Though the Diageo India-United Spirits Ltd (USL) distribution deal had been planned for implementation in a phased manner, the global spirits maker has begun leveraging the entire USL network since October 1.
Under the terms of the deal in India, USL will provide sales promotion services to Diageo India for all Diageo brands sold in India. The London-based company has said it will fund all of these promotional activities for its brands, even as it is undertaken by USL at the point of sale.
This is besides the six per cent margin that chairman Vijay Mallya said USL would receive as distribution margin from Diageo for selling Rs USL promotes Diageo through its network500 crore worth of products across the country.
"USL brings increased scale to Diageo's current sales activities with its large sales force, which can promote Diageo's brands through calls to on and off trade outlets and through merchandising activities and sales activation," a Diageo official said.
However, Diageo will call the shots on its brands as it will hold on to key roles in the decision-making process related to its products. The company said it would remain responsible for all business and marketing strategy and performance of the Diageo brands. All marketing and investment decisions relating to those brands will also be made by Diageo and the company will be responsible for the import, manufacture and bottling of its brands.
"USL's services include calling on and covering on-trade and off-trade outlets to promote the sale of Diageo products, merchandising activities and sales activation for Diageo products," the official said.
Diageo, better known for Johnnie Walker range of Scotch whisky, is looking to expand its network in the country that saw spirits' sales soar to over 301 million cases in 2012, according to IWSR, a research firm. The industry has been growing at a compounded annual growth rate of 17 per cent in India, it said.
Diageo India already has a network in the country through which it sells its brands in India, but its operations are very limited unlike USL's network that is said to be unparalleled by any of its rivals in the category. USL sold close to 124 million cases in FY13.
According to Diageo, USL has adjusted its organisational structure to fully support the new sales promotion activities. Majority of the positions on the labour front have been filled in by existing Diageo employees with the relevant capabilities and experience.
"This arrangement puts into place the best model that will help deliver growth and maximise USL's existing infrastructure and relationships with trade. It leverages USL's superior route to market and Diageo's suite of fantastic brands and expertise in premium and luxury marketing," the official added.
Like Diageo's position in India, USL, too, has its presence in emerging markets outside India. However, there have been talks to strengthen USL's brands outside India through Diageo's global distribution network.
"USL already has an existing and growing export business for certain USL brands. We will look at exploring potential growth opportunities for this business," the official said, declining an update on the matter.
Shortly after picking up a stake in USL, Diageo said it would explore opportunities for USL's brands in other emerging markets in Asia and Africa through a joint venture with a company affiliated to Mallya, but not a part of the UB Group. It is unclear if Diageo has decided to deal with USL directly or is still looking at a joint venture with other firm.