Banning Liquor Surrogate Advertising

BANNING LIQUOR ADVERTISEMENTS – AGAIN

In June 2002, the Information and Broadcasting (I&B) Ministry of India ordered leading television (TV) broadcasters to ban the telecast of two surrogate ads[1] of liquor brands, McDowell’s No. 1 and Gilbey’s Green Label. The Ministry also put some other brands – Smirnoff Vodka, Hayward’s 5000, Royal Challenge Whiskey and Kingfisher beer – on a ‘watch list.’ The surrogates used by these advertisements ranged from audiocassettes, CDs and perfumes to golf accessories and mineral water.

By August 2002, the I&B Ministry had banned 12 advertisements. Leading satellite TV channels, including Zee, Sony, STAR and Aaj Tak were issued show-cause notices asking them to explain their reason for carrying surrogate liquor advertisements. The channels were asked to adhere strictly to the Cable Television Regulation Act 1995 (Cable TV Act, 1995) [2]. As a result, Zee and STAR stopped telecasting the advertisements; Aaj Tak and Sony soon followed suit. In addition, the I&B Ministry hired a private monitoring agency to keep a watch on all advertisements for violations of the Act.

These developments led to heated debates over the issue of surrogate advertising by liquor companies. Though the liquor companies involved protested strongly against the I&B Ministry’s decision, they had no choice, but to comply with the regulations. Analysts remarked that the government’s policy was hypocritical. One said, “On the one hand they allow these ‘socially bad’ products to be manufactured and sold (in order to garner revenues) and then they deny the manufacturers the right to propagate knowledge of their products in order to drive sales. If something is bad and cannot be advertised, why allow it to be sold at all?”

Meanwhile, the government also seemed to be in dilemma. On the one hand, it had to encourage the sales of liquor and tobacco because they were the highest taxed sectors of the Indian economy.

On the other hand, there was also the need to take the high moral ground and reduce the consumption of such products.

THE INDIAN LIQUOR INDUSTRY

The Indian liquor industry can be divided into two broad segments: Indian Made Foreign Liquor (IMFL) and country-made liquor. IMFL comprises alcoholic beverages that were developed abroad but are being made in India (whisky, rum, vodka, beer, gin and wine), while country-made liquor comprises alcoholic beverages made by local breweries. While many players were present in the IMFL segment, breweries in the unorganized sector accounted for almost 100% of the country-made liquor segment.

During 1999-00, the Rs[3] 60 billion Indian liquor industry grew at the rate of 10-12%. While IMFL was consumed by the middle and upper classes of society, country-made liquor was consumed by the economically backward classes. In India, 40-50% of all males and 1% of all females consumed alcohol. Almost 62% of the drinkers could be classified as light drinkers (i.e. social drinkers), 29% percent as moderate drinkers, and about 9% as hard drinkers. The organized industry was dominated by Shaw Wallace and United Breweries, which together accounted for around 53% of the total market (Refer Table I, Exhibit I and Exhibit II).

TABLE IINDIAN LIQUOR INDUSTRY – PLAYER PROFILE

Company Leading Brands

United  Kingfisher (Beer), McDowell’s No. 1 and Bagpiper (Whiskey)

Breweries

Shaw Wallace

 Hayward’s, Antiquity, Royal Challenge, Director’s Special (Whiskey), White Mischief Vodka, Golconda, Hi-Five Beer, Lal Toofan Beer

Jagatjit Industries

 Aristocrat Whiskey, Captain Henry, Bonnie Scot, Binnie’s Fine

Radico Khaitan

 8 PM Rare Blend Whiskey, Contessa XXX Rum, Whyte and Mackay Scotch Whiskey, Contessa Premium Extra Dry Gin, Contessa Deluxe Doctor’s Brandy, Contessa Vodka

THE INDIAN LIQUOR INDUSTRY Contd..

