A Spirited Fight

Make mine a double. That’s a favourite line of the grizzled cowboy in old Western movies. Now, Deepak Roy may not wear a large-brimmed hat or boots with spurs, but he would perfectly fit into a modern-day corporate Western.

When he walked through the doors of Allied Blenders and Distillers (ABD) in 2007, he had his sights fixed on one target: Officer’s Choice Whisky. But the rest of the bar was in a shambles. Its promoter Kishore Chhabria had raided the safe to finance his legal battles with his brother Manu Chhabria, who ran the more famous and publicly listed Shaw Wallace. There was no head bartender for ages, employee morale was at its lowest and banks wouldn’t lend the company a penny. This was just the challenge the new CEO needed.

Roy is no ordinary liquor salesman. He was the founding CEO of Diageo’s India business (formerly International Distillers India, prior to the merger that created Diageo). When he left, he was president, South Asia, Russia and Baltic regions at Guinness UDV, a Diageo company. He is credited with the success of brands like Smirnoff in India.
He was also slated to head the biggest spirits company in India, United Spirits, a promise he claims liquor baron Vijay Mallya never kept.

In the two years Roy has been around at ABD, he seems to have worked magic. Officer’s Choice achieved a milestone in sales — it crossed 10 million cases in a year, a record that only 11 other liquor brands in the world have surpassed. Sales have increased 31 percent for the last three years and Roy says that he will have the balance sheet cleaned up by March next year. So, will he take the company public next, encash his shares and quit?

The worry lines on his forehead become evident as he raises his eyebrows. He won’t say if he has an unfinished agenda after quitting Mallya’s group because he was denied the top post. Roy says, “This is just the beginning. We will come to that when we further unleash the power of the Officer’s Choice brand.”

And United Spirits has felt that power in Haryana, Madhya Pradesh and Rajasthan where Officer’s Choice has displaced Mallya heavyweights like Blenders Pride and McDowell’s No. 1. Roy uses the cliché ‘low hanging fruits’ to describe his achievements.

Didn’t the competition trouble him? Again, there is a slight trace of emotion. Roy admits that United Spirits holds a virtual monopoly in Uttar Pradesh, India’s most populous state and won’t give him an inch. In Punjab, big liquor distributors won’t stock his Officer’s Choice. Roy shrugs it off.

Over the course of an interview, Roy makes it clear several times that he is in no need of a job. Why is he working so hard then? We have to go back to 2002 when Roy left Diageo.
Diageo, in a global re-organisation, wanted to sell some of its local brands. Roy who was then heading the company’s operations, put in a bid. He won the bid, bought Gilbey’s Green Label Whisky and Gilbey’s Old Gold Whisky with a consortium of bankers (IDFC and Ashok Wadhwa) for Rs. 78 crore. He got a sweat equity of 26 percent in the business.

Later, Mallya bought out the financial investors. The brands were valued at Rs. 120 crore when Mallya finally bought out Roy. Roy won’t share the exact amounts but he made a little more than four times the worth of his initial stake. He then joined Mallya, who promised him the top role in the spirits business as a part of the deal. But Mallya dithered and Roy quit in 2005. The current managing director of United Spirits business, Vijay Kumar Rekhi, took charge of Roy’s businesses too.

Roy then started his own premium wine company Valle de Vin with Ravi Jain, another Mallya man, and recently launched its first brand, Zampa, in the market. So, when Chhabria first approached him, Roy was reluctant to take up an assignment in a one-brand company. But a 5 percent stake and an opportunity to play with Titans lured him. Currently, his stake is valued about Rs. 50 crore.

When Roy took over at ABD, he spent the first 100 days re-drawing the organisational map and mapping the skills of each of his top managers. Though Officer’s Choice still sold 6.2 million cases, there was no co-ordinated team work in the company. The production would work only when it got funds to buy raw material. For example, it would produce litre bottles of whisky since it had a stock of those containers rather than quart bottles which the marketing wanted. Roy says, “Managers slowly slipped into defending their fiefs and lost their sensitivity to team work.”

