Posted: Tuesday, 21 October 2014 19:08

MWBI: Cautious Optimism for Indian Wine Market

Sula remains the leading producer with 650,000 cases clocked in 2013-14, with 250,000 being low–ended wines that form a 1.2 million case industry including Goan Ports and fortified wines. Grover Zampa follows with 80,000 cases and 35,000 cases respectively. The 800,000 cases in the premium segment make it a 2-million case market for Indian wines. Imported wines clocked a 15% growth at 380,000 (9-liter) cases with Brindco maintaining the leading importer status.

Increased Private Equity Interest

Despite several procedural hurdles, Private Equity investors have been evincing keen interest in investing in the Indian wineries, indicating a bright future envisaged by the financially savvy groups. Of particular interest is the move a few months ago by two such investors - Reliance Capital and VisVires, a Singaporean Fund run by Mr. Ravi Viswanathan, who bought the 30% share from an existing Fund at an amount putting the value of Sula enterprise at about Rs. 7.5 billion ($130 million).

Based on investments by PE funds at different stages, Sula had been valued at $10 million in 2004. In 2010 it had touched the astronomical value of $100 million. Despite devaluation of over 30% between 2010 and 2014, the current price of sale puts Sula at a 13-fold increase in 10 years! What’s more, two billionaires vied to buy the stake. L Capital, the investment arm of LVMH did extensive research with the intent to bid.

Interestingly, the same PE investors had also invested with Grover Zampa, the oldest operating winery, two years ago. Viswanathan, an active negotiator for both deals, feels it might be prudent to merge the two complementary competitors, making the merged company a dominant player, thus helping them unlock their investment with higher profits for all. Rajeev Samant, Founder CEO of Sula enterprise is not amenable to the idea now but the merger is on the canvas. One needs to wait and watch if the investors prevail on the promoters.

The industry is also witnessing interest from billionaires and High Networth Individuals with a passion for wine and the desire to produce quality wines. Industrialist Ajit Gulabchand started a winery seven years ago but released the first vintage last year. The Charosa wines are excellent, partly a result of waiting for years to let the vines grow. Krishna Prasad Chigurupati, who owns a bulk drug manufacturing company with annual sales of US $200 million, has set up a boutique winery KRSMA in Karnataka with his wife. Their Sauvignon Blanc 2013 won India the first Gold Medal in an international wine competition, at SFIWC 2014.

Export of Indian wines

Although exports are less than 5%, the efforts of Indian producers have started fructifying. Marketing of wines in the UK made by Sula for them under the ‘Jewels of Nasik’ label shows the confidence Marks and Spencer has placed in Indian wines for the UK market. Sula also made a ceremonial start in the Chinese market last year. Another feather in their cap has been getting Air-India to serve Sula red wines aboard the Air India flights globally and bringing them closer to the world consumers. Grover Zampa launched the Vijay Amritraj collection at Wimbledon this year for the legendary Indian tennis player, to sell mostly in UK.

Chandon by Moet Hennessey

The introduction of Chandon Brut and Rose Brut, two Indian-produced sparkling wines by Moet Chandon India, is a milestone for the domestic industry. Released in October last year, both the variants produced at a leased Nashik winery from grapes grown outside under the supervision of their viticulturists, have been well-received. Besides putting pressure on the existing producers to improve quality, the decently priced Brut with the Retail Price of Rs. 1200 ($20) is also expected to increase the consumption of other sparkling wines. It is a source of optimism for the domestic industry because the company conducted a detailed survey before plunging into the market - a positive sign for the Indian industry for sparkling and still wines.

Wine Tourism

During the last couple of years there has been serious action to develop this aspect of the wine market in India. Sula was the pioneer - starting a Tasting Room and an amphitheater with enough space to organize an annual Sulafest-full of music, wine and fun, attracting over 10,000 visitors. A total of 170,000 tourists flocked to the vineyards last year. The Beyond Vineyard Resort, 3 kms from Sula, attracts Indians and expats alike. Another boutique winery is soon to open behind this property, with a restaurant and banquet halls for parties and weddings. Several hotels around the area are in the process of construction to accommodate tourists. Grover Zampa has already finalized with a Goa-based resort to run a wine resort at its Nashik vineyards. Whereas a few years ago finance was a constraint, now tourism offers a hedge against a poor year besides adding to branding and direct sales at the winery. Various degrees of facilities have been added by other wineries like York and Fratelli Vineyards. Several companies have sprung up in Mumbai and Pune to facilitate tours to these wineries.

Top Ten Importers

There has been no significant change in the list of Top Ten importers barring the ouster of Global Tax Free. Most have reported an increase of over 10% in volume. But the increased sales have not translated to higher values. Brindco had reduced volumes but improved profitability during the previous year but changed tactics in 2013-14 and increased sales 30% by introducing wines from Petits Chateaux from Bordeaux and exploiting the penchant of novices for Brand Bordeaux. Farhad Bhabha of Berkmann Cellars India, who imports brands including Antinori and Yellow Tail, admits that his sales of cheaper Australian wines doubled but other brands suffered. 

