ORGANISATIONS- THEORY AND PRACTICE PROJECT – WORKSHEET 1 group- L2

Name of the Adopted Company :
United Spirits Limited

The business the company is into:
United Spirits Limited is the largest spirits company in the world by volume. United Spirits Limited (USL) is involved in the production, distribution and sale of alcohol beverages across different regions in India. It is also involved in the exports of alcohol beverages to over 37 countries thus enjoying a global footprint as well.
Besides Whyte & Mackay and Bouvet Ladubay being 100% subsidiaries of USL, the company has 22 millionaire brands (selling more than a million cases a year) in its portfolio and enjoys a strong 59% market share for its first line brands in India.
Its brands include Dalmore, Black Dog Reserve Scotch Whisky(Scotch); Antiquity Blue, Signature(Indian whisky); Honey Bee(Brandy); Blue Ribbon( Gin); Romanov(vodka)etc.

A brief introduction to the History of the company:
The company was established in 1826 by McDowell & Co as a trading company with its headquarters in Madras, by an enterprising Scotsman Angus McDowell. McDowell’s rapidly became the preferred purveyors of fine imported liquors and cigars that gratified the rich souls in the British India. In 1951, Vittal Mallya acquired McDowell’s initiating a new era in the history of the company. Its first distillery was established in Cherthala in 1959 in Kerala and began bottling brandy. Its first product was launched in 1962 which was Golden Grape Brandy, created in-house.
Over the years, itstarted acquiring different companies in the alcohol business which had distilleries across different states in the country. Following the launch of McDowell’s No.1 Whisky in 1968, its distillery was commissioned in Hyedrabad followed by ones in Goa and Bihar. Post 1977-80, which was marked by a slew of acquisitions, the Company went from strength to strength.
Vijay Mallya took over in 1983 and the company gained its reputation of being innovators in product development and marketing strategy. The company had 5 millionaire brands (a brand selling a million cases) in its portfolio by 1998 .By 2005, it had acquired Shaw Wallace & Company, for long its traditional competitor in the market place.
The year 2006 saw the creation of United Spirits Limited, the flagship of UB group through the mergerof McDowell & Co Limited, Herbertsons Limited, Triumph Distillers and Vintners Private Limited, Baramati Grape Industries India Limited, Shaw Wallace Distilleries Limited and four other companies.
The company sold 114 million cases and created history by becoming the market leader in the world beverage market by volume.

Vision, Mission and Core values of the adopted company :
VISION:
Innovation is the norm at USL, and every effort is made to create unique lifestyle experiences for consumers. The company`s new vision is to touch 200 million cases in near future.
MISSION STATEMENT:

To be the most admired global leader in the spirits industry by creating unique high-quality brands for consumers, driven by highly motivated employees and supported by best-in-class processes and continued innovations. United Spirits is and will continue to be responsible towards its stakeholders and the society.
CORE VALUES: * Innovation * Responsibility * Quality

Your team comments on the same:
The company is driven by innovation and is regarded to be an innovator in the industry and has several firsts to its credit like the first pre-mixed gin, the first Tetrapack in the spirits industry in India, first single malt manufactured in Asia and the first diet versions of whisky and vodka in India.
It appears to be a responsible company with a clear vision that has innovation as the central idea. The company’s near vision also demonstrates the fact that they are a company which has its vision in place and intends to move forward with its values in tandem.
They also want themselves to be identified as a company that is respected, through their virtue of producing quality goods and it wants to build upon on that. They want to be admired, and despite the nature of the business they do, they take pride in it and want to be a company that people look up to. That speaks volume about the character of the company because they are already the market leader and still not arrogant and has its priorities in place. It wants to grow further and further.

Overview of Environment of the company:
The General environment:
Alcohol Demographics: Due to the growing prominence of the west in India, there has been an increase in the alcohol consumption in the country, and it’s been on the rise only. The consumption of alcohol in Indian youth aged under 21 years has seen a growth from 2% to 14% in the past 15 years.This rising pattern of consumption of alcohol in India has made it a tempting destination for potential investors in the Alcohol sector.
Economic Forces: The unemployment rate in India is 3.8% but the people below the poverty line is still almost 25%. The poor in our country treat alcohol as an antidote to get rid of the thoughts of social and economic deprivation. Also, the elite treat it as an issue of prestige. Alcohol is an issue of sophistication for the middle class. So the customer base is extremely wide in the country. Also due to India being a developing economy, the demand and market for the alcohol sector is huge.
Technological forces: The alcohol industry is continuously working on ways to treat the industrial waste produced by them. There are two ways to do it and the industry is working on plans to make the spent wash for yeast growth. There are certain plans that include ease of operations, land and plant requirements that have seen development that makes the production cheaper.

