It has walked out of Whyte & Mackay India, but CEO Lalit Khaitan's spirits are still running high.

By Rajeev Dubey

Unlike Scotch, this secret has been bottled up for too long. Nearly 9 months ago, the London-based £223-million Whyte & Mackay (now JBB Greater Europe) decided to walk out of its joint venture with the Rs 236.24-crore Radico Khaitan. By mid-February, 1998, the Scotch-maker had applied to the Foreign Investment Promotion Board (FIPB) for permission to repatriate the Rs 9.18 crore it had invested in a 51 per cent stake in Whyte & Mackay India (W&MI). And, in June, 1998, the JBB-appointed CEO, Jolly Bhargava, had resigned from the company. Confirms Brian Megson, the 44-year-old Finance Director of JBB Greater Europe: ''We are withdrawing from India.''

Strangely enough, the Indian partner does not agree. Declares Lalit Khaitan, 55, the Vice-Chairman and Managing Director of Radico Khaitan: ''There is no change in the joint venture.'' But he may be denying only the inevitable. According to a new marketing agreement that is being finalised between them, Rampur Distillery-a division of Radico Khaitan-will continue to locally bottle Whyte & Mackay's brands, which include Whyte & Mackay 15 Year (Rs 1,350 for 750 ml), Whyte & Mackay Special Reserve (Rs 900), Finlaters (Rs 610), and Genesis (Rs 385). And Khaitan will also buy out JBB's stake in the company, at par, by paying it Rs 9.18 crore.

From the outset, this appears to have been an alliance brewed in hell. While JBB pumped in Rs 9.18 crore into the joint venture, Radico Khaitan offered a malt-manufacturing unit and the bottling-licence in return for a 49 per cent stake. Says a former W&MI senior manager: ''What did Radico Khaitan bring to the table? No products, no marketing network, no money.'' Worse, both miscalculated the potential of the Scotch market in the country. While a JBB feasibility study estimated demand at 15 lakh cases a year, it was actually 70,000 cases in 1993, which grew to 1 lakh cases by 1997.

While W&MI's products debuted amidst cheers-selling 1,100 cases a month in the first year-its sales plummeted to 700 cases a month in the second year. In the past 21 months, W&MI has been able to capture only 8 per cent of the Rs 160-crore market. Agrees Devin Narang, 35, the Managing Director of the Rs 34-crore liquor company, Narang Industries: ''They had to sell out because the Scotch market was not large enough to sustain volumes.''

That's why JBB, according to Megson, would prefer to consolidate its profitable operations across the world rather than make fresh investments in India. While that sealed the fate of the joint venture, Khaitan maintains that he will be able to boost marketshares quickly. It isn't going to be easy. For, the demand for Scotch is growing at the rate of just 10 per cent per annum in this country, which isn't enough to accommodate all the 5 global players already in the fray.

In addition, the ability to increase sales depends on adspend. For instance, the liquor majors, like the Rs 664.37-crore Shaw Wallace and the Rs 267-crore UB, spend between 10 and 13 per cent of their sales on marketing. By that token, W&MI's 4 brands-along with 2 new brands it plans to unveil-will require an annual expenditure of Rs 10-12 crore. Even if W&MI increases its adspend, that may not translate into higher sales automatically. Admits Khaitan: ''This market is like a movie. You're never sure if the product will click.''

His problems are compounded by the fact that the margins are minuscule. Explains Deepak Roy, 47, the President of the Rs 200-crore International Distillers India, a subsidiary of the £1.20-billion United Distillers Vintners: ''While Scotch companies, globally, earn margins of 45 per cent, their Indian counterparts only make 15-20 per cent-without accounting for advertising and distribution costs.'' Partly, that is due to an import duty of 275 per cent, which pushes up prices, resulting in low volumes, and allows bootleggers to thrive.

Unless that changes, Khaitan will, probably, have to wait for a good year before he will be able to raise a toast to Indian Made Scotch success.

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