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Abhay Kewadkar (AK), a good friend was lured away from Grover Vineyard, almost a decade ago by Vijay Mallya, known then as King of good times and who had decided to venture into wine business and set up a winery which he named Four Seasons. I had told Abhay that Mallya was a beer and whisky person, minting over head and heals in the two segments. There was not that much scope in the wine business for a player who did not have the first mover advantage either (Indage, Grover and Sula were already ahead in the pack) so why would he join a company like that. But he was not concerned. ‘He is a connoisseur of wines and has a long term vision and would never think of dropping the wine segment,’ he had tried to convince me, not addressing my query ‘what if he gets up one day and feels there is no money and the losses he suffers by closing or selling it off would be pocket change for him but hurt AK.’ His elevation as the Vice President, Business Head and the Chief Winemaker of the new company might have been an inducement for change too.
And that one day came last year-not for Four Seasons but the parent company United Spirits which was bought by Diageo. The deal may have singed Diageo a bit but not burnt them. My question was the same to AK again, ‘what if Diageo decided they don’t want to do wine business in India anymore. After all, they were a flop with wines like Blossom Hills that they once tried to import and sell in India?'. Worse was their grand entry into Nilaya, the Indian wine that was going to shake the shingles of the Indian wine industry. Even Rajeev Samant might have had to drink a couple of extra glasses of Dindori Reserve Shiraz to sleep for a few days. They did come out with a bang and entered the Delhi market too. But to their dismay, they found that wine business was not the same in India, at least at the moment. No answer was either expected or forthcoming from Abhay.
And now the carpet seems to have been swept under Four Seasons as Diageo head office has decided to severely curtail its wine business. Faced with mounted losses (and they don’t seem to be gloating over the acquisition of USL in India at a premium, either) has announced selling off its US and UK wine business for $552 million to Treasury Wine Estate, that includes the Californian Blossom Hills, the second largest wine brand in UK by volume and value, that was ousted once from India.
The reported statement of Ivan Menezes, the 56-year old Pune born IIM alumnus and now a US/ UK based Diageo’s CEO since 2013, that their strategy was to drive stronger, sustained performance through focus on their core portfolio, and wine was no longer core to their business may have the clue. This sale might give a greater focus to them as reported, but soon they will shift focus to the India operations. This time perhaps AK might not be as sure of what is in store for the winery although rumours of a close-down have been rife from the day the USL take-over was announced in the Press. I have repeatedly asked Abhay to have the company deny the rumours but MNCs have their way of doing business and things have been kept quiet for months.
Diageo, the company that owns Black, Red and the other attractive colour labels for Johnnie Walker, Smirnoff, Captain Morgan and Guinness, has already sold some of the non-core assets this year and reportedly raised over $1.5 billion from the sale, apparently in a bid to counter slowdown in sales in the emerging markets.. Earlier, In July it sold off its Gleneagles Hotel and golf resort in Scotland. It also swapped brewing assets with Heineken in a deal worth $680 million.
Four Seasons has a modern French Chateau style winery with opulent looks and impressive demeanour in the village of Roti and with the guest house as a part of the winery which would make this as the most modern winery-cum-tourism complex in India. Unfortunately, for incomprehensible reasons, the guest house was never opened to public even after almost 4 years of completion and the announced date of openings-even till today, making one wonder if Mallya was still focused on the winery operations and whether his heart or mind was in the winery.
Creating more confusion, Mallya also started the import of entry-level sugary wine from South Africa under the Kingfisher Bohemia label in United Breweries-the beer company. As if it was not enough to be associated with a beer brand (a mistake as delWine had pointed out) the marketing was handed over to the beer sales team, ostensibly to shift some of the beer drinkers into wine and capitalise on the popularity of the beer brand. As expected by many and predicted by delWine, the project failed miserably.
Kingfisher Airline’s downfall might have given the knockout punch but the winery and Abhay braved it and insisted all was well with Four Seasons which managed to notch the number three position behind Sula and Grover-Zampa by crossing the 100,000 case mark by a few cases with the help of newly introduced Port wine in 2013-14. The numbers of this low-end wine were not disclosed but the market sources put it at 25,000 - 40,000 cases. Last year the total sales tumbled to below 40,000 cases with the rumours flowing that the company was on the verge of collapse with AK bravely refuting it.
There have been rumours in the market since then that the winery was up for sale with the figures of Rs. 400-600 million floating around- the key point of disagreement being the valuation of the liquid inside the tanks. It is a known fact that the fermented wine ageing in the tank or simply awaiting bottling is a liquid asset in more ways than one- as was once declared by Chougule of Indage Vintners at a shareholders’ annual meeting. But unfortunately, when the winery is in trouble or in the extreme case of liquidation, the liquid has no practical value. This could be the cause of concern for Diageo if they are proposing to sell the winery.
Another distant policy could be some negotiation between Diageo and Moet Hennessey of which it holds 34% shares, according to Wikipedia. With the latter having entered the sparkling wine business in India by launching the Chandon label, there might be some synergy between the two but nothing can be speculated at this point about that alliance-it’s a mere conjecture.
Of course, if Diageo does decide to sell off Four Seasons-writing off the liquid in the tanks for valuation, it may find buyers for its winery though they would demand heavy discounts. Sula may become a suitor, as could Grover Zampa but they have their own problems and financially may not be able to pull off. Ravi Viswanathan whose Singapore based fund owns stakes in both Sula and Grover could actively look into it. Of course Reliance Capital has been a partner with him in acquiring the stakes at Sula and might also be interested.
Another suitor could be Analjit Singh, Chairman of Max India, who had tried to buy the shares of Sula during the previous tranche that finally was bagged by Ravi. But he has deep pockets and if the long term feasibility could be assessed, he could well look into the purchase. He already owns two wineries in South Africa, one of them being a top rated boutique winery. He has no interest or time to run the company but he always keeps his ears to the ground.
A few other PE companies might soon wake up to the possibility of a change- over of seasons at the Four Seasons. I have been trying to contact Abhay (AK) but unsuccessfully, so far.
Subhash Arora |