After Vijay Mallya’s mighty fall from grace,
Kishore Chhabria has donned the mantle of India’s largest liquor baron. Will his Allied Blenders £ Distillers be able to take on global giants and thrive? By M. Padmakshan
XPECTATIONS FROM Kishore Chhabria run high. With liquor baron Vijay Mallya ceding control ofhis company, United Spirits (USL), to global giant Diageo, there is a vacuum in the ranks of Indian spirit makers and industry watchers are looking to the chairman of Allied Blenders & Distillers (ABD) to fill it They believe he can play a critical role in shaping the industry’s fiiture. Their belief is, perhaps, not misplaced. With sales of over 30 million cases, Chhabria’s ABD accounts for nearly 10 per cent of the 320-million-case Indian spirits market. Apart from the flagship Officer’s Choice whisky, ABD’s portfolio consists ofbrands like Jolly Rogers rum, Kyron premium brandy and Wodka Gorbatschow.
From a single-brand, three-million-cases company to acquiring numerous brands and distilleries, Chhabria has come a long way. He is now eyeing Tilaknagar Industries (TI), which in its portfolio has the marquee brand, Mansion House brandy. Mansion House is originally owned by the Netherlands-based Herman Jansen; Tilaknagar has been making Mansion House since 1983 under a commercial understanding with the Dutch company. Along the way, the two companies ended up fighting a case in the Bombay High Court over the right to produce the brand in India. The court ruled in favour ofTI in 2012; Herman Jansen appealed against the order and a final verdict is due.
Chhabria, who has been in expansion mode for some time, got into the fray by acquiring a 50 per cent stake in Herman Jansen—the deal was completed in August last year. Analysts see his move as an attempt to block the possible entry of another corporate entity into the bidding ring even as TI chairman Amit Dahanukar reiterated that his company was not on the block. Chhabria is also gearingup for an IPO that could fetch Rs 500 crore, to be utilised forvarious projects.
Chhabria’s journey to prominence has, by no means, been smooth. In 1983, he joined elder brother Manu Chhabria Manu and Kishore, along with Mallya, acquired Shaw Wallace, a company with a colourful portfolio ofbrands such as Royal Challenge, Director’s Special and a string ofbeers, including Haywards 5000. However, the brothers and Mallya soon parted ways, leading to along-drawn internecine battle that was fought at different levels of the judiciary and through enforcement agencies. In 1992, the brothers too split, warring over ownership ofbrands and companies.
At this juncture, Kishore Chhabria made a decisive move: he joined hands with Mallya, who by then had become the strongman of the Indian spirits industry. This was 1994. According to the arrangement between the two, BDA, later rechristened ABD, was made a subsidiary of Herbertsons, the flagship company of the UB group, and Chhabria appointed its vice-chairman. He continued to independently manage BDA and its sole brand, Officer’s Choice. By mutual understanding, Chhabria and Mallya agreed not to raise their respective stakes in Herbertsons.
The understanding, however, did not last as both began raising their respective stakes secretly. A bitter, noisy and costly litigation that went all the way up to the Supreme Court later, both agreed on a detente. In 2005, Mallya gave up ownership of BDA and Rs 130 crore in cash in return for Chhabria ceding his stake in Herbertsons. Chhabria soon played his masterstroke: he brought in Deepak Roy, Mallya’s one-time blueeyed boy, as ABD’s managing director. Roy had famously helped Mallya shape UB’s marketing strategy.
Chhabria spoke to BIT in a freewheeling chat at his residence in Casa Grande, on Mumbai’s Malabar
Hill, which also houses apart of his office. Everything, from his parting with Mallya to the break with his brother, was touched upon. Excerpts from the no-holds-barred interview:
You are already the No. 3 liquor company in India, after Diageo-USL and French spirits major Pernod Ricard. How soon will you become No. 2? What is your vision for ABD?
Diageo and Pemod Ricard are international maj ors; they are ahead of us in volume and valuation. We are the largest among Indian companies, but we are not interested in the numbers game. The important thing is driving force; without it we might make a serious mistake. The indushy was shocked when Pemod Ricard, that makes Royal Stag in India, recorded a profit higher than Mallya’s USL. At that time, USL’s Bagpiper was the world’s highest selling whiskj; according to international analysts. USL commanded 50-60 per cent ofthe market; Pemod Ricard, hardly 7-8 per cent
How did the industry react to the sudden change?