The Specific environment:
Customers:
The customer base for United Spirits Ltd in India is vast and most of them are repeat customers. Kerala has the highest consumption rate of alcohol followed by Punjab in India. The group holds 60% market share in the Indian Spirits market through its various brands like Kingfisher beer, Antiquity, Bagpiper, McDowell’s etc. One of the main reasons why customers flock for the products of United Spirits is because of the company’s ability to occupy every segment of consumer base. This is evident from the following examples:

* Kingfisher Strong: The brand was launched in 1999 to cater to the growing strong beer segment in the country. Today, Kingfisher Strong is India’s largest selling beer brand. It contains 8% alcohol content. It is available in 4 SKUs- 650ml & 330ml bottles and 500ml & 330 ml cans. * Kingfisher Strong Fresh: Kingfisher Strong Fresh is the first ever strong draught beer available in the Indian market. It is packaged in a 500 ml cans (This product has been withdrawn). * Kingfisher Draught: It is packaged in a 500 ml cans. * Kingfisher Ultra: It was launched in Mumbai on 18 September 2009. It is an entry in the premium beer segment in the country to compete with international players like Carlsberg, Heineken and Budweiser. * Kingfisher Blue: The brand’s core target group is the young male population. Kingfisher Blue tries to occupy an imagery of adventure sports. It contains fewer than 6% alcohol. Kingfisher Blue is packaged in metalized blue color labels and cans. It is available in 4 SKUs- 650ml & 330ml bottles and 500ml & 330 ml cans. * Kingfisher Red: It is marketed as India’s 1st ‘ALL SEASON’ beer * The company’s McDowell’s No. 1 Rum is positioned on the ‘macho’ platform and sponsors hiking and motorcycling events.

Consumers are attracted to the brand because of the style statement that it offers. The marketing strategy of the company emphasizes on this. The brand directly talks to people who are easy going, chilled out person who's always willing to take a break and party with the friends. But they are very professional and successful. When the CEO takes interest in the brand and virtually promotes the brand in every occasion, there is so much equity generated on the brand. Like Virgin's legendary Richard Branson , Mallya also showed that the primary task for any CEO is to be passionate about the brand.
Distribution
USL has a pan-India presence in distribution which is an achievement by itself. The establishments of the network started with the Metros and are now present in Tier II and III cities as well. The result is a combination of the response to the quality and distribution width and depth of USL. And also the group is independent of third party distributors for the sale of its products.
The distribution network of United Spirits and Whyte & Mackay combine gives an opportunity to cross pollinate their respective brands in other markets. It gives United Spirits access to a host of international brands and a ready international distribution network.

Competition

Radico Khaitan, India's second largest liquor company today has three "millionaire" brands in its portfolio. Its flagship whisky brand 8 PM, launched in 1999, sold one million cases in the year of its launch. Last year, the company had sold 3.3 million cases of 8 PM. The other "millionaire" brands of Radico are Contessa, and Old Admiral brandy.
Pernod Ricard India has rolled out superior versions of Blender's Pride and Royal Stagwhiskies.
Pernod Ricard's revenue of over Rs. 3,000 crore is just half of USL's Rs. 6,422 crore. And it sold 20 million cases of spirits in 2010; a little less than one-fifth of what USL sold.
Other major brands are Jagjit Industry Ltd. which holds a 10% market share, Mohan Meakin which holds a 6% share and Khoday’s which holds a 3% share.

Government Policy: * Import duty on alcohol has been cut (2011) which has led to a cut-throat competition between alcoholic beverages companies. Although USL is the market leader, emergence of new players and existing players can eat into the profits made by USL. * Ban on Advertising has put several restrictions on the liquor companies (The Cable Television Network (Regulation) Amendment Bill, in force September 8, 2000). The companies now resort to the surrogate advertising and hence they are unable to communicate about their new products to the consumers. * There is different age limits on consumption of alcohol in different states. * Different policies in different state- banned in Gujarat. Distribution fully through PDS in Kerala. * Taxes amount to more than 100% * Significant source of Government Revenue that is 10%.

The interconnections observed:
There were some interconnections observed: * Lowered import duty has made it a favorable venture for new entrants, combined with the increasing purchasing power of the Indian customers * There has been ban on the advertisements of alcohol but the increasing awareness on the part of the Indian consumer has not affected the industry that hard. * The competition and growth in the economy is proving to be boon for the consumers. * Immense scope for the industry as a whole. * UB looking to be in a secure position due to its robust distribution channel, strong brand name, loyal customers and efficient practices. * Government wants to earn more revenue so it is relaxing norms such as 150% import duty to allow a liberalized business environment as it realizes the trends for growth in the alcohol industry.

SWOT analysis:
Strengths:
1. Strong presence in country’s liquor segment (60% share in first line brands)

2. First mover advantage thus has a strong brand image.
(Existent in Indian market for around a century).

3. Global presence (sold in over 52 countries), and is world’s number three brand.

4. An aggressive brand promotion technique ensures widespread brand recognition.

5. Large exporting potential( largest spirit company by volume and exported to over 37 countries)

6. The Company is known to be an innovator in the industry and has several firsts to its credit like the first pre-mixed gin, the first Tetrapack in the spirits industry in India, first single malt manufactured in Asia and the first diet versions of whisky and vodka in India

Weakness: 1. Static market growth- though there is significant market share but there isn’t any improvement since years.