The liquor industry was heavily regulated by the government. Companies were not allowed to expand capacity without prior approval from the concerned state government. The distribution of liquor was also controlled in many states through auction system, the open-market system and the government-controlled system. Under the auction system, the government fixed a floor price for the shops and the bidders had to quote prices. The license was given to the highest bidder.

States following the open-market system gave companies freedom to choose their distributor and to determine the price and the discounts. In the government-controlled system, liquor was distributed by state agencies such as BEVCO (in Kerala) and the Andhra Pradesh Beverage Corporation (in Andhra Pradesh). There were around 25,000-27,000 licensed retail sales outlets in the country, in addition to the bars, pubs, hotels and restaurants serving liquor. There were restrictions on the location of these outlets and their business hours.

Liquor producers spent heavily on advertising on the electronic media because of the reach of satellite and cable TV. Though the broadcasters were bound by a 30-year old advertising code which banned them from airing advertisements that related to or promoted cigarettes and tobacco products, liquor, wines and other intoxicants, the telecast of such advertisements continued blatantly over the years. This was because the code was only a code of conduct, not a legally enforcing code. Doordarshan, the state-owned TV channel, was the only one that adhered to it.

The broadcasters were also bound by the Cable TV Act, 1995. However, as most of the channels were uplinked from outside India, the Act did not apply to them. Moreover, satellite channels did not want to follow this code because they garnered about 50% of their advertisement revenues from liquor.

In the peak seasons for the sale of liquor, this revenue almost doubled. In the first half of 1998, STAR reported revenues of Rs 127.9 million from liquor advertisements while Zee reported revenues of Rs 40 million[4] . The regional channels managed to get about Rs 0.70 million in revenues. Since liquor ads generated such high revenues, Doordarshan also planned to air such ads in 2000. With a reach of 70 million homes, it expected to acquire a significant share of liquor advertisement revenues. Doordarshan estimated that its revenues would increase three times from cricket matches alone if it were permitted to air liquor advertisements.

Even as Doordarshan was considering the above option, the I&B Ministry barred TV channels from telecasting liquor and cigarette advertisements in September 2000. With pressure increasing from public interest groups to ban liquor advertisements, the government had to make amendments to the Cable TV Act 1995 (Refer Exhibit III). While the Indian government could not take action on most of the channels for violating the codes, as they did not uplink from India, the cable operators were punishable under Indian law. The I&B Ministry also took steps to monitor the advertisements broadcast by these companies.

Due to the ban, liquor companies focused more on promotions for brand building. They started sponsoring events that projected the ‘glamour’ of the brands, like track racing, car rallies etc. for instance Shaw Wallace Co. (SWC), one of the leading liquor companies in India, conducted the Royal Challenge Invitation Golf tournament, which became an annual event. Some companies also promoted their products through corporate advertising, distributing free gifts like caps and T-shirts

with the brand name and using glow-signs outside the retail outlets. However, as the TV was the most effective medium of advertising, surrogate advertising on TV became more popular.

ABOUT SURROGATE BRANDS

Even after the ban, liquor companies continued to advertise their drinks in the form of surrogate advertisements. In this type of advertisement, a product other than the banned one is promoted using an already established brand name. Such advertisements or sponsorships help in brand building and contribute to brand recall. The product shown in the advertisement is called the ‘surrogate.’ The surrogate could either resemble the original product or could be a different product altogether, but using the established brand of the original product. The sponsoring of sports/cultural/leisure events and activities using a liquor brand name also falls in the category of surrogate advertising.

In late 2000, a group of broadcasters, who were members of the Indian Broadcasting Foundation (IBF)[5], submitted their recommendations on surrogate advertising to the I&B Ministry. Under the recommendation, surrogate advertising would comprise ‘the products of the liquor companies, which do not have a minimum turnover of Rs 10 million and where the products are not manufactured in bulk quantity.’

The broadcasters also urged the government to allow them to telecast socially responsible advertisements sponsored by liquor companies. They requested permission to telecast such advertisements because the Indian television industry’s revenues had reportedly decreased by about 7-11% (about Rs 1 billion per annum) after liquor and tobacco ads were banned.

