first-of-its-kind 90% paper-based bottle for Johnnie Walker Black Label
Running exclusively at Johnnie Walker Princes Street’s 1820 bar, in Edinburgh
The makers of Guinness, Don Julio Tequila and Smirnoff Vodka has launched on a trial basis the first-of-its-kind 90% paper-based bottle for Johnnie Walker Black Label exclusively at Johnnie Walker Princes Street’s 1820 bar, in Edinburgh.
Created in partnership with PA Consulting, as part of the Bottle Collective with PA and PulPac, this is Diageo’s first paper-based 70cl bottle trial in the on-trade. The trial began on September 25th of this year and is expected to assess how bartenders interact with and pour from the bottle, and how the bottle fares in a bar environment. A total of 250 paper-based bottles are being for the trial period which is expected to run until mid-October 2024.
Diageo said that members of the public will be able to see the bottles in use behind the bar, however they cannot purchase the bottle. This will be the second paper-based bottle trial from Diageo and PA, following the success of the Baileys paper-based bottle mini format (80ml) trial, using a similar Dry Molded Fiber innovation at the Time Out Festival in Barcelona earlier this year.
Diageo said that the design team had taken learnings from the technical aspects of the miniature format, to make a larger and more complex shape for Johnnie Walker. The bottle’s design retains the iconic square shape of Johnnie Walker Black Label, whilst enhancing the premium appeal with unique facets cut into the sides of the bottle and embossing of the Striding Man on the bottle and closure.
Paper Bottle is about 60% lighter
The trial bottle is made from 90% paper and a very thin plastic liner. The innovative technology makes the paper-based bottle approximately 60% lighter, with initial external life cycle analysis on the prototype showing an up to 47% potential reduction in carbon emissions compared to the Johnnie Walker Black Label glass bottle equivalent. The bottle closure was developed in collaboration with PulPac, Setop DIAM and PA and is made from a unique combination of cork and similar Dry Molded Fiber paper technology as the bottle. It is only intended for use during the trial and excluded from calculations.
The Johnnie Walker Black Label paper-based bottle for this test is designed considering recyclability among other aspects. The plastic liner is designed to not require consumer or bartender disassembly, as it is not attached or bonded to the outer paper layer, assisting recycling facilities to separate without disrupting the recycling process. The stopper used for trial purposes is not recyclable, however alternative solutions are in development. Throughout the trial and further development of the paper-based bottle, the recycling capability will be a key factor for future versions of the bottle as we continue to test, learn and develop.
Jamie Stone, Design and Innovation Expert at PA Consulting, adds: “These bottles break new ground in packaging design and shows the potential to significantly reduce carbon emissions.”
Beyond paper-based solutions, the brand recently introduced Johnnie Walker Blue Label Ultra, the word’s lightest whisky glass bottle, weighing just 180g without the stopper. The design featured a unique teardrop shape, lattice stopper, and bamboo frame to bring luxury and simplicity together. While Johnnie Walker Blue Label Ultra is a design experiment, the insights gained will guide future glass light-weighting initiatives across the Diageo portfolio.
These latest innovations form part of Diageo’s ambition to reduce its carbon footprint by exploring new packaging formats, including the launch of a 70cl aluminum spirits bottle with Baileys, a global licensing agreement with circular economy technology company ecoSPIRITS, and removing the cardboard gift boxes in its premium Scotch portfolio to reduce excess packaging.
Taking over the reins of one of the biggest companies in the market, can never be an easy task, especially when the daunting objective is to ensure double-digit growth, drive revenue and increase profits. Add to that, the first woman to lead the business, but Hina Nagarajan, Managing Director and CEO, Diageo India has not only successfully achieved this, but also surpassed many other feats. She speaks to Bhavya Desai about her journey, future objectives and more. Excerpts:
Since you took over, you’ve made incredible strides towards ensuring that the company becomes net debt free. How have you managed that?
The task ahead of me when I took charge in 2021 was to bring our Diageo India business on a sustained double-digit growth path, especially driving revenue and profitable share in the premium and prestige segments of the Indian alcohol market. Together with my leadership team, we made some strategic choices to win in this decade and beyond.
I led the execution of our portfolio reshape with the objective of accelerating premiumisation-led growth while delivering our guidance of mid to high teens margin. We completed the strategic review of our Popular brand portfolio, resulting in the sale of 32 mass brands and franchising of 11 brands in September 2022.
