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Fatten Your Savings With PPR

Purchase managers finally have a scientific tool to cut through the jargon and re-negotiate the wine prices being charged by slick importers, writes Subhash Arora


All of a sudden, wines have become the flavour of the month. In Mumbai and Delhi , and to some extent in Bangalore and Pune, they've become regulars on any buffet menu, or are being ordered in impressive quantities in hotels and restaurants.

The demand is spurring supply. As a result, more and more variety is available in terms of regions, styles, blends, varietals and price range. From a wine connoisseur's point of view, this has made the job of F&B managers enviable, because for every bottle placed on the menu, they get to taste 20 to 30 different wine s. These may include cheap, obscure and indifferent wine s, but they also get to drink some really fine wine s.

The excitement comes with the responsibility of buying wines at the best possible prices. With thousands of brands around, it is not easy to keep track of or have a thorough knowledge of all. It may be a simpler exercise to hook up with a known supplier and depend on his judgment, but this may not get you the best choice available.

Every wine producer takes pride in the quality of his wine . Even the promoters of the cheapest wine s claim their products have a complex bouquet and a long after-taste, and all the other features they can lay claim to. It is not easy, as a result, for F&B and purchase managers to zero in on the wines that give the best value for money. To help them arrive at the right decision, I have developed an assessment tool called the Purchase Parity Ratio, and I successfully put it to test while finalising the wine list of Olive, Mumbai and Delhi .

Purchase Parity Ratio (PPR) has nothing to do with quality. Purchase represents the international price of the wine being evaluated. Parity is what we are trying to establish with it in relation to the net quoted price by the seller.

It is the ratio of the net cost of wine (C) to the restaurant in INR vis-a-vis the average international retail price (IP) in USD, adjusted against factors like freight (FF), the international retailer's profit (IPF), current exchange rate (R) of the USD, import duty (DF), importer's profit margin (PF) and the excise vend fee (V). This is the equation I've developed for PPR:

PPR = C/[X x (1+ DF+PF)+V] where X = IP*R*IPF*FF

Let me now define the variables and explain the rationale behind the equation, which is simpler than it looks and is an effective tool as well.

International Price (IP): If you have access to the Internet, it is not difficult to find the international price of any decent wine (I presume we are not in the market for plonk). For the sake of uniformity and homogeneity, I follow the average retail price of wine in the US . There are many helpful websites, but I find very comprehensive. It is a free site, though the Pro Version, available at a nominal cost, is very useful when I need to get more details, or the wine is not easily available. Many big US retailers, like Zachys, Specs and Sam's Liquor, also list most of the wines we get in India . Even UK retailers like Tesco, Sainsbury or Oddbins have representative prices. Vintage Direct, meanwhile, is a great source for wines from Australia and New Zealand -- check out .

Exchange Rate (R): Simply convert USD into rupees. At today's rates, the value of R may be taken as 44.

International Retailer's Profit Margin (IPF): It has implications for the importer's costs, including his overheads.

Sea/Air Freight (FF): A realistic sea freight of 10% means that the Freight Factor (FF) = 0.1. Air freight should be higher. But same percentage factor should be selected, irrespective of whether the import is from Chile , US, Australia or Europe . This helps to balace out the anomalies of higher freight rates from certain countries.

Import Duty (DF): The current import duty of 240% on most low-end wine s pegs the Duty Factor at 2.4. For higher-end wine s, it can be suitably adjusted to 1.5 or more, depending on the slab. For hotels importing at zero duty, DF will be zero. For more accurate comparisons, the cost of clearing goods can be included in either DF or FF.

Importer's Profit Margin (PF): If the importer's profit margin is 30%, this should be pegged at 0.3; for 40%, it becomes 0.4; and so on. It is a subjective figure. For instance, I may chose 30% as the reasonable profit margin for a vendor, but someone else may believe that 40% may be more realistic.

Vend Fee (V): It varies from state to state. In Delhi , for instance, it is currently Rs 150 .

