Sep 07: Demystifying the Indian wine market, Subhash Arora cautioned the audience at the first edition of Wine Export Meeting by Mundusvini in Saalbau- Neustadt, the venue for the Summer Tasting 2018 that Indian market was more complex and intimidating than they could comprehend and went out to explain the market which he believes could be lucrative in a few years if the exporters could cross the land mines spread by the government and the system in general
Speaking to the audience of wine aficionados- around 150 jurists, journalists, winemakers and sommeliers that form a majority of various tasting panels in Mundusvini international wine competition and a few producers interested in exports to India and 5 other nations, Arora cautioned them against the usual blunder made by the uninitiated who get very ambitious with plans to conquer a market of 1.33 billion people, where half the population is under 35 years and where there is expanding middle class of around 300 million people and a potential 100 million wine drinkers. They might drink a total of over 900 million cases of whiskey and other liquor including country liquor and beer, But the consumption of wine is less than 3 million cases. The country thrives on hard liquor, and of late beer and the wine is still in a nascent state.
Article 47 of the Constitution
One of the main reasons of slow growth of the wine industry is Article 47 of the Directive Principles of State Policy in the Indian Constitution, which transferred the power of decision making to each of the States making India practically a conglomerate of 33 nations.
Most of the audience was not aware of the Article 47 or the Spirit in which it was written. It states that The State shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties and, in particular, the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health.
The operative part was to bring about the prohibition by the States which had been given a free hand to independently formulate their policies of sales and excise duty with prohibition as the ultimate objective. But, the States in turn have hypocritically chosen the policy of ‘having a cake and eating it too. The taxes on alcohol have become their major source of income and whenever State’s revenue needs a booster shot, wine and alcohol taxes seem to be the cash cow.
Incomprehensible State Policies
He gave the most recent example of Delhi increasing the label registration charges of imported wines from Rs. 10,000 to Rs. 50,000 thus ‘killing’ the market for imported wines and technically ‘fulfilling’ the objective of moving towards prohibition. The wine and liquor prices have already gone up by 10-15 % in Delhi and the number of labels has been cut by the importers to less than half in some cases because unless there are big volumes, it does not make economic sense to pay the charges for more and more labels. This implies that the distribution channel just got tighter, said Arora.
Poor Cold Chain
Warehousing and the cold chain is a big problem and adds to the cost if done properly. Right from the port where the wine lands and the sip that the consumer takes, right temperature is a big issue: even when the distributors and retailers understand it well, cost is a factor. For example, most distributors have air-conditioning but some switch it off at night, the temperature fluctuation causing a major damage to the liquid.
There are trade barriers, mostly thanks to the government and their incomprehensible policies. Besides cumbersome procedures the laws are so strict that even for a small technical error, the licensee can be prosecuted and jailed. Duty free bonds are for one year and if the wine is not sold, it must be de-bonded or exported back. Not only this, the government charges variable duty at 15% after every 3 months of unsold stock which is strange as it makes sense to charge only when the goods are de-bonded.
License fees are increased at will. In a State like Delhi, the policy for the year is delayed every year but the licensee is allowed sales on a month-to-month basis by depositing fee on pro-rate basis but the delayed next year’s policy announcement still means that the distributor must pay in advance the fee for the WHOLE year-patently illegal and unjust but who is to bell the cat! Most businesses are law abiding and don’t like to go to jail for even a minor violation-even if it is technical. FSSAI has been another big scourge, resulting in a lot of disruption and losses to the small businesses.
Customs duties are of course high but at least they are a known factor. Excise duties are variables and another major component. Most hotels and a few restaurants with export income can import duty free but they have kept their margins huge, sometimes ranging 400-500 percent. Of course, they have their own costs to worry about but the customer does not care if it results in too high prices. The wine that retailed at 3-5 times the C&F value a decade ago is sold at 7 times the cost and even more to account for such expenses that were not there when the imports were made ‘free’ for everyone in 2001.
Duties being high on bulk wines, they are not worth importing though a few importers have been getting into private labels and getting them bottled in the country of origin. The industry hoped it would be brought under GST which would have solved major problems, eliminated corruption and reduced costs. However, the States refused to even talk about GST which was enforced in July, 2017 on the consensus of the States, but keeping alcohol and liquor out of the purview of GST (Goods and Service Tax) equivalent of VAT, IVA etc in their home countries and which avoids multiple taxation.
Low Priced Quaffable wines
Due to heavy taxation at various levels, cheaper and cheaper wines (but quaffable) are finding more inroads into the market. The staple wines are around €2-€3 which retail for around Rs. 1200-Rs. 1600. Premium wines over €10 have a very limited scope. But there is also a very limited market for €50-500 with the market share being less than 1%; also the mark-ups are usually much lower, sometimes even 100-200%.
Plenty of Positives
Among the positives, Arora cited women and young drinking more wine as also the health conscious older people. Certainly, there is a huge bank of potential drinkers that can and will be tapped but will depend upon the availability of more labels. Indian wines at the same time are improving their quality and market share. Sula, Grover and Fratelli, the top dogs have been marching ahead with more production and higher international presence. Imported wines constitute merely 400,000 case market but with a big potential to grow.
Finding an importer
Finding the right importer or any importer is most critical. Most of the established importers are cutting down on the labels and are very cautious of the new additions. Half the battle is won if the right, motivated distributor agrees to work with you and if your product has some USP. He cautioned them against fly-by-night consultants who offer their services to find them an importer. This requires continuous direct contact with them and the Indian importers prefer to meet them at a wine show like Prowein which currently seems to be their favourite and has overtaken Vinexpo. Vinitaly is popular for Italian wines, but most established Italian producers participate in Prowein as well.
Principle of 6 ‘P’s
Time being short (15-20 mins), Arora had to just gloss over his famous Principles of 6 P’s, namely:
Price – Focus on Low Price But not Cheap
Passion for India
Partnership – Marketing Long Term Approach
Personal Presence – Regular Visits
Participation in Wine Shows, Festivals, Wine Club dinner and competitions
Protect your Payments
The talk went beyond the assigned time that seemed to fly at a supersonic speed. But Arora felt he owed it to the audience to give them the true picture before they jumped into the fire. The Indian market is a long term story and the potential is huge. How much of that can be harnessed depends on the government’s policies and attitude.
In the long term, there is bound to be a big growth. Many of the current exporters are in tune with the time and are waiting for the good times to come. The number of wine drinkers is growing at a fast pace. A growth of 15-25% is easily doable during the next 5 years- provided the government does not kill the goose that gives the golden eggs and has the wisdom to delineate wine from liquor and give incentives to producers and importers like China did a couple of decades ago and it has resulted in unprecedented boom there.
But this is a market where even a soothsayer would not like to tread in. One can only suggest caution while crossing the mines with the hope to reach the sweet zone.
The Seminar was a part of the new feature added at this edition of Mundusvini 2018 on the afternoon of August 31 when six Speakers from different countries- 3 each from the existing regions followed by 3 from the emerging markets focused on the market of their country. Alex Berkley (USA), Tor Sigfried Frostmo (Norway) Chris Alblas (Netherlands), Subhash Arora (India), Mi Yeun Hong (Korea) and (Robert Joseph (China) gave a brief scenario of the wine industry in their countries-editor