Even as United Spirits Ltd (USL) struggles to oust its chairman, Vijay Mallya, the Indian subsidiary of London-based Diageo Plc is putting together several measures to return to the growth phase.
One of the key measures that USL plans is to completely reverse its earlier strategy of keeping investments low on premium brands.
It also plans to introduce several cost-reduction measures, including a review of costs in running older distilleries. This will help the company to increase margins.
USL has already stated that on a long-term basis, it plans to reduce its holding in United Breweries, sell properties and remaining treasury shares which will yield the company about ₹2,500 crore.
Revamp on the cards A company spokesperson said not only several measures are being taken to build bigger brands, but internally the organisation is also going through a major revamp in terms of better connect among employees.
Under the previous management, premium brands had been under-invested for a long time while rival Pernod Ricard has been steadily increasing investments of its brands over the last few years.
In terms of value, Pernod Ricard leads the market and has been growing at about 19 per cent while the rest of the industry has been stagnating.
USL leads the market with a 41 per cent share by volume and has 22 millionaire brands with 40 owned plants and 42 contract tie-ups.
There is also a move to increase ad spend during the next two years as USL revamps its portfolio of premium brands. Earlier, there was a greater emphasis on below the line spend, which was two thirds of the overall ad spend. There is now a plan to have an equal share of both the below and above the line spends. All these measures will also lead to reduction in discounts, which again will allow the company to shore up its ad spend funds, Motilal Oswal, a diversified financial services firm, said in a note to investors.
Cost reduction In terms of cost reduction, there are plans to increase content of grain and reduce malt without sacrificing the quality. The company has also found out that the older distilleries have higher overheads, which work out to be ₹70-80 per case. Measures are expected to be taken to reduce these overhead costs.
It is also in the process of franchising its operations in Kerala and Andhra Pradesh as it has done in Tamil Nadu to drive savings in working capital needs. “We believe USL is a multi-year consumer story backed by superior management and dominant market share,” Motilal Oswal said.