Take a walk Johnnie, scotch #JUSTGOTHIP – Big Investor Blog

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The moment you say scotch, I think of a heavily wood panelled, dimly lit room with distinguished gentlemen holding a rather empty crystal glass in one hand and smoking a cigar with the other. Oh yeah, also they are white with well groomed facial hair.

They seem to follow some of these rules for odd reasons.

  • Thou shall not dilute the holy liquid simply have it neat. (almost as if it showed how much class you have, Loosely translated into Bollywood dialogues, agar tumne aapni maa kaa doodh piya hai to neat piyo).
  • Thou shall always appreciate and complement the older compared to the younger. (irrespective of your actual preferences. if only men appreciated women accordingly 😉 )
  • Thou shall only eat crisps or lightly salted nuts or cheese. (no, that chicken 65 is not allowed)

For years these so called rules have been followed. Even I’ve been guilty of this behaviour. So much so that if I was serving say a Singleton over a dinner party and one of my guests wanted to have his drink with coke, I would dig up the bar and give him a J&B or a something cheaper instead. i.e he simply didn’t deserve to drink scotch.

Well, not anymore.

Diageo and the rest of the band are killing the pretentiousness and are making scotch cool. They’ve abolished the rules, so much so that the ads show them adding scotch straight to cola. They want you to have it with cola, ice, soda, ginge ale, tonic water, tomato juice, coconut water, complan and horlicks.(obviously exclude the last two)

They just don’t care anymore.

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They just want to make sure that they are in your glass. So much for all that so called class 😉

The other big taboo that they are breaking is about women drinking whiskey and not vodka. Just check out this ad, it is so catchy I can’t stop watching it.

Bright colours , young cool man, young hip woman, scotch and COLAAAAAhh!

Another thing that has happened is the brand concentration that is happening at Diageo India. Over the last few years, they have cleaned up the company quite a bit -.https://biginvestorblog.com/2019/03/09/united-spirits-does-a-marie-kondo/ . After cleaning up, they are massively lining up the guns behind a select few.

  • McDowells – 18-25 age. Base level. All ads are on YAARI (friendship) – think MARUTI
  • Royal Challenge – Ballsy image with the biggest IPL brand backing it. – think NEXA/Hyundai
  • Black Dog, Black and White & Vat 69 – the new cool hip scotches on the block – think KIA
  • Johnnie Walker and Singleton – still mostly the scotch purists and for the rich – think LEXUS
  • Signature, Antiquity, DSP etc – these were the “has been” brands created by Mallya. There is a consider move to push these guys into the HIP scotch and almost make whiskey which isn’t scotch a sin.

Concentration of Brands is a simple and effective idea that needs no explanation. Marry this idea with the demographic trend of India and voila a growth powerhouse, at least in theory.

The Relaunch of McDowell during the lockdown

This was another stroke of pure genius. A simple example of strengthening your strengths. The brand was effective, but was ageing and this re-launch has given the brand a massive dopamine shot. In Telangana every other wine shop now has the hoarding of McDowells. Diageo used its power to completely arm twist advertising agencies and got like rock bottom rates for

  • Hoardings
  • Bus Stops
  • Wine Shops

They simply went all out and made use of the depression. In short because hardly anyone was advertising anyway they got 5x the eyeballs for probably 0.5x the cost.

Imports and the Moat

There has been a massive increase in the number of premium whiskeys being introduced in the market, from Bacardi to William Grant & Sons etc. While these seem like a massive threat to the Duopoly of Pernod and Diageo, this is why I’m not too bothered.

  • The pie is growing. Marketshare is not the only means of growth.
  • Scale in this business is paramount. You either have brand and pricing power or you incentive the retailer massively to push your product. The ones who fall for the word of the salesman or the offer of the day are not loyal customers and selling to them is hardly EBIDTA accretive.
  • The mass segment and mass premium segment is the sweet spot of india and Diageo and Pernod have over a 90-95% stronghold there and a massive ad budget for the same.

India was and is the land of maruti and Hyundai. The entry level scotch brands are equivalent of Kia. There is a massive demand unmet demand for the likes of KIA.

Jagan Mohan Reddy & some other points worth noting.

  • This is crazy crazy wager I am making. The Andhra Govt is a de-facto Christian govt much like the UP govt a Hindu govt and the erstwhile Kashmir govt a Muslim one. Diageo is a British company, one which apparently has direct connections with the church. I am simply quite sure that Diageo will come to some sort of understanding with the CM.
  • Price increases have already started taking effect in some states and most will have one within the next 1-2 years.
  • Raw material prices will definitely fluctuate but im sure the govt will not damage the profitability of the companies anymore.
  • I stay beside a function hall and functions have already started. In a way when the party size is smaller, the alcohol premium usually goes up 1-2 notches.
  • The TABOO of drinking has gone down massively and this has some serious long term positive effects for the company.
  • Alcohol is taking centre stage along with food in almost every social event.

We can keep arguing about PE and EPS and all that excel sheet kinda yada yada, but what is important is that for a booming market like India, Diageo a.k.a USL is one of the top 2 monoliths in this space, and this might just become their largest sales market in less than a decade.

Definitely worth a good allocation.

#thandabeermatpiyo,covidhojayaaga!

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Nitin Siddamsetty
Nitin invests across various sectors - Consumer, Food Processing, Real Estate, and many others. He is a CA and manages his family office. He loves to write about Stocks, Businesses, and other Financial Concepts.
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