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 I
INDIAN LIQUOR INDUSTRY – PLAYER PROFILE
Company Leading Brands
United Kingfisher (Beer), McDowell’s No. 1 and Bagpiper (Whiskey)
 Breweries
Hayward’s, Antiquity, Royal Challenge, Director’s Special
Shaw
(Whiskey), White Mischief Vodka, Golconda, Hi-Five Beer, Lal
Wallace
Toofan Beer
Jagatjit
Aristocrat Whiskey, Captain Henry, Bonnie Scot, Binnie’s Fine
Industries
8 PM Rare Blend Whiskey, Contessa XXX Rum, Whyte and Mackay
Radico
Scotch Whiskey, Contessa Premium Extra Dry Gin, Contessa Deluxe
Khaitan
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

Ad expensess
Company Year Ending As %age of Sales
(in Rs million)
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.