Top Ten Importers
As anticipated, there was no change in the Top Ten importers except a slight change in the rankings in 2012-13. All of them reported increase in sales except Brindco which underwent a planned drop of 10% in numbers but an increase in value by 10%, and still maintained the top position in volume. With an eye towards profitability, Brindco reduced its portfolio to about 300 labels from about 600 a few years ago. As in the past, accurate figures are not available in India and are based on our various sources and regular cross-checking. Here are the Top Ten importers with the number of cases (converted to 9-liter cases) sold from April 2012-March 2013:
|2. Pernod Ricard
|6. Berkmann India
|8. Hema Connoisseur
|9. Mohan Bros.
|10. Global Tax Free
Around 100 importers are estimated to be operating with 60 being active. A survey conducted by the Indian Wine Academy on 40 of the most visible importers indicates that with over 233,000 cases sold, the Top Ten contributed 70% of the sale of imported wines.
The total consumption of imported wines is estimated to be at 330,000 cases in 2012-13. This includes the nominal sales at duty free shops and wines that are hand carried by passengers returning by air. There was an estimated increase of about 15% over the previous year, partly due to more sales outlets opening all across and new hotels coming up pan India.
The consumption could have been higher but for the restrictive government procedures that disrupt sales and have short term negative impact. A glaring example is the introduction of online purchase by licensee outlets in February during the peak buying season which brought the sale of wines to a trickle. Similarly, the irrational and incomprehensible policy of the government insisting on compulsory sampling of each shipment, created a lot of confusion and delay in clearing each lot, besides adding to the cost.
Roller Coaster Ride
After a consistent annual growth of around 25% in wine consumption till 2007-8, the Indian industry was hit first by the Mumbai blasts and then the global recession, with consumption nose diving to the 2007-8 levels by 2011-2012. It showed signs of recovery during the last fiscal year 2012-13 and was on its way up but was hurt again by an unprecedented 12% depreciation of the Indian Rupee during August-September alone this year and the increasingly complex governmental procedures, making imports much more costly.
Despite an all time high consumption of about 330,000 nine-liter cases last year, the imported wine market is again facing rough weather in the short-term. With the ongoing negotiations between the European Union and India seemingly put on the back burner due to the general elections next year, the market is expected to remain under pressure though the 1.8-million case Indian domestic producers may not be hit as hard and have an opportunity to increase exports.
Rupee Devaluation and imported wine market
The constant devaluation of the Indian Rupee over the last four years had been putting a lot of pressure on the import costs, a majority of which were being absorbed by the importers in order to increase or maintain their market share. It was devalued by about 30% against the Euro, 32% against the US Dollar and 33% against the Australian dollar, the 3 major currencies our importers deal in. The sudden drop of 12-15% in two months after the contracts were signed for this year and the prices intimated to the excise department for the whole year is drastic.
Many of the importers sign a central purchase order for the whole year and the distributors are bound to supply the material at the pre-negotiated price for the whole year even if the costs go up during the contractual period due to government policies; many face a profit squeeze and even losses due to the sudden and sharp devaluation.
Arun Kumar, Director of Aspri, says his company is very apprehensive because of the price increase due to devaluation. ‘The first three months this year (Apr-June) looked very dismal in terms of sales but we are hopeful we will be able to maintain our last year’s levels.’ Aspri was in the liquor imports business earlier but added wine to their portfolio 5 years ago, reaching the number two spot in the Top Ten list in 2011-12, clocking the fastest growth in the industry. ‘Like Brindco and a few others, we have been fortunate that we are also in the liquor business, giving us the financial backing to support the wine business. Otherwise, we might have been in a precarious situation like many of the importers dealing with wine only,’ he says.
Other hurdles for the market expansion
The devalued rupee has caused significant damage to the importers but it is not their only woe. Government policies have created several short term problems for importers, each step resulting in price increase, directly or indirectly because it involved more greasing of palms. One such initiative has been making online booking of orders mandatory by the licensed buyer who must now also deposit the excise duty in advance and online.
While one cannot fault the government for streamlining procedures, but coupled with the advance deposit of excise by the restaurant or the outlet, this has made them very conservative in the order quantities, even though it results in some loss of sales due to shortage of a particular wine. Rohit Mehra, Director of Mohan Bros., one of the oldest importers, says ‘Earlier, we paid the excise duties and recovered with the full invoice later so we could push sales; now the quantities for each order have come down drastically. It is not uncommon for restaurants to order 2 bottles of an expensive wine at a time. This has resulted in higher operation costs for us since we make more deliveries with lower quantities;' according to the new policy, the product has to be delivered within a couple of days.