Our commitment to premiumisation is evident in our investments over the past years. We’ve introduced new products and innovations such as Royal Challenge American Pride, Epitome Reserve’s second limited edition of Peated Indian Single Malt in Goa, and Godawan, a unique single malt from Rajasthan. Additionally, our minority stake in Nao Spirits, the makers of Hapusa and Greater Than, underscores our strategy to grow in the luxury and premium segments, particularly in scotch, where we lead the market.
We also redefined our offerings in the Upper Prestige segment with unique products that resonate with new consumer trends. Furthermore, our efforts to premiumise and reposition brands in the Lower & Mid Prestige segments, such as McDowell’s No.1 Whisky and Royal Challenge Whisky, are part of our strategy to respond to evolving consumer needs.
With the consumer at the heart of our business, the strength of our reshaped portfolio, and the investments we are making to accelerate our strategic priorities, we have been able to deliver our mission of profitable double-digit growth for our business and in the process, wiped out our cumulative losses and declared dividend for the first time since acquisition a decade ago.
Having set on this path, what is Diageo’s next objective – in the coming years?
We feel extremely positive and excited about the future of the alcobev industry in India. The biggest transformation that we see is a whole new generation entering adulthood driven by a different, positive, and progressive set of values. India is in the middle of deep societal change led by women, youth and boom towns. This along with a massive growing need to ‘drink better, not more’ across all segments, is in line with our vision for the category.
The premiumisation trend will continue to stay strong with rising affluence. By 2030, 45% of Indian households (approx. 175 million households) will be in the upper mid and high-income groups. We see a big opportunity, not only to leverage this trend through our incredible portfolio of global and IMFL brands, but also to position Indian whisky as a characterful, distinct, high-quality offering by bringing the best of people, processes, and ingredients together to create bespoke liquids that are ‘Made in India’ for the world.
Our mission is to be a top CPG (Consumer Packaged Goods) company in India delivering sustained double digit topline growth with mid to high teen margins and long-term value to all our stakeholders. With this new strategy, we aim to deliver our Mission through 3 pillars that form the essence of our mission:
Reshaping our portfolio with a focus on accelerating premiumisation-led growth, while delivering our guidance of mid to high teens margins.
Creating an Organisation of the Future – We are building a future-ready organisation by investing in our talent, introducing market-leading policies and driving digital capabilities.
Defining and executing an ambitious role for Diageo in Society 2030 focusing on promoting responsible consumption, championing inclusion & diversity, and pioneering grain-to-glass sustainability which includes preserving water for life, accelerating to a low-carbon world and lastly, becoming sustainable by nature.
Keeping our customers as our main focus, along with the reshaped portfolio of our products and the investments we’re making to accelatate our strategic goals forward, we are confident of growing our business in a steady and sustainable way.
How has the consumer landscape changed over the years in the industry?
India is in the middle of deep societal change led by rising affluence, women, youth and boom towns. The biggest transformation that we see is a whole new generation entering adulthood driven by a different, positive, and progressive set of values. This trend expands to middle India and boom towns which are undergoing a remarkable transformation, fuelled by high aspirations and digital revolution where consumers are looking for premium brands, products, and experiences. The new consumer cohorts are driven by values of authenticity, individuality, local pride and collaboration with women building a more inclusive consumption narrative.
Digital has also been a big game changer. Most consumer journeys begin on digital with discovery, information, inspiration – informing them of their choices and behaviour and most of all aspiration and desire for what they want. If we look at the alcobev category, consumers are choosing different products for different occasions and need.
This means that repertoires are expanding from whisky to gin, vodka, rum, aperitifs, cocktails, etc. Consumers today choose to drink better, not more, leading to premiumisation of the alcobev category. At Diageo , we are responding to these structural shifts in consumer choices and behaviour, pivoted around premiumisation, wellbeing and sustainability. This new, changing, and vibrant India presents a huge opportunity for us.
You are the first woman to lead the business at the company. How do you think this encourages and inspires others across industries?
My appointment sparked interest and garnered positive attention, which reflects the breaking of traditional barriers especially in the alcohol beverage sector. As a woman CEO in alcobev, traditionally a male dominated industry, I see this as an opportunity to change the paradigm of this industry to make it more inclusive and normalise the narrative.
Our efforts are making a difference, leading to an environment where joining our sector feels no different from any other industry for women. At Diageo India, our commitment lies in building a workplace where everyone feels included. 50% of our Executive Committee and 35% of our senior leadership team comprises of women. We believe that a diverse leadership helps create a more balanced and well represented workforce. We’re making this happen by welcoming women into various leadership positions, ensuring we drive change right from the top.
Seeing more women in our company is truly encouraging. Their presence brings fresh ideas and perspectives on how we approach our products, market them, and innovate. This enriches our connection with customers and broadens our talent base, helping us to stand out and succeed in a competitive market. And hopefully, this encourages and inspires others to do more.
