Wine-makers smell revival after a two-year shakeout

Written by Ajay Sukumaran | Bangalore | Updated: Dec 22 2012, 07:05am hrs
The countrys Rs 1,229-crore wine industry has been through a churn over the past couple of years as a glut drove several small wineries out of business. But as the market stabilises, wine-makers are again hopeful of a return to the high growth rates they had witnessed a decade ago, encouraged by increasing retail sales and demand from new locations, including fast-growing cities such as Gurgaon, Thane, Chandigarh and Pune.

With annual volumes of about 1.6 million litres in 2011, wine in India is still a nascent industry. But it competes for shelf-space with the 2.2 billion litre market for spirits such as whisky because they are taxed on par, which makes selling wine a difficult proposition.

Market leader Sula, which expects to close the year with sales of 550,000 cases (each case is 9 litres) compared to 400,000 cases last year, said newer locations are coming up fast while traditional markets of Mumbai, Delhi and Bangalore are slowing down marginally. The satellite cities of Gurgaon and Thane have witnessed very hectic growth over the last 5-6 years. Another city that's shown excellent growth is Kolkata while Kerala is growing massively, said Rajeev Samant, founder and CEO of the Nashik-based Sula Vineyards.

The winemaker claims a marketshare of 60% in the still wine market, which excludes sales of fortified wine. Sulas been on different growth path to the industry. We have been gaining marketshare and we have been growing with a CAGR of 30%, said Samant.

In the last six months again there has been some slowdown in the industry, one of the reasons is that hotel occupancies have been hit quite badly and the whole business traveller traffic is down very significantly which does impact us.

Still, he said the retail channel now accounts for half of Sula's sales, indicating that more people are now consuming wine at home.

Grover Vineyards, the second-largest player in the still wines category, too expects to ramp up sales to about 100,000 cases this year following its merger with Zampa Wines.

We are planning for 30% year-on-year growth for the next 4-5 years. We have to make sure that it's done, though its a challenge, said Kapil Grover, director of the Bangalore-based winemaker. While Grover reckons the average growth in the still wines industry has been in single digits, he remains bullish on the prospects.

Sula, Grover and United Spirits are the three largest winemakers in India at present. Of the total 1.6 million litre industry, the cheaper fortified wines such as port wine accounts for 600,000 litres. The category has been growing faster than still light grape wines and champagne, according to data from the London-based market research firm Euromonitor.

The firm is projecting a total volume CAGR of 6% from 2011-2016.

If you look at China, it is a pretty interesting hockey stick where growth was doing pretty well, then it slowed down and then they had 8 years of 50% growth. And this was after the market size had reached much higher than we are currently, said Samant. With the right wines at the right price, free availability and education, there is no reason why we can't easily return to 30-40% growth.

High growth rates in the wine sector between 2002 and 2007 and favourable policies by the two big wine producing states of Maharashtra and Karnataka had encouraged many wine growers into setting up wineries. The glut that ensued and slowing demand because of the global downturn forced a majority of the smaller wineries in Maharashtra to shut down with their stocks lying unused.

Experts, however, see this shake-up as a natural course for the industry as it enters a phase of consolidation. The smaller players had gone through a very bad time.Things have turned around since last year, said Ranjit Dhuru, founder and Chairman of Chateau d'Ori, a Nashik-based winemaker. Every farmer thinks he can set up a winery and that's what happened. Making and selling wine is more a lifestyle approach."

However, Dhuru said there are impediments such as multiple registrations across states hinder the expansion plans by smaller players. The wine industry is not really profitable unless you get to a certain size. It costs as much to market as to set up a winery, said Alok Chandra, who runs the Bangalore-based wine consultancy Gryphon Brands.