Diageo’s United Spirits to close manufacturing unit as part of supply chain agility program
INDIA – United spirits, the world’s second-largest spirits company by volume, has announced plans to cease operations at a manufacturing unit in Uttar Pradesh, India as part of ongoing multi-year supply chain agility programme to streamline its operations.
The factory has been a cornerstone of United Spirits’ manufacturing operations in India for several decades and produces a wide range of popular spirits, including whiskey, rum, and vodka.
The decision to shut down this facility was made following a thorough evaluation of various factors, including market conditions, production capabilities, and cost-effectiveness.
“The unit… has very old infrastructure and depleted machinery with age-old technology. Replacing such machinery and technology would have huge costs to the company which is not viable as per the current market conditions,” read a statement by the company.
This move is expected to help the company focus on its core brands, enhance productivity, and better adapt to changing market dynamics.
Hina Nagarajan, CEO United Spirits, said, “Our multi-year supply agility programme is going to unlock numerous benefits across the value chain. A few of the many benefits include conversion cost optimisation, enhanced capacity utilisation, optimized footprint by state, and enhanced return on capital.”
The subsidiary of UK-based multinational drink company Diageo ceased operations in its 2023 financial year, and no manufacturing activity has been undertaken since then.
Premiumization to drive future growth
Portfolio reorganization comes at a time when Diageo India is seeing a remarkable shift in how consumers are interacting with its portfolio of alcoholic beverage products.
“Indian consumers are showcasing a pronounced preference for premium experiences within our product realm,” said Nagarajan during an interview with Forbes India.
“What stands out is the shift towards appreciating quality over quantity. Indians are valuing refined experiences, whether it’s dining out or exploring the finest offerings of a particular cuisine or occasion.”
In a separate interview with CNBC-TV18, Hina revealed that India’s alcohol sector is poised to witness a deceleration in volume expansion but a rise in value expansion.
According to her, the trend of premiumisation is here to stay, and similar to the trend observed in other fast-moving consumer goods (FMCG) companies, the liquor industry is witnessing this shift.
“We are delighted because we do want people to drink better, not more. So that is why you see the industry looking slower on volume growth, but value looks much better. And that is where the future profit pool is going to lie.” she said.
Moving forward, Diageo India’s strategy involves focus into India’s organised desserts market, which is valued at Rs 27,000 crore (US$3.2 billion).
To bolster this focus, Diageo India recently entered into Extra Neutral Alcohol (ENA) manufacturing contract with Maharashtra-based Capovitez Private Limited, according to an exchange filing.
“This arrangement enables USL to maintain continuity of supply of ENA and regulates the pricing index for the ENA manufactured through conversion of grain,” the exchange filing read.
