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WINESCI 706

THE BUSINESS OF WINE PRODUCTION

Assignment on
Introduction and PESTEL analysis for Grover vineyards

Name: Siyamalan Subramanian


Student Id: 1522273
Email: ssub027@aucklanduni.ac.nz
1. INTRODUCTION
Wine industry is in a nascent stage in India. Estimates suggest an enormous
growth potential of this sectors. India is recording strong growth in Wine
consumption, mostly among younger people with good income in the main cities.
Wine consumption in India is still limited but the growth trend is impressive at a
rate of 30% India appear to be hot on agenda of world’s best wine makers.
Grover Vineyards, in Dodballapur, 40 km north of Bangalore at the foot of the
Nandi hills uses French grapes Vitis vinifera in its vineyards in Bangalore. It exports
wine worth $435,000 every year. "The Grover range produced from high- altitude
vineyards north of Bangalore, with help from the ubiquitous Michel Rolland of
Pomerol, is extremely respectable. The reds, particularly the Reserve red, are a
distinct notch above the slightly dull Clairette-based white. Fifteen years ago, the
Grovers took on the task of reviving wine drinking in India. The company, together
with Mr. George Vesselle accepted the immense challenge of growing for the first
time French varieties of grapes, suitable for wine production in India. Grover
Vineyards is jointly owned by Kanwal Grover and Veuve Cliquot. Kanwal Grover is
advised by two top French winemakers, Michel Rolland and Georges Vesselle. The
vineyards are planted at 2,000 feet above sea level and some varieties can produce
two crops a year. Still white and red wines from Bangalore Purple, Cabernet
Sauvignon, Shiraz and Thompson seedless grapes are made under the supervision of
winemaker Bruno Yvon. The white is medium-dry and fairly bland; the red is
cabernet-style with good depth of fruit.
Bangalore, with the ideal combination of rich, well drained soil, warm sunny
days, cool nights and temperate climate, was finally selected over six other places as
the most suitable site. Thirty-five important varieties used in France for making wine
were planted. In the next five years there was an emissary of French oenologists to
study their adaptability to Indian conditions, as well as to assess the quality of wine
they would ultimately produce. Finally, in 1988 Grover Vineyards was established
on 40 acres of land at the foot of the Nandi Hills. Here nine varieties which had
responded well to Indian conditions were planted on an industrial scale. Today,
Grover Vineyards has over 200 hectares under plantation. Unlike other wine makers
in India, Grover Vineyards is the only company which shuns ordinary table grapes,
while exclusively using French wine grapes, selected from the original thirty five
varieties of the Vitis vinifera species. The company has export target of 25% of its
production for the current year i.e. 1.5 lakh bottles. Exports are mainly to France, US
and UK. APEDA has chosen Grover Vineyards for bronze medal for the excellence in
export for the year 2003-04.

2. PESTEL ANALYSIS
There are many macro environmental factors that could have an impact on
Grover Vineyards in the near future. It includes Political, Economical, Social,
Technological, Environmental and Legal factors.

2.1. POLITICAL FACTORS


Alcohol is a state subject in India and is regulated by state governments,
which are responsible for production, distribution, levy of excise duties and taxes on
alcohol and also for prevention and management of alcohol abuse in the state. Wine
as an alcoholic drink cannot be sold directly by Wineries and government takes
complete control over the same.
Coming to wine production, Maharashtra and Karnataka are the two major
wine producing states. About 9,700 hectares of land is under grape cultivation in
Karnataka where Grover Vineyards is located, and the estimated annual production
is little over 1.5 million litres. Compared to that, Maharashtra has about 40,000 acres
under cultivation, producing about 21 million litres annually. That's about 94 per
cent of the country's total wine production. The state has around 51 wineries which
include some of the largest producers like Sula Vineyards, Champagne Indage and
United Spirits. Karnataka, which has just two wineries — Grover Vineyards and
Hampi Heritage Vineyards - is hoping to invite more wine investment through its
new policy.
The two states have been up in arms over their wine production. Karnataka
recently decided to give its local wineries a boost by increasing the excise duty on
wine made outside Karnataka state to Rs 300 (NZD 9 ) a litre from Rs 10 (NZD 0.3) a
litre. This is a response to Maharashtra state which, seven years ago, established a
wine policy that exempts local wines from a whopping 150 per cent excise duty that
other wines had to pay. Further in Karnataka state, where Grover vineyards is
located, the grape wine production units have been declared as the ―Horticultural
and Food Processing Industries‖, and accordingly are liable to receive all the
incentives and facilities that are meant for such industries.
In order to promote “wine – tourism”, the licensed wineries will be allowed to
sell the wines to those visitors who are interested to buy wines for self consumption
and this will also have a positive impact on Grover Vineyards.

