BUSINESS / COMMENT: India: the world’s largest wine market in 25 years

07 August 2006 By db staff writer

“standfirst”>India has experienced a steady increase in wine consumption of about 20% over the last five years

When You think about what  India was like a decade ago, it was a scary state – full of beggars, black magic and snake charmers. Probably lots of people in the developed world still think it is like that, but things have started changing.
Investors and business houses have shown their keen interest in tapping into this largest democracy with a population of 1.029 billion. Its fast-growing urbane rich and middle class is almost 23% of the total population.

But unfortunately this has not been reflected in the wine business until recently. The average per capita consumption is an abysmally low 0.006 litres per year. Even people with huge spending power and the highest level of status were not prepared to enjoy the finesse of the greatest gift of Bacchus. They, instead, prefer a vintage Scotch or single malt. This was mainly due to the lack of awareness and proper positioning of wines in the market.

Cumbersome taxes
The duty structures and the policy of on-premise to keep the beverage cost low (normally it’s 33% to 25% in the case of wine) prevents people from going for good quality wine. As far as duty is concerned, India follows the federal structure like the US. It has 27 states and some small union territories and every state has its own cumbersome excise legislation, besides central excise  and customs duties. For example, if you want to import wines and sell them in Delhi, you need to pay central customs duty and in addition to that, you have to follow the state excise rules. In Delhi, you have to pay £63 (approximately) to register the label even if you don’t sell a single bottle. After that, with every bottle sale, you have to pay £2 plus 20% VAT on everything. In other States, the procedure to get the label registered is more cumbersome and expensive.

The central duty on wine is so complicated and multileveled, it needs great expertise to understand it. But for layman’s understanding, it varies from 160% to 279% on the CIF (product value). So, if you are exporting a bottle, FOB £1, to India, it will become £25 when it reaches the ultimate customers. Every intermediary including the importer, wholesaler and retailer, will also get fat margins on this. But don’t think all these will remain with them. A larger part of the revenue has to be shared with government officials, politicians and the local goons, infamously called the “Dada” in the western part of India.

Really, there is too much interference in the liquor business in India. Every small department such as the fire safety, local police, environment, local municipality, and state excise departments will try to get some personal benefit out of the deal. Though the government is boasting about its strict vigil on the liquor trade, this vigilance is mainly meant for extracting money and not because the Government is very conscious about the health of its people. Every year, more than 2,000 people die because of illegal spirits in India. Promotion of wines and encouragement to switch over from spirits to wines by the government can solve the problem. But they are not interested because they don’t want to displease a strong lobby of spirit and beer manufacturers, some of whom are even members of the Indian parliament.

In contrast, the wine industry is minuscule in comparison to the huge spirits and beer industry. It represents only 6 million bottles per year, out of which imported wine is less than one million bottles. Though there are 46 wineries in India, three major groups – Château Indage, Samant Sula and Grover Vineyards – control 80% of the domestic business. These groups enjoy major clout in the state of Maharashtra from where most of the wineries come. But when it comes to the federal government, they have almost no influence.

But, after all these disheartening facts, there is a silver lining at the end. India has experienced a steady increase in wine consumption of about 20% over the last five years, though the biggest consumption (up to 80%) is confined to major cities like Mumbai (39%), Delhi (23%), Bangalore (9%) and the foreign tourist dominated state of Goa (9%), whereas the rest of India has only 20% consumption. Outside these metropolises and tourist destinations, people have little access to imported wines. Now, major importers and companies like Moët Hennessy and UDV have realised their potential and have started operations in such places.

On the knowledge front also, the scenario is changing rapidly. When I joined this trade almost six years back, even the F&B managers didn’t know that much about imported wines. Now, most of the stewards in major five star hotels know about the basics. Even, people from the upper and middle classes have started switching over from spirits to wines. One can imagine the simple fact that, if per capita consumption increases to one bottle per year only, India will probably become the largest market for wines. And, I believe, within the next 25 years, India will reach that position, when it is expected to surpass the population of China.

The only thing needed to achieve this is massive training and education about wine. Some importers like Brindco, and Sonarys, have started looking into this. Some other agencies like Sopexa and Lotus Exhibitions are also contributing towards the cause in their own way by organising exhibitions and training sessions in different parts of the country. Restaurants like DIVA, Olive, Orient Express, Three Sixty and Indigo have given diners diverse options to choose from. But, with the exception of some shops in Delhi and Mumbai, the retail business has not developed in this direction. Everybody related to the industry should work to make this segment successful. That is the biggest challenge in front of everybody related to the industry today.

© db August 2006

Rahul Bal is sales and marketing manager at Brindco, India’s largest alcoholic drinks importer