April 03: After braving the initial months of Covid-19 pandemic, which were more stressful with no sales than the global meltdown in 2008-10, Sula Vineyards has bounced back magnificently, despite negligible on-trade sales, and Rajeev Samant, Founder CEO sees a sales drop of only around 10% in 2020-21 with Rose segment showing even a growth of 25%, with Seco Rose even clocking a 40% increase, writes Subhash Arora who had an exclusive interview with Samant who presented a rosy picture of Sula with good future
Fortune favours the brave. After braving the first few months of disaster with no sales and fixed overheads, things have been looking up for Sula which had been earlier expecting a sales drop of 15-20% during the Covid crises with the industry predicting an even higher drop of 30% for it. But the latest estimates as on April 1 project a drop of only around 10%. Thanks to some astute planning and cost cutting, the bottom line has in fact, improved by 10-15%.
So how did Sula manage to come relatively unscathed during the unprecedented Covid crisis? ‘We came out stronger, in fact. First few months were more stressful than even the period of global recession. But being in Nashik gave me quality thinking time. Nashik is the beating heart of our operation. I spent full 11 months in Nashik, being there mostly-and away for a couple of short spells only. Karan (Vasani- Chief Winemaker) and Monit (Dhavale- Hospitality Manager) were there with me. We revamped our operation and cut out a lot of flab, thereby reducing our costs significantly. It was tough because we had to handle bankers and the finance as well. At times like this even banks start pressuring for clearing their loan!’
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‘But we communicated with them constantly. We also communicated regularly with employees and shareholders. There were a lot of uncertainties about future business- whether the restaurants would open and when etc.’
‘Fortunately, our Retail has been very strong- in fact unlike our competitors 70% of our sales are in Retail. We were much less affected as Retail has bounced back. Then, 15-20% of our sales earlier were non profitable. Many restaurants ask astronomical sums for listing from Indian producers-up to Rs. 60 lakhs for one year for exclusivity with no volume commitment! We let go of such opportunities though others might have obliged to do so because of their need for survival,’ he says.
Schemes-the impossible schemes
What about the fantastic schemes the market claims Sula has been offering to the retailers? ‘This is complete nonsense. At the end of the day, some producers might offer such schemes as they need the cash flow. In some cases, we even let go of the customers while in many cases, after trying various channels they came back to us’, he says, adding that the schemes were lower this year than a year ago.
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We managed to come through. We expect 15-20% less sales (this was before the final figure estimate came out) but making 15-20% more profits- so our total operating profits have improved. We are down 10% in Staff strength though we had begun to streamline even before the Pandemic. We are a lean organisation today and everyone understands what is to be done.
2020- Rajeev’s Vintage
Rajeev led the 2020 vintage as he was in Nashik. Kerry (Damskey-the consultant winemaker from Sonoma, California) obviously, could not come. ‘I made a lot of changes in the day to day operations. One of the things we focussed on was barrel hygiene. You can pick up freshness in the wines like never before. Wines taste fresher and more brilliant. We made sure we had proper SOPs in place. Our highest selling white wine Sula Chenin Blanc saw the biggest changes.’
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Improved Chenin and Chardonnay
Last month a group of senior people from The Taj group visited Sula and tasted their wines. ‘They said our Chenin has gone through a renaissance. Another wine I am happy and proud about is Dindori Chardonnay as it has improved in the bottle- we have always talked about drinking it fresh but Chardonnay actually tastes better after 2 years. Majority of these wines are matured in 1 to 2 year- old barrels with a very small portion being in the new oak. We should be drinking 2018 Chardonnay now whereas Sauvignon and Chenin should be 2020. Riesling is very challenging but I am very happy with the 2020 vintage. Sugar levels have remained the same for these wines- around 11-12 gms. Riesling has slightly more residual sugar because of higher acidity,’ says Rajeev .
Vintage 2021 has been fabulous- grape growing conditions were perfect as there was no drought and perfect monsoon. Days were warm and the nights were cool. The harvest that ended a week ago is looking great.
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Hand of God
I am sure it was God’s hand that saved us from disaster last year. The production in 2019 was down 30% in quantity as compared to 2018. That saved us. If we had grapes coming in and fermenting, but no wine going out, we would have been in big trouble. Due to unexpected rains. Unfortunately, the farmers got hit badly but wineries did well. The cash flow was excellent as we paid Rs. 20 Crores (200 million) less for grapes than 2018 and 2019 vintages; with no price reduction but only quantity reduction due to excessive rainfall.
