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The country’s largest liquor maker United Spirits has started selling most of its distilleries across the country, especially in the South to franchisee partners, who will henceforth pay a fee or royalty to the liquor maker for manufacturing and marketing its brands.
Sources in the company told BusinessLine that the process has already begun, with Balaji Distilleries having bagged most of the manufacturing plants in the South and in Goa. Distilleries in Karnataka will, however, remain with United Spirits because it is one of the most profitable centres.
New strategyThe distilleries being hived off are mainly those that make tail-end brands. The process of disposing of distilleries started three months ago, sources said. USL’s new strategy is to create an intermediary between itself and the market and leave the production, below-the-line marketing and distribution of lower-end brands to franchisee partners.
Major brand promotions in the form of surrogate advertising will be carried out by United Spirits. USL has over 88 manufacturing units across 23 States and three Union Territories and has about 140 brands in its portfolio.
In response to a query, United Spirits said it would not comment.
USL has started shutting down its distilleries in Bihar after prohibition was imposed in the State.
The royalty fee will reflect as part of ‘other income’ in the books of USL and at the same time, volumes too will see a reduction. This strategy is to ensure that USL does not have a direct exposure to the market and can focus more on launching and marketing major brands in the country. Most of the distilleries that are being hived off are in States where the manufacture of liquor is controlled by the respective local governments.
Major marketThe new strategy has resulted in some of the prestigious distilleries such as the Shertally distillery in Kerala and a few others being put on the block. Southern States account for 60 per cent of the Indian Made Foreign Liquor market and 45 per cent of the beer market.
In 2013, the London-based Diageo plc bought a minority stake in Vijay Mallya-controlled United Spirits and has since then gradually increased its stake to 54.8 per cent. In February this year, after Diageo entered into a financial arrangement with him, Mallya stepped down as Chairman of United Spirits. Under the deal, Diageo paid $40 million immediately and will pay an additional $35 million over five years on the condition that he steps down from all his posts in the Indian liquor company.
The company’s stock price fell 1.36 per cent to end the day at ₹2,433.
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