Profile Comparision of Ub Group and Radico Khaitan

Profile Comparision of UB Group and Radico Khaitan

Executive Summary

UB Group and Radico Khaitan are the two largest players in the fast-growing Indian liquor industry today. Since 2002-2003, UB group has metamorphosed into the world's second largest brewery. Numerous acquisitions and extensive brand launches have been the driving forces for this change. Radico is a relatively new player in the market and has concentrated solely on developing three successful brands thus far. It is now on the verge of taking the UB path and acquire companies, both domestic and international. Both companies are determined to command a strong global presence in the years to come.

The Indian liquor industry is a fast growing sector, recording levels of 12-13% CAGR. ["Radico Corporate Presentation", 2006] The two largest players in the market are currently United Breweries (UB) Group and Radico Khaitan Limited. The profile of the two companies is attempted below.

UB Group:

UB's stated aim is to become a global leader in the liquor market. There are three major areas of focus for UB which help it in achieving this aim: -

1) Aggressive acquisitions, both national and international

2) Extensive product line expansions

3) Active cost-control measures

Aggressive acquisitions:

Over the last three to four years, UB has been involved in many mergers and acquisitions. It acquired the 150 year old wine maker Bouvet Ladubay in 2006 ["UB buys French wine-maker Bouvet Ladubay", 2006]. Other prominent acquisitions include McDowells International, Shaw Wallace and Co., Herbertsons, Karnataka Breweries and Distilleries.

The acquisitions have helped UB to have more than 145 brands under its umbrella, including 13 millionaire brands. Some of the famous brands are McDowells, Bagpiper, Royal Challenge, Signature, Romanov, Black Dog, etc. Each of these brands has a loyal following and has contributed significantly to the mammoth market share of UB (60%). ["Fact Sheet on the UB group", n.d.] The global appeal of these brands helps in achieving the overall aim of UB.

Extensive Product Line Expansions:

To stay abreast of competition, UB entered into different product and price segments. It introduced Antique Blue Whisky in the super premium segment. It also rolled out McDowells' Diet Mate whisky as well as the first luxury whisky in December 2006 - Royal Mist creating a new market. ["Luxury Whisky from United Spirits", 2006] The Ladubay acquisition has also given it access to the wine market.

To counter the unorganized sector, UB group is planning to commercially produce the traditional drink of Goa, "Feni". ["Vijay Mallya to give Feni a global push", 2006]. Apart from marketing it throughout India it's also looking to promote it as an Indian drink in the international arena.

UB has presence in all the liquor segments - cheap, semi premium, premium and super premium, across most of the flavors - beer, whisky, rum, brandy, vodka, Scotch whisky, soda and now in wines. Its pan India presence and reach enables it to maintain its leadership position.

Active cost control measures:

UB consolidated the operations of all its spirit companies under the brand name of United Spirits Limited initiated in 2005 after acquiring Shaw Wallace. The consolidation helped UB to cut down on redundant costs and other wasteful expenditures. ["Presentation on UB group", 2005]

UB currently owns 75 distilleries, 23 obtained from the acquisition of Shaw-Wallace. The advantages of the merger are reduced distribution costs in supply to distributors as well as access to Shaw Wallace's distribution network. Larger orders are now placed for purchases of raw materials, packaging material and bottles. The bulk deals increase UB's bargaining power with suppliers and enable lower procurement costs. Cost of manpower has been reduced as many jobs have turned redundant. Estimated savings were Rs. 100 crore in the first year of the post-merger. [Maitra, 2005]

Other Advantages for UB vis-Ðo-vis its competitors:

UB group's chairman Dr. Vijay Mallya is an extremely high-profile businessman. His passion and dynamism drives the UB group forward. His brand image is far greater than any other rival CEO and generates positive externalities for the company.

UB also emphasizes on innovative marketing practices, taking to advertising in a big way. The advertisements are conspicuous and many in number. UB also sponsors golf and horse-riding events, further fortifying their image amongst the elite of society. The launch of Kingfisher Airlines has also served to enhance the brand image of the company.

Radico Khaitan:

In eight years since inception, Radico has focused on establishing a strong market presence by organic growth. The company is now focusing on acquisitions, mostly international, with an aim to be a strong global presence in a four year period. The areas of main focus for Radico Khaitan are:

1. Creating strong umbrella brands in India

2. Acquisitions and partnerships to command global presence

Creating strong umbrella brands in India:

Radico Khaitan's Rampur distillery is one of the world's largest producing 90 million litres per annum of molasses, grain and malt based liquor. It was imperative for Radico Khaitan to leverage this huge capacity to create strong brands in India. In 1998 it introduced the 8 PM brand of whisky which was instantly successful. It concentrated primarily in brown spirits and consequently came out two other successful brands, Old Admiral Brandy and Contessa Rum. Contessa Rum is the largest brand in its segment, with 22% market share. ["Radico Corporate Presentation", 2006] Creating umbrella brands under these successful names is a key focus area for Radico.

Acquisitions and Partnerships:

Radico has recently started to begin acquisitions as well as establish partnerships. A case in point is the 50:50 joint venture with Diageo, the world's largest brewery. The main advantage of the partnership comes from the synergy in Radico's manufacturing expertise and Diageo's marketing power. Radico has also raised $70 million for further acquisitions. ["Radico Corporate Presentation",