Banning Liquor Surrogate Advertising

ABOUT SURROGATE BRANDS Contd..

The I&B Ministry's decision to ban such advertisements was thus viewed as a logical and necessary step by their critics. As the authorities were finding it difficult to track down the increasing number of violations, especially at the regional level, the Ministry hired a private monitoring agency. The agency – Time Monitoring (Delhi-based) – was responsible for scanning all advertisements on all private satellite channels including regional channels. At the same time, the Confederation of Indian Alcoholic Beverage Companies (CIABC), in a self-disciplinary move, asked all TV channels to stop telecasting surrogate liquor advertisements.

THE DEBATE

The banning of surrogate advertisements for liquor brands became a very controversial and sensitive issue. Liquor producers felt that while the government allowed them to do business, it did not allow them to do so in a profitable manner. Liquor companies argued that the ban would severely affect the sales. The said that TV was the most effective medium of advertising for these products and thus the restriction would hamper brand building.

However, some analysts were of the opinion that the ban could turn out to be advantageous for domestic players. According to a WTO agreement signed in March 2001, MNCs had unrestricted license to sell their products. After the ban, these MNCs would not have access to the quickest and most effective form of advertising – the TV.

Thus MNCs who had recently entered the Indian industry were expected to face difficulties in building their brands. The ban would also affect the entry decisions of MNCs that were planning to enter the Indian liquor industry.

Moreover, some analysts argued that the ban would not affect the established domestic players severely. It would only affect new launches and new brand building activities of these companies. Players who already had very strong brands (E.g. McDowell No. 1, KingFisher, Hayward's and Royal Challenge) would not be affected by the ban. Apart from reducing foreign competition, the ban was also expected to improve margins for these players, as these companies had already spent heavily on advertising and other promotional activities. (Refer Table II).

TABLE II

AD SPENDS OF LEADING INDIAN LIQUOR COMPANIES

Company	Year Ending	Ad expensess (in Rs million)	As %age of Sales
McDowell	Mar-00	1,089.00	13%
United Breweries	Mar-00	737	28%
Shaw Wallace	Jun-99	565	7%
Radico Khaitan	Dec-99	78.1	8%
Jagatjit Industries	Mar-99	523	13%

Source: www.indiainfoline.com

On an average, liquor companies spent about 10-12% of sales revenue on advertising, including direct consumer promotions programs; sponsorships; and print and electronic media advertisements. On TV alone, companies reportedly spent about 3-4% of sales revenue. This meant that after the ban, companies could save 3-4% sales or gain in margins. For instance, McDowell's operating margins ranged between 5-7% and after the ban, were expected to increase by 50%. The smaller companies in the domestic market also seemed to have an advantage. Industry watchers felt that since distribution and reach would become more vital after the ban, smaller companies might be acquired by the larger ones for their distribution network, if not for their brands.