Even as India is counted one of the top ten fastest growing wine markets in the world, having grown at over 500% between 2004 and 2008, majority of the small to medium-sized wineries in the country are struggling to stay afloat.
Although governments of grape growing states such as Maharashtra and Karnataka have gone the extra mile to promote wine production and consumption through subsidies and excise cuts, nearly 50 to 60 wineries in the country find themselves in dire straits as demand for wine has taken a dip over the last two years due to factors such as recession, slowdown in tourism and a slow pace of acceptance of the drink in India.
?Apart from large companies such as Sula and Grover, most wineries are not funding out of operations. In most cases, installed capacity far exceeds what can be sold and demand is not expected to pick up for some years to come. Growth percentages may look highly exaggerated, considering the low base we started with,? says Girish Mhatre, founder of Pune-based Good Earth Wines.
Fiscal 2008-09 witnessed an overall 1.6% slump in wine sales to 1.53 million cases, from 1.55 million cases in 2007-08, while 2009- 2010 has seen flat growth. Smaller wineries such as Chateau Indage, for instance, faced the risk of liquidation until recently. While the cost of setting up a plant is around Rs 3 crore to Rs 4 crore the huge operating costs, ever increasing costs of corks and bottles which have to be imported are eating into profits of these cash- strapped and self-funded wineries.
Says Nitin Desai, chairman and managing director of Vinsura, one of the most popular labels, ?Incentives from the government such as reduced excise and subsidies do act as indirect funding. Some banks also give loans at a slightly reduced rate. The other source of funds is usually high net worth individuals. Equity funding is highly restricted in this industry as the gestation period takes up to at least seven years. Some companies like Sula have received funding, but most have struggled to interest equity players.? Vinsura, which produces around seven lakh litres of different varieties of wine, is currently looking for a Rs 10 crore capital infusion for expansion.
Some say the growing demand for foreign wine may also be eating into the share of Indian wines. According to a recent study by the Vinexpo and the International Wine and Spirits Record, the consumption of imported wines doubles every five years in the country.
With litres of stock lying idle, and the bleak chances of demand picking up drastically, small wineries are looking at some sort of a bailout package, which the government is yet to consider.
?Apart from looking at a bail-out, it could also be possible that these wineries are seeking to be bought out by larger players. They already have large stocks lying idle and they can?t just shut down. In all probability, most of the wineries that have not built a brand yet are going to end up supplying bulk to be bottled under other labels,? adds Vinsura?s Desai.