United Spirits goes in for structural revamp

United Spirits has set about dismantling its internal structure that was in existence when Vijay Mallya owned the Indian operations.

A completely new structure is being put in place with focus on making the organisation flatter, with salaries and incentives being evenly distributed striking a balance between senior, middle and junior managers. Earlier, there was a concentrated distribution of resources towards senior employees.

United Spirits, which is now controlled by London-based Diageo plc, will also gradually phase out some of the brands that have not been performing too well, said Diageo’s Head of Industrial Relations Catherine James, in an interaction with analysts at Motilal Oswal.

The company has hired consultant AT Kearney to identify areas of cost savings without treating any cost as “holy cow.”

Diageo has also put together a board committee to decide on the future of Mallya, who was in April asked by the United Spirits board to step down after an internal probe revealed large scale fund diversions when he was the owner of the company.

James said Diageo did not foresee any impact on its operations in India because of Mallya.

The royalty payment from Diageo India to Diageo plc during FY15 has jumped 70 per cent to ₹34 crore from ₹20 crore in the previous year.

USL posted a fourth quarter loss of ₹1,799 crore in 2014-15 compared with a loss of ₹5,380 crore a year ago. Total income for the quarter grew 5.5 per cent to ₹ 2,051.2 crore.

James said that a provision of ₹39 crore has been made as part of employee cost as a one-off “catch up expenses’’ for those leaving the company. USL has seen a steady exodus of senior level employees over the past one year with the latest being that of PA Murali, who resigned as the firm’s CFO in April.

The company is also changing its policy on ad spend. It will henceforth focus more on brand building than on promotions, a major departure from the earlier policy when Mallya was in control of United Spirits. An analyst said that it could eventually affect the promotional activities of a whole lot of non-liquor properties of USL, including its IPL team Royal Challengers’ Bangalore.

James said Diageo will ask United Spirits to follow the same procurement policy as it does. With regard to the performance during the previous year, there was a decline of 2.8 per cent of the volume segment while prestige and above segments grew 7 per cent. Diageo has made it clear that it will follow the premiumisation policy for United Spirits.

Earlier, USL was banking on volumes to drive its sales. The implementation of this policy seems to have had an immediate impact with the premium brands contributing 30 per cent of sales in FY15.

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