Smirnoff hangover adds to Diageo’s Indian woes

MUMBAI: Drinks giant Diageo's top brands reported a decline or flat growth last financial year even as the world's biggest liquor company consolidated control over United Spirits (USL), for which it paid $3 billion, making it the most expensive acquisition in Indian consumer industry.

The British behemoth's largest selling trademark Smirnoff vodka dropped 28% in volume sales, declining to 6.15 lakh cases from 8.5 lakh cases in FY15, according to the trade figures sourced by this newspaper. VAT 69 scotch whisky sales stood at 2.7 lakh cases, down from 3.5 lakh cases, declining in double digits. The duty-paid sales of the core Johnnie Walker scotch whiskies, which include Red Label and Black Label, was down 14% to 2.03 lakh cases in the last fiscal. Black & White whisky, also among the four large Diageo brands operating in India, bucked the trend with volume sales rising 23%.

Diageo, which is putting a messy takeover and troubled partnership with Vijay Mallya behind it, said the short-term view of numbers didn't present the right perspective. The acquisition saw Diageo handing over key brands to USL, hoping its international portfolio to gain big, riding on the distribution prowess of the largest Indian distiller. The takeover of USL has been one of the most significant steps by Diageo to boost performance in emerging markets.

"The four global brands have grown 24% in the last three years post USL's takeover, compared to 16% growth in the three preceding years. This represents a 1.5x spurt in volume growth," said Abanti Sankaranarayanan, business head - luxury and corporate relations, USL. The three-year value growth of Johnnie Walker series stood at 8.3% and that of Smirnoff at 6%, the official said. Black & White reported value growth of 1.1%, while VAT 69 was up 0.6%. Pernod Ricard's competing scotch brands Chivas Regal and Ballantine's grew 0.7% and 2.6%, respectively, in the same period.

USL said Smirnoff vodka has lost 2% value share in the category in the last five months, capping its significant fall in volume sales. Rival Bacardi dropping prices and optimizing Smirnoff SKUs were possible triggers for the sharp decline last fiscal. Smirnoff, which Diageo began pushing in the domestic market more than two decades ago, has failed to cross one million cases in a market with a young drinking population.

Sankaranarayanan said the decline was also part of a growth problem which vodka as a category faced in India. "Vodkas have lost sales in recent years. As market leaders, we are aware of the problem and working on revival plans. We strongly believe vodka has a right to win and a right to grow given India's young demographics and consumption patterns," she added.

The company executive said Johnnie Walker Black Label's value share has remained intact, while that of Red label dipped marginally in recent months. This happened even as the share of main rival Chivas Regal 12 year-old scotch whisky declined 1.4% in the similar period. Black & White improved its share by almost 1%.