After more than six months, in mid-2001, the I&B ministry accepted the recommendations of the broadcasters. However, this decision was not formally announced because there was same dispute over the issue of hoardings of these ads at sports events being broadcast on television. The I&B Minister Sushma Swaraj said, “We have sought the sports ministry’s comments on the issue and are awaiting their response before announcing the norms.

If a company makes a product other than liquor (or tobacco), which has a turnover of Rs 1 crore (Rs 10 million), then the firm is entitled to use the same brand for that product.” She announced that a formal decision would be made after the sports ministry’s comments were received.

In the mean time, some liquor producers entered new segments under the liquor brand or advertised these products under the liquor brand. Most of liquor producers entered into the packaged water segment, such as Kingfisher Mineral water. Some companies seemed to be using the ban to their advantage. McDowell’s mineral water and soda brands served as surrogates for their liquor brand and also generated additional revenues for the company. To expand this segment, the company franchised its bottling and sale of purified drinking water and soda and made them available in more than 75 cities in the country.

In early 2001, SWC started marketing its range of golf accessories under the liquor brand Royal Challenge. It also launched a new range of golf accessories, including graphite shafted golf sets (with lifetime warranty), golf bags, caps, and gloves. SWC also started a quarterly golf publication that which provided information on the latest happenings on golf. The company also entered into agreements with the Indian Golf Union and the International Management Group to promote the game in India. It also announced that India’s flagship Golfing Event – the Indian Open – would be sponsored by the company till 2006.

In late 2001, SWC announced its decision to enter the packaged water market, under its well-known beer brands Hi-Five and Lal Toofan. In 2002, it named it soda water Royal Challenge Premium Sparkling Water[6] to leverage the company’s flagship liquor brand Royal Challenge. According to industry watchers, SWC was launching Sparkling Water to use it as a surrogate for its liquor brand. They were of the view that, following the ban on advertising, liquor companies were forced to look at innovative ways of building their brands

The number and range of surrogate advertisements increased as liquor producers started sponsoring movies, music shows, and other programs attracting youth. For instance, Seagram’s Royal Stag was promoted by sponsoring movie-related activities and Indian pop music under the banners Royal Stag Mega Movies and Royal Stag Mega Music. It promoted its 100 Pipers brand by sponsoring a series of performances by fusion music artists under the name 100 Pipers Pure Music. Blenders’ Pride sponsored a series of performances by troop dancers and artists under the banner of Blenders’ Pride Magical Nites. Seagram also sponsored events such as the Chivas Regal Polo Championships and the Chivas Regal Invitational Golf Challenge for corporates.

In late 2001, television broadcasters began airing socially responsible advertisements sponsored by liquor companies, even though the government had not issued any notification permitting the airing of socially responsible ads on TV. Star TV and Sony were among the leading broadcasters telecasting such advertisements included STAR TV and Sony. The advertisements were telecast during Christmas and New Year’s Eve. One of these ads by Seagram wished the viewers with ‘Season’s Greetings.’

Another advertisement of Seagram read, “Tonight, when it’s one for the road, it’s got to be coffee.” L.S.Nayak, Vice President (Sales and Marketing), STAR TV said, “It’s not a liquor advertisement at all. It’s just another corporate advertisement through a social message. It cannot be classified as a liquor advertisement because Seagram is not a liquor brand. One must see the spirit behind an advertisement to find out whether it’s promoting liquor or not.”

Some of the broadcasters said that because the I&B Ministry was taking a long time deciding about the use of socially responsible advertisements by liquor companies, they had started using them without the Ministry’s consent. IBF’s Executive Director, Bhuvan Lal, reportedly argued that there was nothing wrong with airing such advertisements because they did not violate the government’s guidelines restricting the telecast of direct/indirect liquor ads. The government’s guidelines stated that ‘advertisements which lead to sale, consumption and promotion of liquor should not be allowed.’ According to Bhuvan Lal, these advertisements were perfectly legal as they did not lead to sale, consumption and promotion of liquor.

