Diageo-USL deal good for sector, say experts

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Ajay Sukumaran: Nov 11 2012, 20:57 IST

India's $6 billion beverage alcohol market looks headed for another round of consolidation and a key focus on profitability, with the world's biggest liquor firm Diageo in control of Vijay Mallya’s United Spirits Ltd (USL). The UK-based company—whose share in India's branded liquor market of 295 million-cases is currently minuscule—is also expected to bring in a more professional approach to an industry where majority of players are family-run businesses. Industry experts say the immediate challenge of unlocking value from USL, India's biggest drinks company, isn’t going to be easy for Diageo, which is practically making its third fresh start in India.

“I think there is some consolidation that will happen over the next few years. The industry is going through a rough time in terms of profitability as it is not able to pass on input price hikes to consumers. All that would have to change in the next two to three years,” said Deepak Roy, executive vice-chairman and CEO of Allied Blenders and Distillers (ABD) which now becomes India’s largest domestic spirits company after Mallya's stake sale to Diageo on Friday. “It is not that we don't have the marketing experience. It’s just the mindset of owners was not geared towards investing in big brands,” said Roy, adding that it was not easy to invest when profit margins were under pressure. To be sure, global firms will now be calling the shots in India's liquor industry with Diageo-USL enjoying over 45% marketshare followed by its global rival Pernod Ricard with

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