With sustainability being a rising factor amongst consumers today, how is Diageo moving towards a more sustainable tomorrow?
We at Diageo strongly believe that social and environmental impact and profitability are not two separate goals but rather interlinked. As one of the world’s largest beverage alcohol producers, we believe that we are ambassadors of our industry and aim to be the best we can – at work, at home, with friends, and in the communities we serve.
Sustainability is at the heart of our business strategy and is outlined in our Society 2030: Spirit of Progress ESG action plan. Our Society 2030 agenda is focussed on pioneering grain-to-glass sustainability, championing inclusion and diversity, and promoting responsible consumption.
Pioneering grain-to-glass sustainability plays a pivotal role in our Society 2030 goals and is embedded throughout the process and focusses on three key aspects; preserving water, lowering carbon emissions, and becoming sustainable by design.
In terms of preserving water we have overachieved our water replenishment target by 25% and three years ahead of our 2026 goals. We have improved our water use efficiency by 44% in our distilleries and 30% in our packaging processes, against the 2030 goal of 40%.
Women and girls are disproportionately affected when communities don’t have access to clean Water, Sanitation and Hygiene (WASH) facilities. We’re investing in such projects to empower women by providing sustainable water access and rebalancing their societal roles in more than 30 villages.
At the state level, we have partnered with Forest Department in Rajasthan and Maharashtra for mass plantation projects to improve green cover, protect soil, improve percolation and support biodiversity. In Alwar we have initiated efforts for desilting ponds, constructing check dams, improving drainage systems, to name a few. Measures like maintaining Zero Liquid Discharge status, rainwater harvesting pits, and others were adopted. We have also launched an afforestation drive to plant 2 lakh trees to offset residual greenhouse gas emissions.
We are making good progress in reducing our carbon emissions, and have committed to becoming Net Zero by F26 in our direct operations by mitigating our Scope 1 & 2 emissions and reduce 50% of our Scope 3 emissions by 2030. Our sustained efforts have resulted in industry-recognitions by Sustainalytics recognising the company as a “Top-Rated ESG Performer for 2022 and 2023” and our Alwar unit in Rajasthan,
has achieved the Alliance for Water Stewardship (AWS) certification, making it the first distillery in Asia to attain this certification.
In our efforts to becoming sustainable by design, we have removed mono cartons from 90% of our portfolio. In addition, we have introduced biodegradable packs as well as recyclable PETs in some of our brands and continue to expand it to others. This is aligned to our global mission to ensure 100% of our packaging is widely recyclable or reusable/compostable by 2030. Over 99% of materials used are recyclable. On glass, we have initiated light weighting of our bottles.
Our brands like ‘Signature by Nature’ uses 40% recycled glass for the glass bottle and is associated with Mangrove Plantation in Puri, Orissa where 30,000 Mangroves seedlings are being planted in five villages. These mangroves can sequester carbon up to 2-4 times faster than a mature tropical forest.
Our ESG agenda is owned by senior leadership levels including the board, which monitors the same through a CSR and ESG Committee. The ESG Index report we release annually highlights our progress mapped against each of the three pillars and we have witnessed remarkable achievements.
Our ambition is to be the forerunner in the Indian Consumer Product Goods (CPG) industry on ESG and create enterprise value.
What is Diageo’s roadmap for India with most companies betting big on the Indian markets? What is the next big product category that Diageo is focussing on for the coming years?
Diageo India is responding to structural shifts in consumer choices and behaviour, pivoted around growing affluence, premiumisation across categories, and quest for experiential and experimentation, through its refreshed business strategy focussed on premiumisation and focus on transformational innovation and renovation. We have a future back approach to our innovation pipeline and use a proprietory framework called Foresightto determine where trends will go few years from now.
It is for this reason that we have launched Royal Challenge American Pride which caters to the growing consumer preference for bourbon, renovated Signature to be the most sustainable brand in its segment , developed the Naya Sher campaign encouraging youth to take bold , confident steps forward for our Royal Challenge packaged drinking water as well as launched Walkers & Co – a platform to celebrate bold boundary pushers. We launched Don Julio tequila in the country in response to the growing traction for Tequila consumption in the country. We are also scaling up Baileys given the affinity for desserts in India.
We will continue to use Foresight to guide us on innovations for the future and bring the best of both our global, as well as Made in India portfolio, to cater to the evolving needs of Indian consumers.
While your association ISWAI has been representing centre and states for rationalisation of taxes including GST/Excise etc., do you expect centre to bring reform in the alcobev sector? How do you think this move will be beneficial?
