Trends: Travel, Wine consumption, Assocham, Tier-II and Tier-III cities, India

Good times ahead for wineries

Wine consumption in India at 5 mn litres a year is only a fraction of the beer and hard spirits like rum and whisky the nation gulps in. But there is still something for the connoisseurs of great wines to cheer about.

The domestic wine market is expected to grow at 25 percent in the next two years to reach 9 mn litres in 2010, according to the Associated Chambers of Commerce and Industry (Assocham). No wonder, because of the business’ prospects and the low costs of setting up a winery, several Indian and overseas companies are joining the wine bandwagon. In an Assocham report titled “Wine Consumption in India”, chamber President Sajjan Jindal said, “India’s wine market is currently growing at 20% but likely to grow at 25% in next two years in view of rising wine consumption patterns not only among youngsters but equally so in aged group.”

The demand for wine is currently from the big cities of New Delhi, Mumbai, Chennai, Kolkata, Pune and Bangalore — 41% of the wine quaffed in India is consumed in Western India, followed by the North at 29%. Around 63% of the volume sales of wine are through the off-trade channel in five-star hotels, pubs and bar-restaurants. Now working professionals and the younger generation in Tier-II cities are also turning to wines in a big way.

Various factors could amount to the rising wine consumption in India, including a large population under the age of 30 and an attitudinal shift in their alcohol consumption. Also, the rising disposable incomes among the people imply that a greater part of the population can afford such products. Another factor is the influence of the Western world, which is pushing the Indian youth to change lifestyle. Also, the measures and pressures adopted by the government aimed at weaning the population off stronger and more harmful drinks have aided growth of the wine industry. Many state governments have reduced duties on wine, eased restrictions on distribution allowing wine to be sold in supermarkets and have provided incentives for wineries to establish new facilities.

In India, the cost for setting up a wine plant with a capacity of around 1 lakh litres is only about Rs. 1.0-1.5 crore. The conducive conditions thus formed for winemakers have already drawn the likes of top drinks makers Diageo, Pernod Ricard, LVMH’s Moet Hennessey and SABMiller to India where small and mid-sized players dominated earlier. Other companies like Anheuser-Busch Co. Inc. and Danish brewer Carlsberg are also on their way. In order to increase wine consumption, Assocham says, the government should make it mandatory for the foreign companies to understand the regional nature of India’s wine consumption before setting up their operations here.

Apart from major cities, Tier-II and Tier-III cities should also be the primary targets for wine manufacturers, as these cities will increase total consumption. The popularity of imported brands, which sell at much higher prices than the domestic varieties, offers international companies great opportunities for strong value growth.

To improve the awareness on wine, the producers should educate hospitality industry staff and consumers on wines through tasting and sampling events and positive media coverage. They should also ensure a regular supply of wines.

The Indian wine industry should understand that it is quality, not quantity of wine produced that matters in order to not lose its momentum. Going for cheap and bulk wine may be great in the short term, but may lead to serious problems in the middle and long run. Growers should focus on producing better-quality grapes. If quality is improved every year, it will then take care of quantity.

The measure recommended for the government to the support the wine industry includes creation of infrastructure, subsidy schemes, help in sales promotion and classification of Indian wine regions.

Fact sheet of the Indian wine industry:

• Indians consumed more than 300 million cases of beer, 90 million cases of whisky and other spirits in 2007-08
• The Indian wine market is of about 5 million litres, worth Rs. 500 crore
• Wines sales in 2007-08 totalled 8,20,000 cases
• France accounts for almost half of India’s wine imports and Italy, 30%

Oct 30, 2008
Source: Commodity Online
URL: http://www.commodityonline.com/news/Good-times-ahead-for-wineries-12463-3-1.html