Santro Cruises Into Growth

McDowell & Co., a part of the UB group, together with its sister company Herbertsons, commands a 36 per cent market share in the Indian spirits business. In 1998-99, the company's brands grew 24 per cent to 14.5 million cases. It currently has six millionaire brands in its portfolio. All other spirits companies put together have a similar number of millionaire brands.

McDowell has been moving out of unrelated businesses and has been restructuring its operations to improve its competitive edge in the face of competition. Sameer Chavan spoke to Vijay Rekhi, managing director, McDowell & Co. about the company's past and its future strategy.

 

Q: Could you tell us about your restructuring and the Business Process Reengineering?

A: Stepping back three years we merged a company called Consolidated Distilleries and earlier Carew Phipson into McDowell and then McDowell became the mother company. So that is step one to restructuring.

Thereafter, we looked into our processes and came up with some objectives. One, to be the least cost producer in this industry to increase our competitive advantage. If we are the least cost producer, then our spread will improve and we will be able to invest that spread in brand building. So we embarked on Business Process Reengineering (BPR) whereby we examined all our sourcing and supply patterns. For example, we supply to 25 states which are wet from 29 distilleries. We were criss-crossing. So we implemented a linear programming model so that we don't criss-cross. Wherever goods are demanded they should be available within the state so that we could cut the freight and the concurrent taxes.

We did this with the help of Andersen Consulting. Today about 90-95 per cent of our sourcing is intra-state, which cut costs. We put that saving back into our brands by refurbishing the entire brand portfolio. Refurbishing is important because that will make them look more contemporary in the wake of emerging competition. The restructuring has really given McDowell a distinct position in the market. Last year, McDowell grew at 22 per cent, so we believe that our action has been successful to propel the velocity of our brands.

Q: What steps are you taking to reduce debt and improve working capital management?

A: Apart from the BPR, we have cut costs in other areas too. Interest cost is another big area of attack and that also in a way is financial restructuring. After the sale of the polymers division which brought in Rs 90 crore, we retired debt. Today apart from working capital, McDowell has very little debt.

We have done two things. We have grown at 50 per cent in terms of volumes in two years. In this process, we have actually reduced inventory and receivables. We have introduced a Cash and Carry selling policy in for all our non-government customers. Today, approximately 50-60 per cent of all non-government sales will be cash and carry. We have put in place information technology so that we can squeeze our working capital cycle. We have actually been growing volumes from internal resource creation.

Q: What about new launches?

A: McDowell's philosophy has been to give options to consumers in all price notches and flavour spectrum. In the emergent consumer scenario we should give options of other niche products. We have introduced 'Mixed Double' in Goa and will launch it in few other markets. Additionally, we are also thinking of coming out with wine coolers.

Without competing with the retail chain we will also have super stores. These will have all the spirits and accessories related to the product. There will be drinks and sports orientated gears like T-shirts. It will also have a cocktail lounge. The vision is to have a super store which has linkages to our products. We have started on a small scale but we need to have this on a large scale.

Q: Any further plans of consolidation?

A: We have some stand-alone distilleries in various parts of the country which manufacture exclusively for us. These companies because of MRPTC considerations etc are historically owned by our distributors and other associates. Our proposal is to consolidate all this into one company for which we are working on the accounting and tax implications. Probably within the next month, we should be clear on the way forward. We will end up with nearly half a dozen of the companies getting merged with McDowell.

We are in the phase where we would look aggressively for opportunities for growth _ either through capacity expansion or through acquisitions, not only distillery acquisitions but also brand acquisitions. We can accommodate potentially good value brands in our portfolio which are languishing in the hands of the current owners now. In fact, we have identified these brands but are shy of talking about then in the open because it is sensitive. So we will look at both hardware and software acquisitions in our industry.

Q: Have you valued your brands?

A: We have not valued them. It does not add any value to the company to ascribe a number and put it on the balance sheet. In fact our effort is to remove all intangibles from the balance sheet. We want to conform more and more to international accounting standards, I don't see us doing any valuation and putting it on the balance sheet.

Q: Your views on the industry and McDowell's future?

A: I see the market remaining buoyant though there may be temporary ups and downs. We would like to grow ahead of the industry and competition so that we can widen the gap between us and the rest. I believe there will be a shake-out and with the aggressive posture that we are taking, there has to be further marginalisation of certain players. Our effort is actually to accelerate the process of shake-out and take the cream. We are positioning ourselves to take advantage when the fruit drops so we are there with our baskets.