ISWAI has been in talks with State Governments to rationalise high excise duties. It has made representations to the authorities time and again as manufacturers of alcohol beverages (Alco-Bev) continue to face shrinking margins due to high taxes, along with soaring inflation and import tariffs. The biggest barrier faced by the industry is freedom to price its brands. ISWAI continues to advocate for pricing freedom, especially for premium brands, as this will help the industry to overcome inflationary pressures. There are also several other regulatory and operational barriers which hamper ease of doing business for the industry. We have seen positive steps from the government on resolving some of these issues. ISWAI will continue to work proactively with various government bodies on these matters and is hopeful that the state governments will consider a harmonised tax structure as well as an acceptable annual pricing mechanism for the sector and continue to support ease of doing business for our industry.
Diageo recently announced that Sir Ivan Menezes has decided to retire as Chief Executive Officer and depart from the Diageo Board on 30 June 2023, following ten successful years leading the Company. Debra Crew, currently Chief Operating Officer, will be appointed Chief Executive Officer and join the Diageo Board, effective 1 July 2023.
Ivan joined Diageo through the merger of Guinness plc and Grand Metropolitan plc in 1997 and has held a number of senior positions in the business including Chief Operating Officer; President, Diageo North America; Chairman, Diageo Asia Pacific; and Chairman, Diageo Latin America and Caribbean. Ivan has been an Executive Director of Diageo since July 2012 and has served as Chief Executive Officer since July 2013, overseeing an outstanding period of change, growth and high performance.
During Ivan’s tenure, Diageo has made great strides towards its ambition to become one of the best performing, most trusted and respected consumer products companies in the world. Diageo has grown significantly during this period, now selling over 200 brands in more than 180 markets and is today, the number one company by net sales value in Scotch whisky, vodka, gin, rum, Canadian whisky, liqueurs, and also tequila, a category in which only eight years ago the company had no substantive position. And in December 2022, Guinness became the number one beer in the on-trade in Great Britain for the first time.
Led by Ivan, Diageo has developed a leadership position in sustainability, becoming one of the top 1% of companies globally to achieve a “Double A” rating for Water Security and Climate Change from CDP (formerly the Carbon Disclosure Project), as well as a particularly strong stance on inclusion and diversity, with the company ranked number one in the UK, and number two globally, in Equileap’s 2023 Gender Equality Report. And with Debra’s appointment as Chief Executive Officer, women will make up more than 50% of Diageo’s Executive Committee from 1 July 2023. During the past decade, Diageo’s total shareholder returns have strongly outperformed the FTSE100, and the Company has continued its progressive policy to increase dividends every year. In January 2023, Ivan was awarded a Knighthood for services to Business and to Equality in His Majesty The King’s 2023 New Year Honours List.
Prior to being appointed Chief Operating Officer in October 2022, Debra was President, Diageo North America and Global Supply, leading Diageo’s largest market to 14% organic net sales growth in fiscal 2022, following on from 20% organic net sales growth in the prior year. Debra originally joined the Diageo Board as a Non-Executive Director in April 2019, before stepping down from the Board when appointed President, Diageo North America in July 2020.
Debra is the former President and CEO of Reynolds American, Inc., where she delivered strong performance growth before the company’s acquisition, having previously served as President and Chief Operating Officer, and President and Chief Commercial Officer. Prior to that, Debra spent five years at PepsiCo, where she served as President, North America Nutrition; President, PepsiCo Americas Beverages; and President, Western Europe Region. Prior to PepsiCo, Debra held positions with Kraft Foods, Nestlé S.A. and Mars, Inc.
Debra is a graduate of the University of Denver, earned an MBA from the University of Chicago Booth School of Business, and previously served as an officer in the United States Army. She currently serves on the board of Stanley Black & Decker, Inc., having previously served on the boards of Newell Brands and Mondēlez International.
Javier Ferrán, Chairman, Diageo, said: “The Board is enormously grateful for Ivan’s contribution over the past decade. Under his stewardship, Diageo has consistently delivered a truly impressive performance to become one of the most respected businesses in the world. Ivan has transformed Diageo’s global footprint, brand portfolio and strategic focus, positioning our business as a clear leader in premium drinks. At the same time as delivering consistent shareholder returns, Ivan has nurtured a diverse and talented global workforce and made significant progress on the most material sustainability issues facing our business. Ivan leaves Diageo extremely well positioned for future growth, and we thank him again for everything he has helped us to achieve.