2.2. ECONOMICAL ASPECTS


With its fast-growing economy and expanding middle-class, India is a new
market for both wine consumption and production, but the local industry is still
taking baby steps. India is a country where abstinence from alcohol is rooted in
religion and politics. But cultural changes brought on with the opening of the
economy have seen some segments of this essentially conservative society shed their
prejudices against alcohol consumption. Sales of whiskey and beer have shot up in
recent years, and now urbanized Indians are showing marked preference for wine.
From a non-existent market over a decade ago, wine production and consumption is
growing 25 per cent annually and expected to maintain that momentum for the next
five years. The wine industry is relatively small but holds enormous potential given
the low per-capita consumption, high growth in disposable incomes and
urbanization. Every year 1.6 million cases are sold, of which some 20 per cent are
imported, mainly from Europe. Over 50 local wineries have been set up in recent
years, most in and around Nashik in western state of Maharashtra, the principal
wine district. Other vineyards are located in Bangalore and the highland state of
Himachal Pradesh. Realizing that support is crucial for the nascent industry, the
government is providing financial concessions and facilities such as wine parks to
give a boost to the sector.
Currently, the industry is in a rough patch owing to global recession, a drop
in tourist traffic following the Mumbai attacks and tax issues. A global glut of wine
and domestic overproduction by grape farmers led to unsold stocks. One of the
country's largest wineries, Chateau Indage, has been in dire financial straits, mainly
due to its acquisitions of wineries in Australia and South Africa. A court recently
gave the company a temporary reprieve from liquidation, allowing it some time to
sort out debt of about 100 million dollars. Further Grover vineyards, country’s most
premium winery got a major pull back in its exports to France and UK following
global economic slowdown since 2009. And overall sales in domestic market had
begun to slide for Grover from the year 2009. In this context, they launched a low
quality product in the brand name of Sante but this may also have a negative impact
as this may erode the brand image of Grover Vineyards as they remained in
premium segment with high quality wines.

2.3. SOCIAL ANALYSIS


Wine is a complete lifestyle drink very much related to health which can be an
extension of the consumer’s personality. Traditionally wine does not figure out great
in Indian culture with very low per capita consumption rates. Though most of the
Indian consumers are unable to relate themselves to wine but off late they have been
able to associate with it. Increasing awareness of wine as a separate drink other than
spirits has made it more socially acceptable. Increasing health consciousness and the
increasing spend on corporate and personal entertainment has given a boost to this
sector. The increasing awareness in Government authorities to encourage wine
drinking compared to spirits has certainly brought cheers to the companies in the
sector.
The perception of wines as being up-market and sophisticated is helping in
bringing about this change. One sign of the changes happening is the emergence of
Wine Clubs in a number of cities. The per capita consumption in India is only 0.07
litre/person/year. The biggest consumption is however confined to major cities like
Mumbai and Delhi followed by Bangalore, Chennai, Nashik , and Pune. Grover
Vineyards enjoys complete domination over Bangalore and stiff competition against
its rivals in other major cities. Further in India, majority of sales have stayed on
traditional still red and white wines. Wine produces in India have two different
demographies in the Indian market upon which to focus: the upper class and the
general consumer. While the upper class prefers the classic presentation, i.e., real
cork, full bottle size, and dry red and white wines, the growing consumer class in
India gravitates towards approachable wine packaging, i.e. screw caps, half bottle
sizes, and sweet wines.
Grover vineyards products range mostly for upper class which includes La
Reserve (Cabernet Sauvignon Shiraz blend), Sauvignon Blanc ,Viognier, Chenin
Blanc, Shiraz rose, Cabernet Shiraz and Blanc de Blancs de Clairette.