2. High maintenance costs of brand- huge sum of profits employed for advertising.

3. Enormous borrowed funds.( 2.55 times equity)

4. Length of developmental cycles is large i.e., time employed in innovating, developing and bringing the product into market is large. For example, if the company wants to launch a new product, say, a new variety of beer, then for UB to gauge and understand what the demands of the consumer are, then producing the product and the time taken to launch it into the market for the end consumer is quite high. So the whole purpose of doing the entire exercise may be lost in this process as the taste and preference of the target customer may change.

Opportunities: 1. Entering new niche markets-For its annual production requirement, the company has already entered into long term contractual agreement with local farmers. Besides, the company also shares its technical expertise with the local farmers of Baramati and help in viticulture.

2. Preferred brand by consumer so has an advantage to invade new lines with high acceptance.

3. With time demand for high quality is raising manifolds so pricing would no longer be an issue.

4. Changing societal attitude about liquor ( significant increase in people opting for liquor- overall consumption increasing by 5 % and the population below 21 years of age consuming alcohol increased from 2% to 14% over the last 15 years)

Threats: 1. Increasing raw material cost.

2. Growth in number of substitutes from other competing beverage manufacturers like Radico Khaitan offering similar products.

3. Strict government regulation on liquor industries restricts wider availability.

4. Economic downturn- In the short term the problem is all about falling and shifting demand. In the longer run, the supply effects of the financial crisis need to be considered.

5. Increasing buyer power may lead in change in brand preferences.

PORTER’S FIVE FORCES AFFECTING UB SPIRITS:

Bargaining power of suppliers:
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. * Supplier switching costs relative to firm switching costs * Impact of inputs on cost or differentiation * Strength of distribution channel * Supplier concentration to firm concentration ratio * Supplier competition - ability to forward vertically integrate and cut out the BUYER * The more concentrated and controlled the supply, the more power it wields against the market. * In a truly competitive market, no one supplier can set the prices.
For making alcoholic drinks the main ingredients required are
1. Barley 2. Hops
4. Corn 5. Rice
6. Enzymes
7. Chemicals
UB group has done total backward integration with all manufacturing and supply is handled by their affiliated companies only, so the bargaining power of suppliers does not exist

Bargaining power of consumers:
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. * Degree of dependency upon existing channels of distribution * Bargaining leverage, particularly in industries with high fixed cost * Buyer switching costs relative to firm switching costs * Buyer information availability * Buyer price sensitivity * Differential advantage (uniqueness) of industry products
With The prices of alcohol totally state governed, the consumers do not have the liberty to influence the market.

Competitive rivalry within the industry:
There are many competitors in the industry. Biggest competitor is SAB miller which has 5 brands in India Haywards, royal challenge, Castle Lager, Knockout and Fosters.
The other competitor is Carlsberg India, which has two very popular brands Carlsberg and Tuborg.
There are many small players competing in India
1. RadicoKhaitan
2. Balaji Distillers
3. GajatjitInds
4. Globus Spirits
5. GM breweries
6. Som distillers
7. Ravi Kumar distilleries
8. Associated Alcohols and distillers ltd

In Indian market UB is the market leader with market share of 48% followed by Sab Miller with 33% market share.

Threat of Substitutes: * There are no substitutes for Alcohol as such * Strong market penetration allows UB to maintain volumes * Market leader in the market * Health conscious consumers might move away from alcohol to healthier alternatives

Threat of New Entrants: * Highly competitive market * High chances of new players coming in * Government regulations might prove to be a hindrance for the new players to come up

Identification of Company`s strategy: 1. United Breweries eyes its growth now in B, C towns: As per the recent reports, the highest growth for the United Breweries came from smaller towns.
Growth has been flat for United Breweries in hometown Bangalore at around 2% in FY09. But in North Karnataka, comprising towns like Raichur, Bidar and Gulbarga, sales grew by 17%. Bihar saw a whopping 60% growth and Orissa 45%. The company has posted a net profit of 68% and says that the future is promising.

2. Innovative Packs: To tap the market in smaller towns, United breweries came up with 100 ml tetra packs.

3. United Breweries is focusing on new product launches: especially a flavored beer being targeted at women and a super premium beer which is expected to be priced at a premium of 40% to Kingfishers other beers.

4. Brand promotions: It focuses heavily on developing new trends to tap youth market: using slogans like “food tastes better with kingfisher”.

5. Strategic alliance: United Breweries has entered into a strategic alliance with Inertia Industries to produce beer using the latter's manufacturing facilities in Haryana and Maharashtra.

6. Wine Imports: It imports wines from different parts of the world to offer a portfolio of wines of different designs to meet the demand of different consumer genre.

7. Acquisitions: To have a dominant market share United Breweries has gone for many acquisitions: a) Shaw-Wallace in 2005 at 75% stake. b) Bauvet Ladubay in 2006(This French wine has a legacy of 156 years) c) White & Mackey. d) Liquidity Inc.

References: * www.wikipedia.org * www.google.com * http://www.ias.org.uk * www.unitedspirits.in * www.lancet.com * http://articles.economictimes.indiatimes.com