The Board has diligently planned for Ivan’s successor, and we are delighted to have appointed a leader of Debra’s calibre to the role. Debra has been a highly valued member of Diageo’s leadership team in recent years with an impressive track record of delivery both at Diageo and across other global consumer goods companies. She has deep consumer industry expertise as well as proven strategic capabilities, strong operational performance and a clear ability to build and lead teams. I have no doubt that Diageo is in the right hands for the next phase of its growth.”
Sir Ivan Menezes, Chief Executive Officer, Diageo, said, “It has been an enormous honour leading Diageo over the past decade. I am extremely proud of what we have achieved during that time, and I would like to thank my 28,000 talented colleagues around the world for all of their hard work, creativity and passion. I would also like to thank the Board for their encouragement, challenge and support over the years.
Diageo recently announced that it has acquired Mr Black, the Australian premium cold brew coffee liqueur. Mr Black was launched in 2013, by designer Tom Baker and award-winning distiller, Philip Moore, with the vision of bringing the global coffee culture to the world of spirits and cocktails. Mr Black has grown to become the leading premium-priced coffee liqueur in the United States, applying modern coffee brewing techniques and quality sourcing to reinvigorate coffee cocktail culture and consumers’ desire for premium coffee cocktails, such as the espresso martini and coffee old fashioned.
Over the last five years, Mr Black has been the fastest growing brand in the global coffee liqueur category. Now available in 22 countries, the brand appeals to craft cocktail lovers and consumers seeking delicious tasting cocktails in bars and restaurants, and for indulgent, at-home occasions. Mr Black sources and roasts coffee to its own bespoke specification, creating the premium liqueur with a delicious and rich coffee taste.
In 2015, Diageo acquired a minority stake in Mr Black through Distill Ventures, the Diageo-backed accelerator programme. Distill Ventures receives funding from Diageo and works with the company to support entrepreneurs as they launch and grow innovative drinks brands.
Co-founder, Tom Baker, will remain actively involved with the brand, working with the Diageo team to build on Mr Black’s success.
Claudia Schubert, President, U.S. Spirits and Canada, Diageo said, “With its award-winning liquid, eye-catching design and packaging, and ability to thrive in culture, we believe Mr Black is just getting started in the dynamic coffee liqueur segment. This acquisition is in line with our strategy to acquire high growth brands in exciting categories, and we are delighted to welcome Mr Black into our portfolio.”
Tom Baker, Co-founder of Mr Black said, “Coffee is more than just a drink – it’s a culture, ritual, obsession, aesthetic, experience, tradition and a community.
In line with its initiative Society 2030: Spirit of Progress and its 10-year ESG action plan, Diageo India will be initiating a phased removal of mono cartons from its popular Scotch brands in India VAT 69, Black & White and Black Dog. Although there isn’t a clear timeline on when this removal is expected to commence, it includes Diageo’s global effort to be zero-waste to landfill from its own operations and offices by 2030.
The move comes following the announcement in May this year for the removal of mono cartons from its scotch portfolio brands globally, which included brands like Johnnie Walker Black Label, Johnnie Walker Red Label, Buchanan’s Blended Scotch Whisky and Bell’s Original Blended Scotch Whisky.
Although there isn’t a timeline on when the phased removal in India will commence, in May Diageo had stated that the removal of these mono cartons will allow the company to assess the response from the consumer, which if successful will be expanded to other brands as well in 2023.
What will the customer response be to this announcement in India remains to be seen, especially since standing out in a shelf space in a country like India is important, due to its stringent marketing policies. It will also be interesting to see if this move will prompt other manufacturers to follow a similar path.
Currently there isn’t any update yet if there will be any changes made to the packaging (we will update the article periodically), considering mono cartons play an important role in branding and packaging of the product. Also whether the removal of mono cartons is expected to affect the product pricing, also remains to be seen. Since manufacturers spend a considerable cost towards packaging their products, the cost is often passed onto the consumer.
Diageo believes that the phased removal will engage consumers to participate, contribute and promote a progressive move to a sustainable future and will result in saving 10,000 tonnes of paper and reducing 7,000 tonnes of carbon emissions annually.
Diageo recently announced it has acquired Vivanda, owner of the technology behind Diageo’s digital ‘What’s Your Whisky’ platform and the Journey of Flavour experience at Johnnie Walker Princes Street.
This acquisition will enable Diageo to expand FlavorPrint technology to other categories. And it will support the continued development of their advanced analytics and digital marketing capabilities, providing a deeper understanding of consumer taste preferences and helping to unlock further opportunities in innovation and personalised consumer experiences.
