishes. And what with the situation at home, Abhishek didn’t feel it was right to open that bottle of champagne to celebrate his engagement as he wanted to.
So here he was, the scion of the Khaitan family, his studies truncated, engaged to be married much earlier than he would have liked, witness to a family division, and now supposed to help save a company that his father had nurtured, but was now close to collapse.
‘Our back was against the wall. Par marna hain to ijjat se marenge ( if we have to die, let’s die honourably),’ said Abhishek. He had an idea that could break or make Rampur Distillery. It was an ambition that he had nursed since he saw Deepak Roy launch Gilbey’s Green Label. Abhishek was then studying in Bengaluru. He was mesmerized by the look of the bottle and the marketing campaign around its launch. ‘I don’t want to be a bottler,’ he had told himself then. His vision for Rampur Distillery was clear. He wanted to take the company, which until now had been producing a bulk commodity, higher up the value chain and launch brands.
But did he have it in him to pull off the idea, especially when almost all the veterans in the company were against his plan?
The process of division of the family assets had begun when Abhishek was in his third year of engineering. G.N. Khaitan, his grandfather, was adamant that the family assets should be divided while he was still alive. It was a sane decision, given the number of ugly divisions and break-ups India Inc has seen after the passing away of a patriarch.
As the talks between the brothers panned out through the year, Abhishek stood by the side of his father. He was there as an observer. Not once did he voice his opinion on any matter when his father conversed with his uncles. It was only when they were back home that he would confer with his father and go through the details of the discussions.
There were disagreements and disputes. But in the end the separation was amicable. For a while after the separation — for almost three years — there were ‘cold vibes’ between the brothers. But by the turn of the millennium, the brothers came around and the whole family holidayed overseas together for fifty days.
But before all this, Abhishek had to help save the company.
Lalit and Abhishek were glad to get ownership of Rampur Distillery. But there was hardly any time to be lost if they had to save their baby. Their visit to Mallya hadn’t resulted in any lifeline for the company. ‘We will do it in our own way,’ father and son said to each other.
That’s when Abhishek told his father about the idea he had had after the launch of Gilbey’s Green Label in India: ‘We knew how to make the best spirit. We knew the art of bottling. We were bottlers for Shaw Wallace. The only thing we lacked was the marketing and distribution network. That we could create,’ said Abhishek. Lalit was convinced, and backed his son.
The veterans in the company had doubts, and many of their questions were legitimate. The industry was crowded, especially the whisky market which the Khaitans had selected for their brand launch. Whisky had the biggest share in the spirits market in India and, for that same reason, was the most competitive too.
Other than the international players such as IDV and Seagram, there was a host of domestic players including USL, Shaw Wallace, Mohan Meakins and Jagatjit Industries. It was mostly a volumes game, and the margins were slim. But, as Abhishek says, the myth was that more Scotch was consumed in India than in Scotland, and everyone wanted a pie of this market.
This was precisely the reason why the old-timers at Rampur Distillery were unsure about the new venture. ‘Ours is a commodity, sell it and you will get money. What is the need to sell brands? Not worth it,’ Abhishek was frequently told when he made presentations to explain why the company needed to change its business from a high volumes-low margin model to lower volumes-high margin one. The only way to make the transition was to introduce brands.
Their doubts were not unfounded. Says Shailesh Khaitan, Lalit’s youngest brother: ‘It is very difficult to establish a brand. First of all, branding is an expensive proposition and you need to consider too many factors. The competition is huge. So even if you put in Rs 100 crore, the brand might not click. It has to be backed by quality. So many things have to go hand-in-hand. The death rate of brands would be about 90 per cent.’
So fragile was its condition that Rampur Distillery couldn’t afford a failure. But Abhishek was sure he was on the right track, and he had the backing of his father. Lalit Khaitan had been to Harvard for a short course called OPM (Owner/ President Management). ‘They taught me that at the bottom of the pyramid was commodity and on the top were brands. I told Abhishek to go ahead.’
Prince Mathews Thomas is senior deputy editor, The Hindu Business Line
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