`We must be allowed to export to the West'-- Mr Vijay Rekhi, Managing Director, McDowell & Co Ltd.

Boby Kurian

Prohibition haunted the Indian liquor business for nearly 50 years.

It tested the manufacturers' survival instincts, and the future often appeared bleak. Things changed, however, and there was a quiet smile on his face when Mr Vijay K. Rekhi, President of UB Group's Spirits Division & Managing Director, McDowell & Co Ltd -- briefed media early this year on McDowell's robust performance for the fiscal ended March 31, 2000, business having remained upbeat for three successive years.

But the first half of this fiscal saw slower growth than that witnessed in recent years. The annual growth rate is projected to fall more than 50 per cent and McDowell, the leader with 25 per cent share in the 68 million-cases annual market, is poised for a slowdown. And this when imported alcohol and bottle-in-origin brands are set to hit the mass market under the WTO regime.

Mr Rekhi, however, assails apprehensions about his company's long-term outlook. The current setback, he feels, is part of the overall economic slowdown and also due to States indulging in excessive taxation. ``McDowell's success is not a fluke. We built up our business over the years in conformity with State laws and regulations. What we expect now is reciprocity by the government,'' he adds.

Excerpts from the interview:

How do you evaluate McDowell's performance in the first half? How bad is this `slowdown' in the sector?

The industry is in the grip of an overall economic slowdown. Our volumes in H1 registered 3 per cent growth. The growth in value terms was just about 1.6 per cent. The net profit inched up marginally to Rs 11.26 crore, up from Rs 11 crore in the same period last year.

But it has come against an industry backdrop of 1.5 per cent de-growth (which means a drop of six lakh cases in volumes). The industry has received a hammering in the key State of Maharashtra and also in Tamil Nadu, Kerala, Orissa and Rajasthan (where the administration forced a collection of excise dues. The money, otherwise used to drive the business, was thus diverted).

Then there was a problem in Andhra Pradesh, which was specific to us. A litigation against the administration's policy kept our flagship brands -- No.1 McDowell's Whisky & Brandy -- out of the market for nearly four months. It cost us about 800,000 cases.

What is your projection for the complete fiscal? Will the figures pick up?

Yes. I believe they will. The second half accounts for roughly 55 per cent of the annual sales. The festive season has just kicked off with Diwali (though data says sales this year were not as impressive as in previous years). The winter usually results in increased rum sales, especially in the North.

Also, the excise guidelines of all the States would have settled down in the first half, and there will not be any further upsets on this front, except some tinkering with the policy by the newly-formed States. Jharkhand, some say, is to be watched carefully. It has many robust markets, such as Ranchi and Dhanbad, within its area.

We expect McDowell to register an annual growth of 12 per cent this fiscal against 19 per cent last year. The industry, on the average, may grow at 5 per cent compared to 10 per cent last fiscal.

Which are the markets showing promise, and how is McDowell represented in these areas?

The North is up almost 20 per cent. Markets such as Punjab, Himachal Pradesh, Uttar Pradesh and Chandigarh have shown quality growth. Our main brands in these regions are No.1 McDowell's Whisky, Gold Riband Whisky and Blue Riband Gin.

The East has shown 25 per cent growth with West Bengal and Assam leading the way. We have a new bottling plant in Assam. The main brands here are Celebration Rum, No.1 Whisky and Gold Riband Whisky.

The West has registered de-growth, mainly due to the setbacks in Maharashtra. Interestingly, the other markets in this region -- Goa, Daman and Madhya Pradesh -- have moved up. The South, again, is a mixed bag due to our problems in Andhra Pradesh. But with the issue behind us and our brands moving back there, business in this region should pick up in the second half.

McDowell's sales in the army canteen network have shot through the roof. We cannot disclose the figures due to competitive reasons. The company's broad-based brand portfolio and its pan-Indian character helped it to push through what has been a difficult six months.

How have the brands fared? There is talk that the cheap and medium brands are booming, and that growth is petering out in the higher segments. Is this true?

A consumer downgrade happens when prices move up due to heavy taxation. If the price of a regular whisky nip is increased by Rs 6, consumers will move down to medium and cheap segment brands.

But our brands across the price segments and product offerings have shown buoyancy. For instance, Signature Whisky in the Premium Plus category has shown a 150 per cent jump in sales in the first six months. It is poised to become a quarter million cases in the next fiscal.

Similarly, Centenary Whisky in the Prestige Plus segment has registered 11 per cent growth. Gold Riband Whisky and Celebration Rum in the regular category showed 33 per cent and 46 per cent growth. Yes, even such low-end brands as Kerala Malt Whisky registered a 15 per cent increase in sales.

What are the qualitative factors likely to influence McDowell's business in the short future?

We are planning forays into the neighbouring markets of Sri Lanka and Bangladesh. We will take select brands from our portfolio to Sri Lanka, which is now a predominantly arrack market. The arrack there is superior in quality and the manufacturing process is comparable to that of IMFL here.

The company is also poised to reclaim Carew distillery in Bangladesh, which it lost during the nationalisation drive soon after the birth of Bangladesh in 1971. The government now plans to divest it and we have conveyed to the authorities concerned there our interest in running the distillery once again.

We propose to upgrade this distillery and roll out our brands into the Bangladesh market. Also, we may look at that country as a base to export sugarcane and molasses for use in our various distilleries in India.

We are now in the process of taking our brands closer to the consumers, mainly in the North-East. We have entered into a contract arrangement with a bottling plant in Assam. We will shortly take advantage of an incentive package (subsidy on inward and outward freight) offered to the North-Eastern States and gain access to another bottling plant in Tripura.

McDowell will also introduce some of its existing brands in Tamil Nadu, which has remained a closed market for years. TASMAC has called for applications to register the brands, and we may augment our presence there with the addition of Celebration Rum and Signature Whisky.

Liquor multinationals are set for the introduction of bottle-in-origin (BIO) products into the mass market under the WTO regime. What will be the impact on companies like McDowell?

We hear that the government may allow the introduction of Scotch whiskies and cognac towards the end of December as part of its three-year commitment to EU. The rest will follow next April. We do not think the government will immediately reduce the import tariff as demanded by the multinationals. But one can never say. The government may reduce the import tariff on liquor imports to protect a more sensitive textile industry.

We propose to counter the influx of imported brands in the mass market through our division McDowell International Brands Ltd. It has concluded alliances with leading international brands of whiskies, wines, liqueurs and light spirits, and is ready to market them here. We will position a wide variety of these international product offerings to check the advance of multinationals through the BIO route.

Our concern is mostly about the intellectual barriers developing along with WTO guidelines. If the West can export Scotch whiskies into India, we must be allowed to export our whiskies to their markets. Whisky is a generic term, and nobody should be allowed to re-define it as `made of Scotch only'. After all, people have not dropped dead here after having consumed molasses-based Indian whisky.

McDowell built its business over the years in conformity with State laws and regulations. What we expect now is reciprocity on the part of the government. It should not be in a hurry to meet every expectation of an outsider. I don't think a post-WTO government is necessarily helpless. It must be on guard, especially against multinational practices such as dumping.

Pic.: Mr Vijay Rekhi, MD, McDowell & Co.