Powered by artificial intelligence, FlavorPrint technology, through a series of simple questions, analyses and maps consumers’ flavour preferences against a large proprietary sensory database of foods and aromas, to generate a digital representation of their unique ‘Flavor Print’. It then recommends brands and variants whose flavour profiles consumers are most likely to enjoy. The technology breaks down traditional barriers to category exploration, supporting broader consumer engagement through more personalised recommendations and helping to ensure Diageo brands stand out at every point along consumers’ paths to purchase.
Launched in 2019, ‘What’s Your Whisky’ has been rolled out across 21 markets and is available in 16 languages. It has been integrated into the physical stores and e-commerce platforms of a number of our key customers in Europe and North America, as well as across their direct-to-consumer channels such as malts.com to enable purchase recommendations.
The technology also underpins the immersive Journey of Flavour experience at Johnnie Walker Princes Street in Edinburgh, tailoring the drinks that visitors enjoy during their 90-minute tour to their palates. There are more than 800 flavour combinations available in their innovative dispense systems, meaning a consumer could visit every day for more than two years and not have the same experience twice.
Vivanda’s team will join Diageo and its founders, CEO, Oli Fuchs, and CTO, Matt Corish, will provide ongoing consultancy services to continue building on the success of the FlavorPrint technology.
Cristina Diezhandino, Chief Marketing Officer at Diageo, commented, “We know consumers are looking for more personalised, interactive experiences and that they are increasingly engaging with our brands digitally as well as in person. We’re delighted to welcome Vivanda to Diageo and we are looking forward to working together to connect with consumers in more innovative ways that help shape the future of how we socialise in person and virtually.”
Oli Fuchs, Co-founder and CEO, Vivanda, said, “We are very excited to join Diageo. Vivanda set out to create innovative technology which connects consumers with products through sensory insight. We are proud of the excellent engagement we have received from consumers and are looking forward to connecting millions more people with their new favourite beverage and creating the digital standard for taste.”
In the unaudited third quarter, Diageo India has registered an increase in net sales of 15.9%, reflecting a strong quarter driven by resilient consumer demand in the off-trade channel, continued premiumisation and recovery of the on-trade channel. Underlying net sales increased 14.3%, excluding the one-off sale of bulk scotch.
Diageo India said that the Prestige & Above segment net sales grew 20.0%, with strong double-digit growth in our scotch portfolio. However, Popular segment net sales declined 1.7%, while priority states were flat. The Gross margin was 44.1%, down 49bps on a reported basis, driven by input cost inflation, partially offset by favourable product mix and productivity savings. Adjusting the one-off sale of bulk scotch, underlying gross margin was 44.3%, down 31bps.
Ms Hina Nagarajan, CEO, commenting on the quarter and nine months ended 31 Dec. 2021 said, “We have delivered a strong quarter, continuing the growth momentum amidst rising inflation. The broad-based growth in the Prestige & Above segment demonstrates the strength of our portfolio, and the continued agility and resilience of the team. We launched the second limited edition of Epitome Reserve Craft Whiskey, a Peated Indian Single Malt. We continued to expand distribution of the renovated Black Dog Scotch, Signature Whiskey and our innovation offering of Royal Challenge American Pride Whiskey.
We also launched ‘In.thebar.com’ this quarter, our digital platform to drive focussed consumer engagement and celebrations.
Healthy operating cash flow has enabled us to reach debt free status as on Dec.31st 2021. CRISIL upgraded its rating on United Spirits Limited’s long-term bank facilities to ‘AAA / Stable’ while reaffirming its ‘A1+’ rating on the short-term bank facilities.
External operating environment in the near-term will remain challenging, including potential impact from Covid-19 and rising cost inflation. We continue to work with agility and remain focussed on strengthening our portfolio while driving productivity across the value chain. We remain confident in the market potential and continue to stay focussed on our strategic priorities to drive long-term value creation for all our stakeholders.”
The Reported EBITDA was Rs. 491 Crores, up 27.9% and the reported EBITDA margin was 17.0%, up 159 bps, primarily driven by operating leverage on fixed costs. It said that Interest includes a one-off non-debt related charge. Underlying interest was Rs. 16 Crores, down 56.8% driven by reduced debt and lower interest rates.
The profit after tax was Rs. 291 Crores, up 26.7% and PAT margin was 10.1%.
Nine month’s performance highlights:
The reported net sales increased 22.6%, lapping soft prior year comparators. Growth was underpinned by strong consumer demand in the off-trade, premiumisation trend and continued momentum in at-home consumption occasions. Underlying net sales increased 21.9%, excluding the one-off sale of bulk scotch.
