As Diageo intensifies its focus on premiumisation as the long-term bet in India, it has confirmed United Spirits Ltd (USL) has begun exiting its unprofitable low-end brands in India.

Diageo says it believes consumers in India would up-trade through the long term. Notwithstanding the slowdown seen in the September quarter, the company plans to capitalise on the trend. At a time when many states resisted price rises to incorporate rising input costs, USL had begun considering assigning its premium brands greater priority, even before Diageo acquired 25.02 per cent controlling stake in the company.

However, a close look at USL’s performance during the quarter ended September shows the company’s strategy took a toll on its total volumes, as low-end brands account for about 70 per cent of its volumes.

Diageo, the maker of Johnnie Walker and Smirnoff, acknowledged the slowdown in India, but said it had already factored this in during the stake purchase. Emerging markets were facing a slowdown in growth and India was not immune to this, Diageo said. “In the short term, the market is experiencing some slowness...and cost pressures have increased.

However, we have factored this into our acquisition model. So, we expect to remain on track against our original investment case,” Diageo chief executive Ivan Menezes said at the company’s investor conference in London. Read

Full News at Source (Business Standard)