In business, it helps to keep your ears to the ground. For Abhishek Khaitan, that meant doing the rounds of pubs. He had his first ‘eureka’ moment while pub-hopping in Bangalore. Even as he was studying for an engineering degree in the garden city, the family’s distilling and bottling business was at the back of his mind.
His discovery: “Indian drinkers were becoming more conscious of what they were consuming. Brands had become very important.” This insight led Abhishek and his father Lalit Khaitan, chairman of Radico Khaitan, to launch the company’s first whisky brand—8PM—some years later. It went on to sell a record one million cases in its very first year—a historic first in the Indian spirits industry.
That was in 1996. Eight years later, the Khaitan scion was looking for a new high. Though the whisky segment was the largest in the Indian spirits market (around 60 percent), it was also the most competitive. Khaitan was jostling for a foothold with the likes of United Spirits and multinational Pernod Ricard who were willing to spend big bucks on their brands. After a dip in 2003, sales of 8PM had picked up again, but not fast enough.
Short on cash but not on spirit, Khaitan, now managing director of Radico, decided that he needed to go where there was less chance of being pushed off the road. “We need to launch a new brand, but in a segment that was untapped,” he had told Radico Khaitan’s then marketing head (now president, sales and marketing) Rahul Gagerna. As the two sat schmoozing in a Las Vegas bar, taking a break from a 12-city financial roadshow held for attracting FIIs, they discovered that most of the customers were imbibing a white spirit just like them: Vodka. That’s when he had his second ‘eureka’ moment. “We researched and realised that vodka was bigger than whisky worldwide and was becoming more popular, especially among youngsters and women. It was already the biggest spirit in the US,” says Gagerna.
Trends in Indian demographics were similar, and as his peers seemed to be ignoring the segment, Khaitan decided this was it. By the end of 2005, he launched Magic Moments vodka, first in north India and then cascaded to the rest of the country. It wasn’t a runaway success like 8PM and crossed the million-cases mark only in 2010. But by 2012, it had more than doubled and today sells 2.5 million cases a year. Placed in the semi-premium category, it brings in more money than 8PM, which currently sells over 4 million cases a year.
More importantly, “Magic Moments has a market share of 90 percent in its price point—and 30 percent in the whole vodka market in India”, says proud father Lalit Khaitan. The drink is the fourth fastest growing vodka brand in the world and has cemented Radico Khaitan’s place in the Indian spirits industry as the largest local player after Vijay Mallya’s United Spirits merged with Diageo.
Magic Moments plays in the value segment, where it has White Mischief and Fuel for company. The premium end is dominated by imported products (Grey Goose, Absolut, Finlandia, Smirnoff Black).
It has been an invigorating journey for a company that till 1996 was a bottler of other people’s spirits and better known for its country liquor. “Radico Khaitan is one of the biggest success stories of the Indian spirits industry. It is hard to dispute their claim of being the only company in the last 10 years to have successfully launched new brands. Abhishek has shown that he is not a one-brand wonder,” says Santosh Kanekar, former marketing head at Diageo’s Indian unit who now runs a hedge fund advisory service BeLive Corp.
The success of Magic Moments has given Khaitan and his team renewed confidence but they can’t rest on their laurels. Reason: While volumes may be high, the fastest growth is in the premium and super-premium segments currently dominated by imported brands.
Magic Moments’s sales growth has slowed from 18 percent in 2011 to 15 percent in 2012, a reflection that vodka makes up just 3 to 4 percent of the Indian spirits market. While whisky dominates the northern part of the country, rum and brandy are more popular in the south. “The vodka segment can’t expand fast enough unless Smirnoff takes the lead in marketing and creates more awareness. But that is not happening now,” says Kanekar. Adds a senior executive from a multinational company who didn’t want to be named, “Whisky is where all the action is taking place today. 8PM was successful but is not growing that fast and Radico Khaitan’s premium offering in whisky, After Dark, has only been moderately successful.”
In a market where only two out of every 10 new brands succeed, Khaitan knows he has to quickly replicate Magic Moments’s success to retain momentum. “We will be launching two premium brands in the next two years,” he says. But success is not guaranteed. As Gautam Duggad, senior vice-president at brokerage house Motilal Oswal, said in his May report soon after Radico Khaitan announced its annual results for 2013, “Increasing competition can reduce the success rate for new launches in the premium segment as many mid-sized players are eyeing this segment.” The company’s sales grew by 10.9 percent in 2012-13 to Rs 1,716 crore and its net profits were up 11.6 percent at Rs 85 crore.
TOUGH EARLY YEARS
When Khaitan returned after finishing his engineering course in 1996, the family and the business were going through a transition. The Khaitan family had split and his father Lalit got Rampur Distillery Company as his share of the patrimony. Around the same time, the company lost its biggest bottling contract from Shaw Wallace, owned by Manu Chhabria. “So here we were, with a distillery and bottling units, but with hardly any business,” recounts Raju Vaziraney, Radico’s long-serving former chief operating officer who moved to Jagatjit Industries earlier this year.
It was an opportune time for the then 23-year-old Khaitan to learn all about launching a brand. To create a new blend, his team mixed premium Scotch malts with Indian spirits and emphasised packaging. Radico (the new name was derived from the old one) never had a sales or marketing team and Khaitan and his father went about recruiting personnel and creating teams.
Khaitan also cleared a television ad campaign, a first-time experience for the company. Not surprisingly, most senior executives in the company weren’t very enthusiastic. “There were many questions. Fortunately my father believed in me,” says Khaitan.