The Prestige & Above segment net sales increased 26.9%, lapping soft comparators and favourable product mix. The popular segment net sales increased 11.0%, while the priority states increased 10%. The Gross margin was 44.3%, up 113bps, primarily driven by favourable product mix, productivity savings from everyday cost efficiencies and lapping a one-off inventory provision. It said marketing investment was up 24.9% as the company lapped a reduction in promotional activity during the same period last year due to Covid-19. Marketing reinvestment rate was 8.0% of reported net sales.
The reported EBITDA was Rs. 1,084 Crores, up 88.2% and the reported EBITDA margin was 15.6%, up 544 bps primarily due to recovery in gross margin, operating leverage and lapping one-off costs in the prior year. Excluding the one-off items, underlying EBITDA was up 430 bps.
The reported interest cost was Rs. 52 Crores, down 62.3% driven by debt, interest rate reduction and a net reversal benefit of non-debt related interest charge. Exceptional items include a one-off provision towards an additional demand in relation to a historical customer dispute and tax includes a one-off reversal of 19.2 Crores.
The profit after tax was Rs. 634 Crores, up 343.2% and PAT margin was 9.1%.
United Spirits Ltd reports 27% PAT for third quarter
United Spirits Ltd (USL) has reported a 27 % year-on-year surge in profit after tax (PAT) for the third quarter of financial year 2021-22, which came in at Rs. 291 Crore, up from a Rs. 230 crore during the same period last year.
The PAT margin in Q3 FY22 was 10.1%, the company said. In a press release attached with the quarterly results, USL said it reached “debt-free status” by December 31, 2021, due to its “healthy operating cash flow”. The reported net sales in the three-month period ending December 2021 increased to Rs. 2,885 Crore, marking a 15.9% YoY jump.
The surge was driven by resilient consumer demand in the off trade channel, continued premiumisation and recovery of the on-trade channel, USL said. Underlying net sales increased by 14.3%, excluding the one-off sale of bulk scotch, it added.
“Prestige & Above segment net sales grew 20%, with strong double-digit growth in our scotch portfolio,” the company said. Popular segment net sales, however, declined by 1.7%.
The earnings before interest, tax, depreciation and amortization (EBIDTA) came in at Rs. 491 Crore, which was 27.9% higher as compared to the year-ago period. The EBITDA margin came in at 17%, up 159 bps, primarily driven by operating leverage on fixed costs.
“We upweighted our investment in marketing to support strategic priorities and on-going demand growth initiatives,” USL said.
Gross profit came in at Rs. 1,273 Crore, as compared to Rs. 1,082 Crore in the second quarter. Gross profit margin was 44.1%, down 49 bps on a reported basis, driven by input cost inflation, and “partially offset by favourable product mix and productivity savings”, USL said.
Diageo India chief executive officer Hina Nagarajan, while commenting on USL’s Q3 performance, said “external operating environment in the near-term will remain challenging, including potential impact from Covid-19 and rising cost inflation”.
“We continue to work with agility and remain focussed on strengthening our portfolio while driving productivity across the value chain. We remain confident in the market potential and continue to stay focussed on our strategic priorities to drive long-term value creation for all our stakeholders,” the CEO added.
The operations remained broadly normal for the quarter with sentiment gradually inching up seen in improved mobility and strong festive period helped demand. While input cost pressures continue, the global supply chains remain disrupted with port congestion and container availability issues. However, efforts, it said, are on to ramp up of innovation and renovation agenda, premiumisation trends continue, launched digital platform In.thebar.com during the quarter. It said it aligned itself with the new policies in Delhi and West Bengal, and tax rationalisation on BIO spirits in Maharashtra and West Bengal.
On the outlook, it said it was aiming to retain current demand momentum despite challenging near-term environment, expanding on new productivity initiatives, renovated portfolio well placed to benefit from ongoing premiumisation, and final stages of strategic review of popular brands.
Encouraging return to growth, good cash generation and increased dividend
Diageo posted its Interim Results, half year ended on the 31st December 2020 showing encouraging results, both in India and Globally which has prompted a rationalization of their portfolio and paring of debt. The Interim Results stated that the net sales (£6.9 billion) were down by 4.5%, as the organic growth of 1% was more than offset by unfavourable exchange. The operating profit (£2.2 billion) also declined by 8.3% due to the unfavourable exchange and a decline in organic operating profit.
Some of Diageo Products
However the organic net sales were up by 1%, despite a significant impact from Travel Retail and on-trade restrictions. The net sales in North America were also up by 12.3%, offsetting declines in other regions, except for Africa which was broadly flat. The growth in North America was driven by resilient consumer demand, share growth of total beverage alcohol, positive category mix and the replenishment of stock levels by distributors and retailers.
