‘We are cautiously optimistic as on-trade slowly opens and prolonged period of festivities begin’

Abhishek Law Kolkata | Updated on November 19, 2020

There’s been some shift towards premium brands with in-home occasions going up, says Abhishek Shahabadi of Diageo India

Diageo-controlled liquor maker United Spirits Ltd (USL) saw a 21 per cent decline in its consolidated net profit to ₹125 crore for the second quarter ending September 30, while revenue from operations was up 4 per cent to ₹7,590 crore.

According to Abhishek Shahabadi, VP & Portfolio Head for Luxury and Premium brands, Diageo India, the alcohol or beverage alcohol category has shown some resilience despite incidents of bars being shut and high taxation, in the post pandemic new normal. For instance, for USL, sales in the ‘Prestige and above segment’ saw a 1 per cent growth in the September quarter; backed up a “strong momentum in Scotch” and renovations of key brands such as McDowell’s and Royal Challenge.

In an interview with BusinessLine, Shahabadi talks about the category outlook, taxation impact and other trends like rising in-home consumption. Excerpts:

Following easing of the lockdown, what sort of consumption trends are you witnessing?

Initially, the assumption was that people would be more value conscious because of the post pandemic price increase. However, the price mix was positive due to improved relative price positioning of the BIO (bottled-in-origin) portfolio in key markets.

Additionally, there has been some shift towards premium brands with in-home occasions going up. This could be attributed to people wanting to upgrade to premium alcohol because it is much cheaper to buy the bottle and take it home versus drinking at a bar. In terms of trends, this is what we have witnessed and (which) is also likely to stay as people opt for safe options.

There is also a slight increase in momentum in the on-trade segment as people begin to venture outside slowly.

How have hipster packs performed?

We have seen great success with hipster packs (180 ml) and are witnessing demand stably move ahead. We introduced it in the entry-level bottled-in-India scotch category which also includes Vat69, Black and White and so on. We plan to extend the hipster packs in some other categories, but not on Johnnie Walker.

What has been the impact of Corona cess on the luxury segments?

The pricing puts pressure on consumers. It has been historically proven that disruptive price rise leads to demand shrinkage across segments. That’s why you see some of the states rolling back duties partially. Across all segments, there was a crash in volumes when prices went up. But that has moderated to some extent now with the roll-back.

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What has been the impact of prolonged closure of on-trade channels in the luxury segment?

On-trade was largely shut in the previous quarter; now most of them are open across more states, but footfalls are still low. On-trade accounts for one-fifth of sales in the ‘prestige and above’ category. With this channel being closed for so long and now slowly opening up, it definitely has had an impact on numbers. It will take some time for this channel to be back to its glory days.

So, what time-frame are you looking at for such normalisation to happen?

It is difficult to say. At least, we do not see any immediate change in the next four to six months.

People need reassurance before they start moving about again or come to the bars. For example, open-air bars are getting more people to come in compared to closed spaces. We, at Diageo, have been working on the ‘Raising the Bar’ initiative ― that is a revival and recovery program to support bars and pubs serving alcohol ― and have committed ₹75 crore towards it.

Are consumers moving away from one segment, especially beers to spirits?

During the past few months a shift has been seen towards spirits, as most of the consumption was through in-home occasions. Moreover, there are some additional factors that were in favour of spirits like storage, refrigeration, etc.

What is the outlook for Q3, especially, since it is also the wedding season?

We are cautiously optimistic as on-trade slowly opens and the prolonged period of festivities begin. However, we continue to bear in mind that celebrations are still going to be limited to smaller groups that are more intimate. Weddings are scheduled but with the numbers of attendees being restricted.

Published on November 19, 2020

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