2.4. TECHNOLOGICAL ASPECT


Wine making is a specialised line in India till now unlike in countries like
France, Italy, Australia or Argentina where even the farmers have their small
wineries. The technology in wine industry is common and independent. Business
can have access to those technologies in regards of making wines fairly easy. Few
years back, wine making machinery was imported but now-a-days they are available
indigenously and machinery suppliers also offer technical know-how. Some
machinery suppliers are also providing some costly and crucial facilities including
laboratory testing on rental basis with the help of truck mounted mobile machines.
Grover vineyards have recently renovated its wine making facility in 2008 and are
currently up to date with most of modern techniques widely used in wine industries.
New wineries like Chateau de’Ori are adopting techniques like Gravity Flow Winery
were, the transfer of wine is done by gravity and use of pump and other oxidation
problems are avoided. And the company should also adopt Microoxygenation to
reduce the cost of its wines and to stay in competition. Continuous investment on
innovation and up gradation of facility is need as it is facing stiff competition from
its peer Sula wines.
2.5. ENVIRONMENTAL ASPECT
Cost implications and location advantage plays a very important role for any
wine industry in India. In case of distribution of wines, retailers play a major role
and it will be entirely based on location. Historically, retailers were primarily located
in Southern India, due to better distribution technology, and a greater degree of
Western influence in the region. Importantly, the Southern region, where Grover
Vineyards is located offers more organized transportation systems and cold storage
facilities. This infrastructure provides reliable delivery and minimizes product
deterioration and damage. This enables Grover to reach its quality product to its
consumers. Western India has the highest per capita income in India and the
strongest consumer product awareness. And recently organic concept is growing
among all Indian food industries and people are becoming more conscious on
environmental issues. Similar situation may arise for Grover on whether they have
to switch to organic wine. Currently Grover is using Glass bottles and it’s good for
environment as it can be recycled.

2.6. LEGAL ASPECT


Wine is one of the highest taxed products in India as it is considered a luxury,
not a necessity. The use of wine is discouraged by Indian Constitution. The central
government normally declares the federal customs duties applicable to imports
during the union budget held on the last week of February. Customs duties for most
products have declined since the year 2000; however, taxation on alcohol has been
an exception to this decline, and, as it is considered a negative product, the duty has
actually increased to its current rate of 150% ad valorem. Mahatma Gandhi and
Dr.Bhimaro Ambedkar, two leaders in the drafting of the Indian constitution, were
teetotalers in their day, but believed that it was the responsibility of the states to
regulate alcohol. Moreover, Article 47 of the Indian Constitution 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 endeavor to bring about prohibition of the consumption
except for medicinal purpose of intoxicating drinks and of drugs which are injurious
to health‖.
Wine has traditionally been considered a type of liquor whereby the
government morally obligates itself to protect Indian citizens from its misuse.
Methods of alcohol control include: serving alcohol only at specific outlets or during
specific hours; prohibiting alcohol in religious places, educational institutions and
underage drinkers; and the official age of legal alcohol consumption being
established at 25 years old. Other legal issues involve stringent laws and a plethora
of duties and fees such as excise duty, license fee, sales tax, brand/label registration
fee, import/export fee, vend fee, gallon age fee, turnover tax etc. The alcoholic
beverages sector being a State subject, States/Union territories frame their own
policies and taxation regime. Rates of such duties and fees vary widely from State to
State. Unlike most Indian states, Maharashtra and Karnataka is promoting wine and
is facilitating wine grape growing and wineries as an important sector of agriculture.
Wine is still clubbed with spirits for licensing and taxation by all states and its
production and marketing still subject to all the checks and controls that constrain
growth of a healthy domestic industry. Grover Vineyards is enjoying the states
regulation with low cost and low competition but its growth is hindered in other
states because of these legal issues.
REFERENCES
1. Profile of Grover Vineyards,
http://grovervineyards.in/Profile-Grover%20Vineyards.pdf
2. Economics of alcohol in Karnataka in the background of the Indian,
dspace.vidyanidhi.org.in/dspace/bitstream/2009/3634/6/MAN-2005-002-5.pdf
3. Karnataka Grape Processing and Wine Policy – 2007, www.indianwine.com
4. Karnataka to open two new wine parks, Sep 16, 2009,
www.businesstoday.intoday.in
5. India’s wine industry suffers growing pains, Jun 7, 2010,
www.monstersandcritics.com
6. Grape Wine, www.mofpi.nic.in
7. Comprehensive Study on Indian Wine Market,
www.indianwineacademy.com/ComprehensiveStudy_IWM_Reference_Section.pdf
8. Notes on Wine and Social Justice in India, Sep 25th, 2008, www.reignofterroir.com
9. High time India raises a toast to wine, June 18, 2010; www.business.rediff.com
10. www.rabobank.com: The Indian wine industry uncorked
http://www.rabobank.com/content/images/Rabobank_The_Indian_wine_industry
_uncorked_intro_tcm43-57618.pdf
11. Johnson, G and K Scholes, Exploring Corporate Strategy 6th edition.