Indian Wine Industry Analysis

Actual Situation:
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.

Consumption:
There has been much debate about the precise number of potential consumers in Indias wine market. Major factors that hinder wine consumption are poverty, age restrictions and specific state alcohol prohibition. About half of the Indian population meets the minimum drinking age of 25 years; however, that number is greatly increasing as the Indian population matures. This maturity creates an opportunity for younger generations to acquire a taste for wine, breaking from a tradition of hard liquor. Although many Indian religions encourage abstinence from alcohol, few have formally banned its use2. Three Indian states maintain prohibition laws and others have set strict regulatory measures on alcohol sales. The summation of wine consumers without these limitations is demonstrated in the chart below.

Indian Wine Market Volume (Cases)

Production
The main wine producing companies in India are Chateau Indage, Sula Vineyards & Grovers Vineyards. Some of the latest entrants to in the wine market are major liquor companies like Diageo (Nilaya), Pernod-Ricard (Seagrams Nine Hills) and the UB group (Zinzi and Four Seasons). The main varietals that are planted in India are the Cabernet Sauvignon, Shiraz, Merlot, Pinot Noir, Chenin Blanc, Sauvignon Blanc, Chardonnay and the Ugni Blanc. There are about 80 importers operating in the Indian wine market. Of these Brindco (New Delhi) and Sonarys (Mumbai) are the biggest. Wine Consumption (Per Capita): The wine consumption per capita stands at 9ml per head.

Trading Distribution & taxes:

Currently the basic customs duty/tariff is set at 150% of the assessment value (CIF value and + 1% assessment charge). There is also a 4% Special Additional Duty and an Education Cess of 3%. This is at the central level. Individual states in India also levy their own taxes and duties above this, as alcohol is a state subject.

SWOT Analysis:

Strengths Indian wine consumption has grown 25-30% annually over a 5 year period. Good climate for grape growing Urban population is increasing Youth are craving an alternative to hard liquors and developing a more refined taste. Wine is becoming more acceptable to women and youth

Weakness Wine remains an elite taste Wine is difficult to store in India due to lack of cellars and refrigeration. Less than 50 percent of the population is legally old enough to drink (25 yrs. old). 400 million persons are 18 years old or younger. Poor awareness of wine and infrastructure.

Opportunities 100 million persons will be legally allowed to drink alcohol (25 yrs. old) in the next 5 years. Supermarkets are emerging to support wine distribution infrastructure. Domestic market with increasing disposable income. Growing tourism industry

Threats The Indian constitution discourages alcohol consumption. Wine viewed as a sin by some Indians still prefer whisky Advertising for alcoholic beverages is banned. Domestic wine production is Coddled by state governments

POTER Analysis: Power of suppliers: Medium

The wine industrys main suppliers are the grapes producers based in rural India. Most of the farmers sell their produce through co-operatives or individually to the wineries. The market is fragmented with small and medium farmers planting common Varietals. The top three wineries, integrating backwards, have planted grapes on hundreds of acres of land to control the quality of

produce, costs and Varietal selection. However they also have signed long term contract with the local farmers for primarily common varieties. Contractual farming is a win-win situation for both farmers and wine producers but still it has long way to go. As wine grape cultivation yield is very low compared to the table grape varieties farmers are skeptical about the returns and hence contractual agreement with the wine producers provide assured income. The farmers are planting common varieties like Sauvignon Blanc. A few large and medium farmers have planted Zinfandel and Chardonnay and have higher bargaining power for these Varietals. The industry has also seen forward integration with large farmers starting new wineries however are unable to sell their product due to lack of expertise and understanding of the consumer market. As the wine industry will move from its current expansion phase to consolidation phase and increased volumes the suppliers will be able to see increased profits. The other suppliers of bottles and corks (read importers) have good bargaining power due to non-availability of corks in India and better glass quality than Indian bottle manufacturers.

Power of Consumers: High

Traditionally the wine consumer was in the niche segment and had fewer options for Indian wine. The good wine in India was very expensive and the less expensive wine was of very poor quality. The wine was never meant for the masses. However growing awareness and changing lifestyles have changed this scenario and suppliers today are forced to offer lower prices to the consumers. The capacity increase is also responsible for the downturn of the prices. The power of consumers is going to be high as the market increases and more market players offering better quality wine.

Threat of New Entrants: Low

The wine industry is not very capital intensive and with the government subsidies it is easier for new players to enter in the market. The current government policies are pro new wineries with zero excise duties and low license fees. However the brand equity of old players and the economies of scale they enjoy seriously threaten the new entrants. The industry and the products require extensive brand building efforts to create awareness and acceptability. The new players not only have to improve the quality of the wine but also have to have deep pockets to spend heavily on brand building efforts to sustain themselves. The good news for the new players is that the distribution channels are open to new players willing to invest long term in the trade. The threat of substitutes A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose Substitutes like beer and spirits pose a serious threat to the wine industry, as their market is phenomenally bigger and growing and consumers switch very easily to these alternatives. However the wine producers do not have to worry as the wine industry has grown in the midst of these substitutes and carved a niche for itself with loyal consumers. The wine has an inherent advantage of being the healthier option to the empty calories of spirits and beer.

Rivalry between the existing players: High

The competition between the existing players has intensified with every one trying to grab the share of small but increasing market though the market growth rates are high it is on the smaller base. The current three big players in coming years will be of similar size and compete with each other. The new entrants are trying to offer better trade discounts to increase volume. There is however a huge

possibility that the market consolidation will lead to few large players along with some small players creating product differentiation and co-existing with sustainable market shares. The need of the market is everybody working together to increase the market by creating awareness and educating the customers about the wine drinking benefits. Big players along with the government should come together to create a regulatory body for controlling the quality and creating awareness programs across the country. Foreign players entering India will pose threat to Indian wineries due to two main weaknesses of Indian players viz, poor quality of wine and low investment.

Resources:
Multiple aspects of Indian Wine Industry Karnika Seth Present Scenario of wine industry in India G.S.Karibasappa, P.G.Adsule, S.D.Sawant and K.Banerjee N.R.C. for grapes, Manjri Farm, Pune 412 307. Wine project APICTO Winery Project TIDCO Maharashtras grape policy 2001 Karnataka Grape Processing and Wine Policy 2007 DEssenceconsulting WineReport Wine Industry in Maharashtra Sudipto Mitra