In an effort to bring teams from different functions like manufacturing and marketing together, Roy reassigned portfolios and brought senior managers from outside to head key functions. He also used old tricks that he had successfully tried out in Diageo and United Breweries to invigorate liquor selling. In Diageo, Roy claims that for the first time, he bought in people from companies like Pepsi and Cadbury to give a different sales thrust to brands like Smirnoff. In ABD, Roy has hired marketing personnel from Pepsi to give an impetus to on-site promotions for the product.

Simultaneously, Roy kicked off a study to fine tune the positioning of the product. He found that the old bottle-shaped packaging was passé and customers in northern states, who were graduating to branded whisky, looked for aspirational symbols. Roy introduced a new packaging, a family pack across the category and embossed the brand name on the bottle — a sign that customers associated with authenticity.

Part of his deal with Chhabria was a complete control on operations of the company. Roy tightened the screw on money being taken out of the company on an ad hoc basis. He managed to secure a small loan of Rs. 40 lakh from ICICI Bank in 2006 to start “breathing again”. In February 2008, after showing some months of steady performance, Roy convinced Axis Bank to give him Rs. 45 crore (about 9 percent of his sales) as loan. ABD is expected to post a revenue of Rs. 900 crore next March but Roy is still not disclosing his profit number. Using his cash accruals, he slowly paid off the earlier loans of his promoters. Roy says, “The cleanup is hygiene but we were just setting up ourselves for bigger plans.”

Advertising agency Leo Burnett’s national creative director K. V. Sridhar is not surprised at Officer’s Choice’ quick rise. He reckons there are several brands out there which have deep connect with consumers that can be revived with the right inputs. Says Sridhar, “We struggle to familiarise a brand with million but in India several million already know many existing brands. You just have to rekindle their memory.”

Going by the experience of industry veterans, Roy may well have a tough task ahead of him. “It is difficult to hold margins if you focus too much on the regular whisky market,” says Raju Vaziraney, COO, Radico Khaitan, makers of 8PM Whisky, a strong competition to Officer’s Choice. Radico launched a series of premium spirits to mitigate that risk.

However, UK-based trade magazine The Millionaires Supplement 2009 recently rated Officer’s Choice as the fourth largest whisky brand in the world. Four years from now, Roy wants his whisky to be No.1 in the Indian Made Foreign Liquor (IMFL) category in India. The key lies in building more volumes as he knows that there is no room in this category of whisky to increase prices. His peers at United Spirits are not very worried. “It is tough to attract talent if you are a mass market one-product company,” says a senior executive at the United Breweries group.

Roy knows that. ABD has launched two brands of vodka, a drink Roy knows like the back of his hand: Wodka Gorbatschow (premium pricing) and Clas Vodka (non-premium). Riding on the vast distribution of Officer’s Choice, these two brands are expected to fetch two to four times higher margins than the whisky drink. Up next is a dark rum, still popular in India, thanks to another popular but languishing brand, Old Monk. The rum will be priced at a premium of 25 percent to Mallya’s MacDowell’s Celebration Rum. Roy says, “Since upscaling an existing alcohol brand is tough, we will drive margins by expanding portfolio.”

When volumes for Officer’s Choice hit 14-15 million cases and Gorbatschow touches 100,000 cases, Roy reckons he will take the company public. He estimates this will happen in the first half of 2011, when he can show a full year’s performance after cleaning up the balance sheet. Roy also thinks that with much better margins from the premium vodka and dark rum brands, he will be able to command a better valuation in his initial public offering.

Roy is far from done. Having smelt the opportunity of resurrecting a good but badly managed brand, Roy thinks this is one game he is going to latch on to. Though he wouldn’t talk of specific targets, he says that companies like Khoday Distilleries which makes Peter Scot Whisky and Mohan Meakins which sells Old Monk Rum are sitting on great brands without any spark about them in recent times. Maybe it’s time for their owners to start ordering doubles.