The report also stated that the organic operating profit was down by 3.4%, driven by the channel and category mix. The productivity benefits from everyday cost efficiencies largely offset cost of goods sold inflation. The Net Cash from the operating activities was up by £0.7 billion to £2 billion, and free cash flow was also up from £0.8 billion to £1.8 billion.
This primarily reflected a lower tax payment and working capital benefit driven by reduced creditor balances at the end of fiscal 2020, as a result of reduced sales demand and cost control measures triggered in response to the Covid-19 pandemic. The Creditor balances also recovered to more normalised levels.
The Basic eps of 67.6 pence decreased 14.6%. Pre-exceptional eps declined 12.8% to 69.9 pence, driven primarily by unfavourable exchange and lower operating profit. However the interim dividend increased 2% to 27.96 pence per share.
The improvement comes from the strong sequential performance in all regions compared to the second half of fiscal 2020. However, the manufacturer expects continued impact in the second half of fiscal 21 from on-trade restrictions and disruption to Travel Retail.
Ivan Menezes, Chief Executive, Diageo
Speaking about the results Ivan Menezes, Chief Executive, Diageo said, “We delivered a strong performance in a challenging operating environment, returning to top line organic sales growth during the half. North America, our largest market, performed particularly strongly and ahead of our expectations. Consumer demand has been resilient and the spirits category continues to gain share of total beverage alcohol. Across other regions we delivered strong sequential improvement compared to the second half of fiscal 20. This reflects improved market share performance through excellent execution in the off-trade channel, and the partial re-opening of the on-trade channel in certain markets.”
Menezes expects the ongoing volatility and disruption in the second half of the year, particularly in the on-trade channel, which will make performance more challenging. However the medium and long-term growth drivers and opportunities for the business remain intact and he is confident in the strategy, the resilience of the business and Diageo’s ability to emerge stronger. The organic operating margin improved compared to the second half of fiscal 2020 increased driven by the operating leverage and tight control of discretionary expenditure. The decline compared to the first half of fiscal 2020 reflected an adverse channel and portfolio mix. Menezes expects the margins to improve as the on-trade and Travel Retail recover and with the continued benefit of everyday efficiency.
Diageo India Results
In India, United Spirits reported strong numbers for the third quarter of 2020-21, even though the recovery was not as strong as expected. Despite the current operational challenges, the company was able to report Quarter-On-Quarter (QOQ) volume and revenue growth of 7% and 16% respectively and bring its third quarter revenues close to that of the same period last year. Though more than 85% of trade channels like bars, pubs, and clubs are now operational, they are operating at a low capacity which has impacted the results. Due to Covid protocols and muted celebrations, small gatherings are replacing large events. On the other hand, off trade channels like home consumption are in the upswing and home delivery is also gathering pace.
Some of Diageo India Products
The third quarter Net Profit also zoomed 79% QOQ, mostly because of the reduction in debt and fall in interest rates. There was a QOQ increase in margin and once volume recovers fully, margin is expected to improve further due to stable input costs and expected price hikes. Price hikes are muted currently due to tough market environments. There was a demand impact in Bengal, where United Spirits was forced to increase prices for its popular brands due to increase in excise rates by the state government.
Despite small improvement in the Covid situation, large celebrations and full capacity in trade channels are still a few quarters away and that explains why liquor companies have not been able to participate in the recent market rally. However, analysts say that these are short to medium term challenges and the long term story on liquor consumption in India is still intact. To increase its market share during these difficult times, United Spirits is focusing on off-trade channels. Home delivery is already showing good traction in states like Bengal and Maharashtra and similar trend is expected from other key states as well.
Diageo strategic Review of Selected Popular Brands
United Spirits Ltd. (“USL”) is also initiating a strategic review of selected Popular brands, continuing the strategy towards long-term profitable growth through premiumising the company’s portfolio. USL’s Popular portfolio comprises around 30 brands and the strategic review will focus on approximately half of this portfolio by volume. This review will not include the McDowell’s or Director’s Special trademarks.
Anand Kripalu, Managing Director & CEO, United Spirits Ltd
The strategic review is expected to be completed by the end of the 2021 calendar year. Anand Kripalu, Managing Director & CEO, United Spirits Ltd commented, “This review reinforces USL’s and Diageo’s commitment to deliver sustainable long-term growth and improved profitability, through a sharpened focus on core Popular, Prestige and above brands, including international brands.
United Spirits management is also taking steps to reduce its debt further by selling non-core assets and by improving its working capital cycle. United Spirits is a company with strong free cash flows which will contribute towards its plans to become a debt-free company by 2022-23 he added.