Soon, liquor companies that had not entered into any agreements with satellite channels for airing socially responsible and for surrogate advertisements started processing such agreements. For instance, Whyte & Mackay began negotiating agreements with various TV channels, including Star TV. Amar Sinha, CEO, Whyte & Mackay, said, “As long as there was no ban, companies were not interested in showing liquor advertisements in the garb of social messages. But with the government imposing restrictions, social messages are a route to liquor advertising for many.”

By early 2002, there were many surrogate advertisements of liquor brands on satellite TV channels. These advertisements attracted a lot of criticism. According to an analyst [7], “We see a brown liquid poured into a glass under a well-known brand name, and we are told the man is drinking apple juice! The girl who is avidly watching him immediately rewards him with a kiss. In the same sort of way, water, soda and other harmless liquors stand in for hard liquor and beat the ban.” (Refer Exhibit IV and V for sample surrogate advertisements). There were numerous other advertisements selling music cassettes, CDs, water, clothing, fashion accessories and sports goods – many of them accused of being sexually provocative and offensive.

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.

THE DEBATE Contd..

The restrictions on the liquor industry were viewed by many critics as attempts by the government to disassociate itself from the social evils associated with alcohol consumption. However, some critics observed that while the government imposed many restrictions on the liquor company; it also earned a significant portion of its revenues (Rs 200 billion in 2000 for the whole country) through levies on liquor sales.

The issue of surrogate advertising involved even media companies, as they had to forego substantial revenues as a result of the ban. According to broadcasters, the government should put in place a ‘reasonable’ policy, which somehow struck a balance between the social and monetary aspects of the business of alcohol.

WHAT LIES AHEAD

In August 2002, broadcasting industry sources revealed plans to put in place measures for self-regulation and monitoring, even before the I&B Ministry took concrete steps in this regard. The broadcasters who were members of the IBF, announced that they would come up with an advertising code specific to surrogate advertising. IBF set up a sub-committee that included among others, with L. S. Nayak (Executive Vice President, Star TV), G Krishnan (CEO, TV Today) and Manu Sawhaney (MD, ESPN-Star Sports).

Apart from formulating the advertising code, the committee would monitor the advertisements that appeared on the TV channels. Bhuvan Lal said, “We would like to clear any such advertisement with the committee and nip any offending advertisements at the drawing table.”

Around the same time, apart from the 12 ads banned earlier, the I&B Ministry was in the process of issuing show-cause notices to AXN and Zee for two advertisements promoting Aristocrat Apple Juice and Whytehall.

The controversy surrounding debate surrounding surrogate advertising was undoubtedly the result of the government’s and liquor industry’s age-old tussle of revenues versus morality. Ashoke Bijapurkar, President, B-MRP Communications[8] said, “This brings us to the question being debated: should surrogate advertisements be banned? I feel the real question to be asked is: should liquor and tobacco advertising be banned?”

Following the ban, most liquor companies again explored alternative promotional activities. Industry watchers remarked that the ban would affect the channels more than the liquor companies themselves. The companies might actively resort to sponsorships of sports events, dance and music programs, and other fun-filled activities. Some of the major domestic companies were considering the use of the Internet as an effective marketing medium.

QUESTIONS FOR DISCUSSION:

1. ‘By banning advertisements for liquor, the government is trying to disassociate itself from the social evils associated with alcohol consumption.’ Critically comment on this statement in light of the ban on direct and surrogate advertisements for liquor.

2. Do you think surrogate advertisements by liquor companies were banned because of the criticism they received? Give reasons to support your answer. Also, discuss the advantages and disadvantages of using surrogate advertisements (for a liquor company in particular and also for any other type of company).

3. As a part of a team responsible for the marketing of a leading liquor brand, what measures would you suggest to overcome the limitations imposed due to the ban on surrogate advertising? Does the use of ‘socially responsible’ advertisements go against the interests of a liquor company? Analyze.