In alcoholic beverages Focus is Shifting to Wine

Rajat K. Baisya

alcohlicAlcoholic beverages industry is experiencing a growth of over 10 percent in the recent years. In that, white spirit such as gin and vodka are leading. Beer is also growing at around 12 percent during the same period. But major shift in the growth is seen to be happening in wine. During the same period Indian wine industry has registered a compounded annual growth rate (CAGR) of over 25 to 30 percent. Although the base volume of Indian wine is much lower in comparison to other types of spirit but considering the fact that Indian wine was not in the reckoning even a couple of years ago and from that scenario what is now being seen is a paradigm shift. But from the time some regions like Maharastra, Karnataka and Andhra were identified as Agri–Export–Zone (AEZ) for grapes and the focus and support were given for cultivation of grapes for wine production things started moving in favour of wine industry. Maharastra has taken many proactive steps to support this industry by giving excise rate concession, escalating import duty for foreign wines coming into the Indian market and assisting the manufacturers to find overseas market. In this race, Maharastra seems to be well ahead of other two states Karnataka and Andhra. In Maharastra itself there are nearly hundred wineries operating. Seeing the growth of the wine trade in India, northern states like Uttara­khand and Himachal Pradesh have now started growing grapes with great interest. There is no reason why grapes will not grow in these northern states and therefore in future wineries will come up in north as well. The advantage is that entrepreneurs can set up wineries with small capital investment as well provided they have access to the appropriate technology. Of course, large size mechanized plant also can be set up requiring high capital investment.

In the Nasik region itself it has been said that there are over sixty odd wineries. But large wineries in that region are only a few. Three to four units have grown in size and have invested significantly in extending capacity. There are wineries located in that area, which are still suffering from lack of technology and capital. And I would club them as ‘Desi wine’. Recently I had visited Nasik with an objective to identify good plant in operating conditions available for take over. I was, in fact, working on a brief from an overseas company who are interested to take over a running plant. The agent that I had appointed lined up a few companies that were available for take over. Needless to say that I was highly disappointed. The plants (I cannot name them for confidentiality reason) that I had visited are producing substandard wines and I was wondering where they could be selling those. I got the answer and that is most of those wines are sold in the local and adjoining localities at a very low price and the buyers are those who otherwise consume country liquors. The owners of the wineries were taking a pride at that saying that at low price they were able to give something produced from grapes. Of course, one more reason of the poor quality was due to the fact that grapes used for production were also of very low grade. I have rejected all three plants that I had seen there in the Nasik belt and now thinking about setting up a grass root level project.

Indian wine market 

Indian wine market currently stands at about 4.6 million litres in volume terms and about Rs 460 crores in value terms. This represents about 1 million case of wine and added to that another 0.2 million case of imported wines. The large part of this wine is sold in the form of red and white still wines. About 90 percent of wine consumed in India is still wine. Very small parts of wines are consumed as sparkling wine and rose wine that are consumed by relatively affluent class. The forecast for the wine industry by the industry circle is said to be about 8.5 million litres by the year 2010, the year scheduled for holding Commonwealth Games in India. Interestingly, wine sale is still a metro city phenomenon. Over 80 percent of the total sales take place in the cities including Mumbai, Delhi, Pune, Chennai, Kolkata and Bangalore. Western India accounts for over 40 percent of the total market followed by Northern India, which is about 20 percent. Per capita consumption of wine is still low but it is increasing and market is still in select areas.

There are three major players still dominating this industry and that includes Indage, Sula Wines and Grover Wines. These three companies put together enjoy over 90 percent of the market. Others are therefore, still in their infancy. United Spirits Ltd have taken steps to come into this trade in a big way. Abhay Kewadkar has been taken on board as Head of wine business. UB group is also scouting around for acquisition of wine facility to get into this trade in a big way. The three large players have large acreage of grape cultivation under their control, which gives them an advantage in the industry. Some of the global players are attempting to tie up with the organized retailers here to sell their wines portfolio in Indian market. For example, Diageo, the world’s largest alcoholic beverages company is said to have tied up with Reliance Retail. Wines that come to Indian market include South African wines, Spain, Italian and Australian wines in addition to well-known French Wines.

Indian wines have made their way to overseas market. About 10 to 15 percent of total wines’ sales is attributed to export. In the year 2006-07 about 4.5 lakh litres of grape wines is said to have been exported from India. Out of this quantity about 3.5 lakh litres have been exported from Maharastra alone to countries like France, Italy, Germany, USA, UK , Singapore and Belgium. The Indian brands are rated as good and acceptable in overseas market. Although these are a few selective brands from only a few well-known manufacturers but the trend is encouraging.

As has been mentioned earlier, setting up a winery is not a big investment. For example, one lakh litres capacity winery can be set up with an investment of about Rs 1 to 1.5 crores. But it is the integrated approach that matters. Using right quality grapes is another requirement. The cheaper priced wines produced and sold in local market have no big future. The domestic market is also seen for the medium priced products. The wine with price tag of Rs 300 to Rs 350 per bottle has the highest sales volume. Although Maharastra is quite ahead of others in terms of various initiatives that were taken to boost sales and performance of this industry but in other sates still plethora of controls and multiple taxation exists. There is no uniformity of laws, and there are very high incidence of duties and taxes as it is existing in case of hard liquors. These issues need to be looked into in case we need to see the growth to continue. It makes good sense to put wines in a different class altogether to ensure much wider distribution and promotion opportunities.

UB group has set up a large winery in Baramati. It is set to introduce its products in both domestic  as well as in European market. UB group is trying to acquire large winery abroad and as per report discussion is in advanced stage to acquire large French Winery. If this deal grows through UB will emerge as a dominant player in European market as well. With the recent acquisition of White & Mackay UB group is already a dominant player in global alcoholic beverage market.

Wine drinking habits 

Wine drinking habits are more amongst the younger generation. They have become more health conscious now. Earlier only affluent elderly people were drinking wine for health but now the younger generations are driving the growth of this market. Given a favourable trade and promotional support and affordable price, the growth of this sector will be much higher. Wine bottle once opened needs to be consumed in one go and unlike any other hard liquors wine cannot be stored after opening for consumption later. This makes wine a bit costly proposition. And that alone is a constraint for the growth of this category. Although the price is affordable but one can open a bottle in a group or in a party. This is therefore not still a drink for everybody. The market, however, is very large. And today it is limited to urban young and that too confined to metro and large A class cities. But it is spreading fast to other smaller cities as well. In large cities like Delhi, Chandigarh we have now wine clubs. Parties are organized these days for wine and cheese. Habit of having outside meals and organizing social parties are increasing everyday where one can notice that wine is invariably served. You can also notice that whiskey-drinking population in such parties is less. Only those who drink to get intoxicated are now drinking whiskey and rum. There is a significant shift towards white spirit as well as for wine. These days women also drink and their numbers are increasing. Women definitely prefer to either hold a glass of white spirit (so that you cannot make out whether they are drinking hard liquor) or wine as that way they think that they will be more socially acceptable. Young men and women will gradually shift to wine drinking and that this new lifestyle with western influence and cultural shift triggered by the increased travel and globalization will help this category of alcoholic beverages to grow further. This shift has taken place in developed countries and now will be seen to be happening in India as well.

We can thus expect to see more investment and launch of new brands both domestic and international in coming years. And if the tax structure is more rationalized and reduced and if government accepts in due course of time that wine can be sold through grocery and provision stores as well as thorough organized retail outlets and supermarkets, the distribution width and depth will further trigger the growth.

-- This article was first published in "Processed Food Industry" monthly magazine.




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