India with its flourishing economy and transmigrating population has now reached a stage where cross-cultural societies and fat salaries have become commonplace. Since 1985, the country’s middleclass population has grown by almost four times, while the economy had been growing at a rate of 7.5 percent during 2002-2006. Evolving tastes, greater disposable income, increasing exposure to western culinary influences and easing of trade barriers has brought many commodities to our doorsteps that were once considered the privilege of a select few. Imported cars, high-end luxury brands, organic food items, and premium wines are some of the items that are now available with far greater ease than a few years ago.

Wine is attracting a growing consumer base among India’s elite with the middleclass too catching up fast. Exclusive French wines and vintage brands are now being largely exported to Indian markets, where they now enjoy a ready market.



As per a Netscribes report, the indigenous wine market had an estimated worth of USD 20mn in 2007, which is projected to attain a value of USD 90mn by 2011. Having registered an annual growth rate of 30 percent since 1999, the Indian wine market is projected to reach over 2 million cases by the year 2010. The consumer base for wines in India is limited to a select small percentage, around 350 million, of the total population, which is almost equal to the entire population of the US. Population in big metros like Delhi and Mumbai alone comprise around 60 percent of the total wine consumers in India.

Commenting on the growing popularity of wine in India, Ranjit Dhuru, Chairman and MD, d’Ori Winery Pvt Ltd, said, “The per capita consumption of wine in India is around six litres per year, as compared to 65 litres in France and Italy, 30 litres in US, and 20 litres in Australia. However, with the increasing global exposure, people are becoming liberal with wine consumption. Moreover, it has now been accepted as a healthy drink in India.”

Some numbers
It has been observed that Indian consumers prefer traditional red and white wines over fortified wines and champagnes. Maharashtra is the leading manufacturer of wines in India, while Kerala and Himanchal Pradesh hold the second and third positions respectively. Maharashtra alone accounts for more than 80 percent of the wine produced in India, while Karnataka’s output is 0.8mn litres, which is soon expected to reach 2mn litres.

Imported wine brands, though costlier, are fortifying their positions in Indian wine markets, due to their superior quality. Currently, the market share of imported wines is around 15 percent.

Despite their towering price tags, imported wines are growing at an annual rate of 20–25 percent, which indicates their growing popularity among the elite population. France, Australia and Italy are among the leading exporters of wine to India.

Three-quarters of the wine consumed in India is produced domestically by an estimated 65 wineries. Chateau Indage, Sula Vineyards and Grover Vineyards are the three leading wineries in India with a market share of 87 percent.

Other leading wine producers in India include Vinsura, Chateau d’Ori, and ND Wines, which have been recently joined by United Spirits Limited (USL), Seagram India and Diego India. USL presently holds around 48 percent share in the Indian alcohol market.

Key drivers in the industry

Wine education and consumer awareness
At present, both wine consumers and industry personnel in India need to be educated about the brands, retailing and technological intricacies. With global exposure, consumers in India are slowly changing their perception of wine from regular liquor to a lifestyle-defining beverage which also has its own health benefits. The traditional Indian stigma attached to alcoholic drinks is diminishing further with exposure gained through wine clubs, vineyard tours, media and promotional campaigns organised by wine manufacturers in India.



Government initiative
The government has taken several initiatives in recent years, which have largely impacted the Indian wine industry. Under the Grape Processing Industrial Policy, the wine industry in Maharashtra has been awarded the status of food processing industry, along with excise duty exemption for 10 years starting from 2004. Government has established a wine institute along with wine parks in Nashik and Sangli, with an investment of around Rs 250 crore. Financial aid is being provided by the Food Processing Ministry, and permission has been granted by the government to do contract farming. Moreover, wine bar licenses can be availed at lower rates than those required for retailing other liquors.

Affordability
It is another major factor which has affected the growth and consumption volume of wine in India. Generally, wine is expensive as compared to spirits and other liquors, but domestic wine manufacturers have now launched low-price wines for middle class consumers. Presently, 80 percent of the domestic wines sold in India cost around USD $20, of which 55 percent are priced below USD $10, which comprise the highest selling category of wines.

Availability
Government has taken initiatives to bring in organised retailing in the wine sector to boost sales. Wine unlike spirits is now available at superstores, which has changed the general perception of the product along with facilitating its distribution. ‘Wine only’ bars in some states have also increased the availability of wine in India.