Obviously, some of the factors can be assessed subjectively and are variable, but for any hotel or restaurant, it will not make much difference in the final results, because all the PPRs will be equally affected by the factors and the tool's objective is to make comparisons.

PPR & The Supplier: The essence of this exercise is to help the buyer. It prevents the supplier from resorting to marketing hype -- including a list of medals, which means nothing much, or high scores given by Wine Spectator or Wine Advocate -- to overcharge a hotel or restaurant. Frequently, PPR may help even the importer to re-negotiate or bargain with his principals to make the prices fall in line with international standards and become more competitive. This can go a long way in helping importers maintain long-term relationships.

PPR & W ine Pricing: The sale price of a wine is based on several factors: cost price, mark-up policies of the hotel or restaurant concerned, and the competition. Sometimes a wine label may have to be given space in the menu for extraneous reasons like the varietal, country, region, size of the wine list, and so on. Even though the PPR may be on the higher side or not acceptable, these factors may oblige the management to keep the wine as part of the menu (that it may become a painfully slow mover is another matter altogether).

There can be occasions when a wine may be procured at a very low PPR. It should be priced at a higher level so that it yields a better margin. Ideally, the wine s to sell would be those with low PPRs but high market prices due to the demand factor. Good examples would be the Italian varietals, like Soave, Orvietto and Pinot Grigio, or the Chilean wines.

PPR & Quality: Critics of PPR will argue that this method of evaluating wine s does not take into account the quality variations. But why must we re-invent the wheel when quality has already been factored into the international prices? For instance, a Pinot Grigio from one winery may be more complex and fruity than the other. More often than not, the international price will already reflect this difference. One may really like a wine, but it may cost $2, for which the importer may expect Rs 2,000 just because one loves the taste.

Our Experience With Olive: While preparing the wine list for Olive, we came up with some interesting results. Based on the parameters of freight, taxes, vend fees and so on, we decided that the average PPR should be 1.5. Anything above 2.0 should not be acceptable, whereas 1.0 or less would be great buys. Of course, the analysis was done only for wine s that were tasted and found of a quality the restaurant would be proud to serve within a certain price range.

We found that most of the wine s selected ranked between 1.0 and 2.0. So we knew the range established was correct. But the Spanish wine s, including those from Torres, were close to 1.0 or even under. We found that the US wine s had a much higher PPR, some at even close to 3.0.

Within the same company portfolio, too, the variation was significant. For instance, Kendall Jackson Collage Semillon Chardonnay had a PPR of 1.82 (on the higher side but acceptable), whereas the Zinfandel Shiraz had a PPR of 2.41. Obviously, this could be because either the vendor did not get a good price for the red, or he was pricing it higher to leave room for negotiation. In any case, it gave the buyer an opportunity to look at both the options and also think of another, that of not putting the label on the list. He might choose to keep it on the menu and price it higher if he feels there is a reasonable demand for the brand, but the tool gives him power to take proper action.

Another interesting observation was that most of the c hampagnes were available at low PPRs of close to 1.0. Interestingly, even though the Dom Perignon '95 was available at 1.04, the Moet & Chandon Rosé was pegged at 1.51! Here again, the buyer had the option of re-negotiating for the Rosé, or pricing it higher on the menu (thereby losing potential sales), or being on the lookout for an alternative from another source.

Similarly, a Chateauneuf-du-Pape from a vendor was being quoted at a PPR of 1.62 and the Pouilly Fumé was very high at 2.65. The classic example was the availability of the Australian Brands of Coonawarra Shiraz at 1.18, even as Jacob's Creek Cabernet Shiraz, which costs less than half, had a higher PPR of 2.04!

The concept of PPR works very well for most wine s being imported into India . The formula can help hotels and restaurants scrutinise their wine lists and make considerable savings by re-negotiating the prices of wines with low PPRs. At last they have a scientific tool to counter the marketing hype and slick salemanship of importers.

-- The author is the President of the Indian Wine Academy . He can be contacted at

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