Selling banquet wines through hotels
Another roadblock has been the policy announced last year that the wine sales for banquets, parties and indeed, any private or public event outside the restaurant space with the license, must be through the wines purchased by the hotel first and then supplied through their store with proper records. Earlier, the hotels could allow the customer arranging a party to serve wine purchased in a licensed Retail shop with proper receipt and the purchase of a one-day liquor serving license. The restaurant could obtain the license on behalf of the consumer who could then bring any quality and quantity of wine, avoiding the high mark-ups by the hotel. With the new policy, wine and other liquor must be purchased from the hotel. Even though the restaurants offer discounted prices for banquets, the added cost discourages the consumption.
Food and Safety Inspection
Wine and alcohol has been brought under the Food Safety measures like every other imported food item. A major bottleneck has been created by making sampling of each imported lot by the Food and Supply Department (FSSAI) compulsory. There is seemingly nothing illogical about the step as it involves protecting the consumer against any health risks. But the procedure is so lengthy, cumbersome and expensive that fine wines may be spoiled by the time they are released by the customs department, besides increasing the cost since two bottles are to be given for sampling even if one imports only 6 bottles for a special order.
Although the importers might have found a temporary way out as usual, of greasing the right palms (thereby increasing the cost per bottle), the procedure has still not been streamlined. The government is slowly moving in the right direction of approving certain laboratories overseas for giving the necessary certification, and increasing the threshold of the number of bottles of wines that do not require this certification.
While no one can fault the government for streamlining the system to avoid malpractices, the decisions seem to be taken abruptly and without any logical explanations. For instance, during the peak marketing season in February 2013, the excise department in Delhi put its foot down and changed the existing system and insisted that the wines must be bar-coded and orders placed online, with the outlet paying the excise duty in advance. The bar-coding machines were not easily available and the software had several glitches. This poorly-timed insistence by the government during the peak season resulted in a total supply breakdown, causing a huge loss to the importers and the market going dry with no wines in stock at many outlets. The government does not seem to appreciate that just like a hotel room night, if the wine is not available at the precise moment the sale is lost forever, with the government losing revenues too.
Pressure on Retail margins
With the advent of shopping malls allowed to sell wine and the better informed Retail obliged to set up facilities for basic air-conditioning for better storage, the cost of storage has gone up steadily with the real estate for the last mile becoming much more expensive. The government allows a maximum of only Rs. 50 (€0.60) a bottle as the profit allowed to retailers in Delhi, which is neither practical nor acceptable to any retail shop. Their insistence on a much higher mark-up by Retail shops, sometimes up to ten times more than allowed by law, makes the wines much more expensive and administration to circumvent the law more complex.
FTA between EU and India
Producers in the European Union have been awaiting the Foreign Treaty Agreement to be signed between the two governments, allowing a steep drop in the import duties from the current 150% to 30-50%. Although there have been speculations that the reduction in duty to 40% was agreed upon by the Indian government for wines costing over around $4 a bottle, the treaty has been now put on the back burner after 7 years of negotiations due to the impending General Elections in India due in 2014; reduction of duties is a politically sensitive subject because of a strong anti-alcohol sentiment and the government is busy only to stay in power. Thus, any price drops that might have taken place by 2015 are now pushed back to at least 2017, making it an unenviable situation for wines from EU.
Short term caution warranted
While the long term trends remain bullish due to the increased number of wine drinkers and gradual shift to wine and better availability and quality of domestic wines, there will be a road block for imported wines in the short term, with no respite expected from the government and costs on the perennial increase. The annual label registration costs are such a hurdle that the leading importer Brindco has already snipped its portfolio from 600 labels at its peak, to 300 now. Kumar says Aspri is evaluating each of its principals and the slow moving wines will be removed from their list of 280 labels in order to bring the number down.
It appears the days of experimentation by the established importers with new labels are over, at least for the time being. Their self sustenance takes precedence over expansion. Unless a new breed of importers enters the market or the spate of new hotels provide an outlet for newer drinkers, this is a cautionary advisory for producers seeking to chase the rainbow - the Indian wine market.