Challenges

Inconsistent quality
To maintain quality consistency along with achieving international quality standards is a major challenge for the Indian wine industry. Compared to revered French wine brands and vintages, domestic wines lack consistency in taste and fall short in several other key parameters like flavor, density, etc. Indian government has established wine parks and wine institutes, which along with the National Wine Board will impart education, perform research and ensure quality standards and consistency of indigenous wines. Ajay Kumar Gothwal, Wine Educator, shared, “Due to the support extended by the Indian government, especially in Maharashtra, the domestic wineries are slowly improving their quality and productivity, and hence gaining popularity.”

Policy variations
Every state in India has different policies for wine retailing, which means a localised structure of taxation and excise duties. Both domestic and international wine manufacturers have to comply with different legislation and policies for entering and selling wine in different states, which causes monopoly and decreases availability and affordability. Mr Samant opined on the matter, “This local variation in policies and taxes is a matter of serious concern. The Indian wineries have the capability to develop as a wine industry, but due to cheap imports this is becoming difficult. Tax on imported wines is very high in some states, making them even more expensive. This gives the indigenous brands some protection from cheaper subsidised imports.”

Advertising restrictions
Another major hindrance to the popularity of wines is the restriction on promoting wine and spirits through mass media such as TV advertisements. Although, spirits and beer have been promoted through surrogate advertising, wine manufacturers have yet to enter the medium. Presently, clubs, live shows and online promotions are the only platforms to promote wine at selective locations in India.

Logistics
Proper storage of wine, which causes a large volume of wines to degrade every year, is one of the major concerns. Even some fine dining restaurants and transportation service providers in India are lacking in basic wine storage equipment. Non-refrigerated transportation and storage in Indian conditions has been a major factor in degrading the quality of wines. “Due to poor storage conditions and the indifferent attitude of people towards preserving wine, the quality and taste of wine degrades most of the time. This is a serious issue that the Indian wine industry is facing”, said Mr Gothwal.

Developments galore

Emerging domestic and global players
The Indian wine market is in its nascent stage with only a few leading organisations. Hence, there is a huge potential for new entrants in the market. “Indian wine sector has made a considerable progress in a short time, but there are still many milestones to be achieved. The industry is still not organised, as there are only a few big players. There is a need to grow as an industry”, opined Rajeev Samant, CEO, Sula Wines.

Some of the companies foraying into the wine market include United Spirits Limited (UPL), Radico Khaitan, Diageo Plc and Pernod Ricard’s Seagram India Ltd. A report says that since 2008, the number of wine importers to India has increase by 45 units. Irrespective of the towering import duties, wine companies from France, Italy, Australia, South Africa, America, and Chile are entering Indian wine markets.

Private Equity Investment
In recent times, private equity firms have invested in some domestic wine manufacturers, which testify to the growing credibility of the industry. For example, in 2007, Sula Vineyards raised USD 11.25mn from Indivision India Partners along with some private investors.

In 2005, Arisaig Partners’ PE fund acquired around 10 percent in Champagne Indage. It was preceded in the same year by a deal in which Anil Dhirubhai Ambani Enterprises acquired around 9 percent.

Strategies and business models

Contract bottling
Many small wineries have undertaken wine bottling contracts for bigger wine brands. This business model has become quite popular among new entrants from both the domestic and international markets. Contract bottling has been proved to enhance productivity, while saving on long-term costs for capacity expansion.

Moreover, wine importers are collaborating with international brands to sell “Bottled in Origin” (BIO) wines. Also, there are opportunities for bottling wines which are imported in bulk quantities in India.

Retail collaboration
As permitted by the government in some states, several domestic wineries and wine importers are collaborating with supermarkets and hotels for retailing wines. This has enhanced its availability to the general public, enhancing its popularity.

Conclusion
Though wine is mostly consumed by only a small elite segment of the population in India, it can be mass popularised through effective pricing strategy and aggressive promotional campaigns. Growing awareness, government support and upcoming wine research institutes have encouraged farmers to cultivate a variety of superior quality wine grapes, thus increasing their income and job opportunities, along with strengthening the position of the industry.

Indian wine brands are cheaper than their international counterparts, thus scoring a key advantage. However, quality standards and consistency are the major issues which need to be attended seriously. With an annual growth rate of 25–30 percent in the domestic markets, this is a segment that can no longer be ignored.