As in the past, accurate statistics are not available in India but based on our various sources and frequent cross-checking with importers and producers, here are the Top Ten importers with the number of cases (9-liter cases) sold from April 2013-March 2014:

Around 100 importers are estimated to be importing wines (same as last year), out of which only 50-60 are active. A survey conducted by the Indian Wine Academy on 40 of the most visible importers indicated that the Top Ten contributed 70% of the consumption of imported wines.

Significant growth has been achieved by Pernod Ricard who not only benefited by adding wines from Brancott Estate in New Zealand but also through aggressive marketing. Pernod Ricard and Moet Hennessey are both protective of their sales figures and perhaps indicated conservative figures last year but this year estimates vary from 50,000-55,000 cases for Pernod. The ubiquitous Jacobs Creek has come to be known as the ‘best’ wine by new wine drinkers thanks to the promotions and publicity. In 3-5 years, this biggest single selling imported wine brand is expected to catapult the company to the top position, overtaking Brindco. It has certainly helped Australian wines brush past French wines and attain the number one position in imported wines.

If one makes a conservative estimate with only 5% increase in the sale by the rest of 30% imports, it implies the sale of additional 102,000 cases. This would give us a conservative estimate of 380,700 cases, rounded off to 380,000 cases. This includes the sales at Duty Free shops and wines hand-carried by passengers returning by air. Thus, there has been a growth of over 15% over the previous year. This is partly due to more retail sales outlets opening all across the country, thus making it easier to buy wines and also because of new hotels opening pan India.

FSSAI-Scourge of the Year

Sales would have been significantly higher but for the arbitrary actions by the Food Safety Standards Authority of India (FSSAI) formed by the Indian Government in 2011.This has become a big detriment in the growth of the industry, threatening to negate the gains made in the past few years. Initially applicable to food stuffs, the Act has been extended to include wine and spirits. FSSAI has been the big scourge for the importers and producers last year, threatening to derail the industry growth.

The most complicated and controversial issue is the requirement that ingredients must be mentioned on the label. Wine is made typically from grapes or other fruits as a single ingredient but there are over 70 additives legally allowed in the processing. It is not clear to the authorities what should be mentioned on the label. They expect the back label to have the information before it arrives in India. Since the quantities are generally small, most exporters are not willing to oblige; this also escalates the import costs with multi-cascading effects.   

Another factor is that the information must be in English or Hindi only. Thus, ‘Prodotto di Italia’ is not acceptable. This could be avoided simply by allowing the importers to affix appropriate labels in the customs bonded warehouse with an undertaking that the labeling is genuine and that they would be responsible for the authenticity, with strict penalties for any faults, but the authorities are adamant.

The sampling procedure is complex and expensive, adding to the costs, especially for small and expensive lots. Two bottles must be submitted with testing fee for each lot even though only about 30mL liquid is needed for testing. This applies to even top Bordeaux wines even if the lot is 6 bottles. This has become a major deterrent for the entry of small lots of high quality wines. FSSAI refuses to accept the test reports from recognized labs overseas.

Another irritant is that even after the sampling cost of about €40 per lot is deposited, the inspectors do not show up to collect samples out of the custom-bonded warehouse for up to a month due to lack of personnel. In a recent case, the High Court admonished an employee of the FSSAI and threatened to put her behind bars if samples were not collected within a couple of days.

Importers have started reducing the number of labels as several consignments are being sent back or there are inordinate delays. The somber mood of the importers is summed up by Arun Kumar, Director of Aspri Spirits and Wines, the second largest independent importer, who says, ‘The last few months were uncertain due to frequent interruptions by FSSAI and issues that dampened our efforts. The current impasse due to labeling and other norms have made operations complex and it’s not the best start for the year. We have to continue trimming labels selectively to keep the business viable. The challenge in working in India is that it does not give enough room for flexibility and experimentation due to the various laws on registrations, expiry of bonds etc.'

EU-India FTA

The talks between EU and India started in 2007 and reached the final stage in 2012. With national elections approaching in mid 2014, the negotiations were aborted last summer. The talks include reduction of existing customs duty on wines from 150% to 30-50% on more expensive wines from the European Union. Reduction of duties is a politically sensitive subject due to anti-alcohol public sentiment and the stance of the new government (NDA) which had a convincing victory after 10 years of Congress rule. Any duty reductions expected by 2015 are now pushed back to at least 2017. The government is also re-looking at the status and nobody knows what their stance might be. The public mood is distinctly non-alcoholic but the government is also pro-business and international-oriented. Hopefully, the talks will be on track for the Treaty to be signed in 2015 and be effective by 2017.

A cautious optimism is warranted but the wine drinking culture is on the increase in India. The rate of growth depends upon the government policies but the long term increase in the domestic and imported wines consumption is very much on the cards.

Subhash Arora

Original Article in MWBI

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