The New King of Good Times
Image: Amit Verma
ll is fair in love and war and when it comes to the liquor industry, it is war.”
This was an extract from a note signed by none other than the man they called the ‘King of Good Times’. It landed on the table of Ramesh Vangal, the Asia-Pacific head of liquor giant Seagram and Param Uberoi, the head of Indian operations. United Breweries Group Chairman Vijay Mallya was seething with rage. And there was a very good reason for it. This was the first time that his attempt to cobble together a joint venture (JV) with global liquor firm Seagram had been rebuffed. Back in 1998, no one would have dared to spurn Mallya.
You didn’t need to be an insider in the liquor trade to know that Mallya was powerful, politically well-connected and had a larger-than-life image. And what’s more, he often played rough, sparing no effort to snuff out his rivals. His two-decade-long duel with Manu Chhabria, a pugnacious self-made tycoon based in Dubai, was already a part of industry folklore.
And Seagram was clearly no match for Mallya in his home turf. He saw them as an opportunity to expand his portfolio with premium international brands like Chivas Regal. Mallya and Edgar Bronfman, the then CEO of Seagram Company, agreed to form a JV and talks began. And then Mallya laid down a condition: The JV would have to keep off the Karnataka and Andhra Pradesh markets, two of the biggest markets in the country. That prompted Seagram to stage a walk out.
In 2001, when French multinational Pernod Ricard took over Seagram globally, Mallya sensed another opportunity to strike. “He told Patrick Ricard, the chairman of Pernod Ricard, that it is difficult to survive without a local partner,” says a senior executive from the industry. By then, something unusual had happened. Param Uberoi, the head of Seagram India had been picked to head Pernod’s Indian operations, even though he belonged to the acquired entity. When Ricard asked Uberoi for his opinion, he was clear: We can do this alone, he maintained. Mallya backed off, but only for a while. Two years later, he was back with another JV proposal. This time, while Uberoi was ready for a partnership, he refused to bring Pernod Ricard brands under the JV. “His logic was that Pernod Ricard brands were doing well by themselves in India and it was UB brands that needed help,” adds a senior executive from Pernod Ricard. Finally, Mallya’s perseverance broke down and he never returned. The war now shifted to the streets.
The Battle Royale
For the last 10 years, the battle royale between Vijay Mallya and Param Uberoi has perhaps been one of the few untold stories of the decade. When he took over as CEO of Pernod Ricard in India, Uberoi inherited a loss-making business that was no more than half a million cases. Some of his brands were beginning to see traction, but they paled in comparison to the size and scale of Mallya’s brand portfolio. Pernod didn’t have the distribution reach nor the production facilities.
Mallya already had a large stable with at least six brands that were selling more than a million cases a year. His beer brands had nearly 50 percent market share. Mallya was acquiring breweries and distilleries around the country to build a strong manufacturing presence. His spirits business was scattered under many companies, which were already doing 25 million cases in 1999. In 2000, Mallya set in motion a plan to bring all the companies under United Spirits (USL). And by 2005, with Shaw Wallace under his belt, Mallya was the undisputed numero uno in the country. And even today, he loves tom-tomming that USL is among the world’s largest spirits selling company by volume.
There’s, of course, a rather large fly in the ointment: Mallya’s USL is no longer the most profitable spirits company in the country. Last year, it lost that place to Pernod Ricard India (PRI). The privately-held Indian subsidiary of Pernod Ricard doesn’t reveal its financial figures. Yet, executives within and outside the company confirm that the firm generated net profits of ‘around Rs. 500 crore’ for 2010, higher than USL’s Rs. 403 crore.
There are two other data points that make for an intriguing read. Pernod Ricard’s revenue of over Rs. 3,000 crore is just half of USL’s Rs. 6,422 crore. And it sold 20 million cases of spirits in 2010, a little less than one-fifth of what USL sold.
Today, Mallya, the businessman-politician, finds himself in a spot of bother. Each of his major businesses under the UB Group umbrella, including USL and Kingfisher Airlines, is under mountains of debt. USL alone has debt of close to Rs. 6,000 crore on its books. And the spirits company, Mallya’s cash cow, is facing increasing pressure.
By the end of this year, its flagship product, Bagpiper whisky, risks losing the slot of India’s and world’s largest selling spirit brand to Officer’s Choice, owned by friend-turned-rival Kishore Chabbria’s ABD Distillers. Chabbria is the chairman of ABD and had roped in Deepak Roy as the CEO, after he parted ways with Mallya.
More worryingly, neither the industry nor the investors now seem to put much value to USL’s huge annual sales of 116 million cases. “What is the point of calling yourself the largest in the world, if you don’t have profits to show for it,” says Nikhil Vora, managing director, IDFC Securities, who earlier this year downgraded USL’s stock to neutral. Detailed questionnaires sent to Mallya and USL went unanswered.
Things might only get worse from here for Mallya. Most folks within the industry back Uberoi and his team as the one better placed to tap into the fast growing Indian liquor story. The domestic spirits market is the second biggest in the world and the largest for whisky. The silver lining: The premium segment of this market is still pegged at only 20 percent, but is growing at a rate of 25 percent, much faster than the 16 percent growth in the low-price, high-volume segment that USL dominates. Not only is the average age of tipplers coming down, many of them have more disposable income and choose to be associated with bigger, better known brands.