Diageo-controlled United Spirits Ltd expects premium brands to contribute up to 80 percent of its sales in the coming years as it is on a drive to enhance offerings of such products, according to a top company official.
“Premiumisation” would also help the company to increase its margins, helping it fund the growth of its brands as well as sales, said United Spirits Ltd (USL) CEO Anand Kripalu.
“Two years ago, the contribution of our ‘prestige and above’ business was 50 percent of the NSV (net sales value). Today it is almost two-thirds — between 63 and 65 percent — of our business in ‘prestige and above’,” said Kripalu in an investors’ conference call.
He further said:” I believe that if we go into the future then the prestige and above segment would become 75 to 80 percent within the fullness of time because it would grow many times faster than our popular business.”
However, he did not share a timeline in which these changes would happen.
“We would continue to focus on enhancing margins by aggressively driving productivity and savings. The intent is to mitigate a large part of inflation every year so that pricing and other things can help us drive up our gross margins, which can fund our investments in our brands and stores,” Kripalu added.
USL has several key brands under its ‘prestige and above’ segment. These include McDowell’s No 1, Signature, Royal Challenge and Antiquity Blue whiskies.
It is giving economy brands such as Bagpiper whisky and Celebration rum on a franchise basis to regional bottlers in return for annual royalty payments.
“Our strategy is absolutely about premiumisation and that will be part of our philosophy also of franchising our popular business so that we can focus on prestige and above,” Kripalu said.
The company is expecting a faster growth rate in premium brands and is investing in its power brands.
“If you look at our strategic priority, our entire focus of power brands, which is a fraction of the brands which we own, is about investing in those brands and making them stronger and ensuring that the more premium brand goes faster than the ones below,” he added.
This week, USL had reported a 9 percent decline in profit to Rs 135 crore for the quarter ended December 31, mainly due to higher marketing spends and exceptional items.
Its total income during the quarter under review was Rs 7,160.9 crore, up 1.17 percent from Rs 7,077.8 crore in the corresponding quarter of the previous fiscal.moneycontrol