The industry, as a whole, put in place
‘We are not interested in the numbers game. The important thing is driving force; without it we might make a serious mistake’ initiatives to change gear from volumes to bottomline. Anewword was created: premiumisation. Many brands were upgraded to the premium level, enhancing profit margins.
What did ABD do?
ABD launched Officer s Choice Blue and Officer’s Choice Black, both in the premium segment. This was, in fact, a serious diversification. We entered other segments too: Jolly Rogers rum, Kyron brandy, etc.; they are a notch above regular segments.
What was the breakthrough for Officer’s Choice? How did it transform from a small brand to the world’s No.l whisky?
The end oflitigation in 2005was the real breakthrough, when Mallya and I settled out of court. With this the lull phase ofthe brand, too, ended. And the journey, from a brand that sells five million cases a year to becoming the largest selling whisky, began. We will touch 50 million cases in three years. By then the market wouldhave expanded to 400 million cases.
When do you think you will become No. 2? I say No. 2 because No. 1 is too far ahead.
Within the next two years we will cross Pemod Ricard in terms ofvolume, then probably in valuation. It’s a long way, bu: we will do itwith backward integration. As we do not have our own distilleries, we buy alcohol. We want to start our own distilleries: we are looking for four, one in each ofthe zones — north, south, east and west. We already have a sufficient number ofbottling plants. We wifi launch some brands soon, besides giving aboost to existing ones.
How often do brands succeed in the liquor business?
They fail very often; one in 10 brands succeeds. Even if you put all your might into one brand, it might fail.
To establish a brand — a premium
one — you may well have to spend about Rs 50 crore. And still see it fail.
It is luck. When a brand succeeds, all kinds of analyses, advertisements and managerial jargon are brought in to explain its success. But success of a brand hinges on pure luck. Let me explain: A director makes a movie and it becomes a success. Then his second movie flops. You cannot explain away both. Luck is a factor.
Mallya’s United Breweries had many ‘millionaire’ brands – Bagpiper, McDowell’s No. 1, Signature, Black Dog, to name a few. Did they all succeed because of luck? Did Mallya and his team’s understanding of the market not count at all?
Mallya did not make these brands; he bought the companies which owned these brands. He did improve them after acquisition.
How do you plan to finance your projects?
Is an IPO in the offing?
An IPO is being planned. It will be issued in two years.
It was reported that you were planning an IPO in a year’s time. Why did you postpone it?
We postponed it because we thought it would be ideal if we reached a certain benchmark before we headed for an initial public offer.
Are you the new Indian liquor baron, now that Mallya has exited?
I do not know. I am not sure if the word ‘baron’ has a positive or negative connotation. But ABD is there, already. We have established our presence. As I told you before, we are the largest Indian spirits company.
What do you think caused Mallya’s fall?
Do not write Mallya off. He failed in one business—the airline business. That does not mean he is afailure. He is active in his other businesses.
Are you and Mallya still friends?
Yes, we have always been friends, although we have been business rivals and fought in the markets as well a.yn the courts.
When did you meet Mallya for the first time?
In 1984, at Hyver Hall, on the outskirts of London, with my brother Manu Chhabria. Mallya was young and talked business. I understood he knew his business very well.
That was for buying Shaw Wallace?
Yes it was.
Why did Mallya part ways with your elder brother?
Complications arose in the deal. I do not want to narrate all that. Mallya’s stand
attempt to raise our individual stakes in Herbertsons.
Was this agreement in writing or verbal?
Therefore Mallya thought you had breached the agreement and from there the differences started?
Mallya, too, had raised his stake, to 44 per cent. Mine became 51 per cent from 26 per cent.
You have been making headlines for the past couple of years mainly because of a reported attempt on your part to take over Tilaknagar Industries…
That is not correct We are interested only in Mansion House. Donotsaythat I am trying to take over TI; I already own the brand. We have registered our brand
The author is a senior journalist