So how much of grapes did Sula crush during the current vintage? Rajeev did not disclose the exact figure but said both 2020 and 21 have been bountiful with an estimated 10,000 tons or so for the current 2021 vintage.
Future is bright
Future looks bright. Production has not suffered. But the markets hit badly are tourist markets. For instance, in Goa and Rajasthan 75% of the sales are mainly from foreign tourists as Indian tourists don’t drink much wine. The foreigners have been missing and so Sula was hit badly in Rajasthan and Goa, even though Indian tourists increased in number.
‘Nashik has been a revelation- earlier there used to be 50-60% occupancy at our Source Resort, now we have crossed 90% until last month. You know what happened with Covid cases exploding in Maharashtra We have increased cover charges for a visit to the Tasting Room from Rs. 400 to 600. Thus there has been an increase from 0 to Rs. 600 in 2 years- we did not charge any cover charge for a visit earlier. Tourism from October to February was very strong at 90%. Where can one go from Mumbai unlike in Delhi where you have hills and cities like Neemrana and Jaipur where you can travel by car and be in the open space.
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Nashik is of course a safe city as it is not very crowded. Wine tourism has given a lot of income to Sula because of its excellent facilities at the winery including a Resort. 'Frankly, today there is no other way-you have to have a beautiful facility to spread the gospel of wine. Wine tastes the best at the winery. We have very good prices at the winery too. Fortunately, the Maharashtra government removed the restriction on wine storage a couple of years ago. Now two cases per person are allowed to be stored though there is restriction in storage of alcohol,’ says Rajeev.
Increase in Market Share
Interestingly, Sula gained market share during the Pandemic. ‘In wines costing over Rs. 900 we increased our share to more than 70-in fact close to 75% while we were 65% a year ago’ says Rajeev attributing the increase to a focused approach. When you push hard on everything you don’t get anywhere. I am happy for our competitors for nibbling away at our share of cheap ‘Goan Ports’ though in Maharashtra about 60% of sales are in the cheap wine segment.’
Export not a priority
Export is not a priority for Sula-it is less than 5%. Indian market is most exciting for Rajeev. He says that only 2% of the wine production gets exported. ‘We believe that wines selling for over Rs. 800 are world class wines and we do better in India than anywhere else.’
Company is focused on premium wines. ‘For instance, we are focusing on the Source label where people drinking Rose costing around Rs.1100 compare it with imported wines at Rs.1600-1800 and feel it tastes much better. Grenache Rose has been a big hit. I know it is tough to make a good Cabernet and Chardonnay. Our Rasa Cabernet Sauvignon sells for Rs. 1800 so we have introduced the Source Cabernet at Rs. 1100- lighter wine with less ageing in premier oak, it has been really liked by people who like lighter wine style for daily drinking.
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Wine-in Can (WIC)-DIA
This is the reason why Sula is not very aggressive in promoting the Dia Cans it pioneered at Sula Fest in February las year and was the first to introduce WIC in the Indian market. We would like to expand but at a bit slower place. We launched in February only and a month later the markets got shut. It’s going to take time- I know there are two other brands already in the market. We are still bullish about the sales.’
How about the lots of cheaper wines you outsource? Slightly touchy about ‘Outsourcing,’ he says it is the wrong word to use. ‘Many wineries are in dire state. We put our men there and they make wine. Outsourcing is not correct. It helps us support that kind of ecosystem. In any case, our volumes are much more than these wineries can offer.’
Wine and the industry are here to stay, despite setbacks in cities like Delhi, he says. Reduced wine prices bring in more sales. Prices came down in Kolkata last year and sales went up by 30% last year. Unfortunately, Delhi could be a good market. But what options does the government have? Excise is the only way to get maximum money to run the city. They have their hands tied. Giving reasons of high duties he says that Rs.400-500 a bottle suggested by delWine to increase consumption by masses, might not happen in Delhi. It may be possible in Maharashtra and Karnataka- with special schemes to pass on the benefits to the consumer.
Sula has decided to contain its Capex and use the existing facilities more for making more expensive wine. After all, the tank used is the same whether the wine is a cheap Goan wine or a premium wine, he says. Therefore, Sula is exiting slowly from this sector.
Many more interesting topics could not be covered in the limited time we had. So we agreed to chat again after a month about a couple of other interesting topics. Till then it is Jai Ho from us!