July 28: Keeping in line with the stated policy of exiting the non-core businesses, the board of United Spirits Ltd., an arm of the global spirits major Diageo, has decided to exit from start-up liquor delivery firm, Hip Bar Pvt Ltd. at a loss of 98%, practically wiping out the whole investment of 26%, ostensibly due to the complex regulatory system in India, writes Subhash Arora
The board of USL approved the sale of all equity shares and CCPS (Compulsory Convertible Preference Shares) it bought in June 2018 for Rs. 270-280 million (Rs. 27-28 Crores), in the Chennai-based Hip Bar Pvt Ltd which has developed a digital ecosystem for age-verified delivery system for alcoholic products. This gave them 26% shares in the company. The shares have been sold back to Prasanna Natarajan, the promoter for Rs.52 lakhs at a loss of about 98%.
Upon completion of the above sale, HipBar will cease to be an associate company of USL. Hip Bar Pvt Ltd had a turnover of Rs 50 lakh (0.5 million) in the financial year ended March 31, 2020 when its net worth was Rs 7.76 crore (Rs. 77.6 million).
Also read: Diageo sold Four Seasons Winery at Rs. 31.86 crores, losing over £2 Mn
The investment was intended to provide United Spirits with growth opportunities in the online and e-commerce channels.
The move comes at a time when more and more states are joining the alcohol home delivery bandwagon. Conceding that home delivery had opened up in several states since 2020, it might however take a few years to mature into a workable business model. Diageo also believes that the model in India is likely to develop quite differently even though it would be an e-commerce model due to the nature of regulation of this industry.
Also read: View Point: Diageo Sale of Wine Brands spells Trouble for Four Seasons
USL had bet on the fast growing e-commerce industry, which was making an impact on the industry and had earmarked the beverage alcohol industry which was anticipated to be the next sector to be disrupted by the continued shift to digital systems. Cities like Mumbai and Kolkata did allow doorstep delivery of alcohol, at least during Covid.
But cities like Delhi did not allow home delivery. In the current year 2021-22, the government has announced it would allow home delivery but only to retailers who would have L-13 license, making it rather constrained and keeping the future uncertain. It may keep the role of start-ups like Hip Flask limited once Covid recedes fully.
Also read: Diageo spells Uncertainty for Four Seasons Wines
Hina Nagarajan, CEO of HipBar, reportedly says ‘the company is excited about the home delivery opportunity but it is watching newer, emerging models of liquor delivery in India. ‘When we entered home delivery, it was a very differentiated model and was the only one that had home delivery allowed in Karnataka. There have been newer entrants since and more are evolving. This e-commerce model takes a long time to evolve. There is a maturing period that will take a few years, according to the Mint.
This is not the first time Diageo has exited from allied businesses as they did not reflect its core values. Last year, Diageo had sold Four Seasons Winery to Grover Zampa Vineyards for Rs. 31.86 Cr at a loss of 19.5 Cr after keeping the asking price at Rs. 60 Cr. DelWine had then estimated the fair price at Rs. 30-35 Cr, though still at a loss. Earlier, it had kept the winery running for a year in the hope of finding a buyer.
Also read: Diageo Quits Indian Wine Business
Diageo had flirted with wines earlier too and introduced another domestic label Nilaya in 2007. Produced in Nashik by Mountain View and Renaissance Wineries, the blue heaven failed to impress customers. The sales did not pick up and within a couple of years the project was dropped when there was a change in the top management of the Indian company. The whole capital investment was lost.
Diageo also had a miniscule share in the imported wine market where it had launched a range of foreign mass- selling labels like Blossom Hill, Barton & Guestier (B&G) and Piat d'Or. That business too was discontinued in 2015 when delWine had predicted that it would sooner or later, get out of wine business totally and sell off Four Seasons.
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