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Recession: Indian Producers Cautiously Optimistic

The Indian wine producers under the dual pressure of the illogical government policies and imminent  recession are putting on a brave front while displaying cautious optimism in public, when the rest of the world has already started feeling the ripples of recession threatening to turn into tremors, reports Subhash Arora

Downturn in Wine Market

During a recent trip to Singapore to check out Wine for Asia, the topic of conversation invariably steered to the plunging stock market, impending recession and the effect it would have on the global wine economy. One worried wine importer from Singapore, who claimed some knowledge about India and the Indians, said in jest, 'Indian market would be least affected by the recession. Do you know in India people drink when they are happy? They also drink when they are sad?  So the wine and spirit industry will not suffer.'

Will the industry suffer or not?

Ranjit Chougule seems to subscribe to this theory. 'Gloomy situation for wine or alcohol sales! Absolutely the opposite,' says the Managing Director of Champagne Indage. 'People drink more in bad times. Globally, alcohol is a recession proof business. Certainly, consumers seek more value but consumption does not come down in any way. All sectors except the foreign wines import is up quite healthily and consistent with our first quarter numbers. What is necessary in this current economic climate is driving value to the consumer and delivering quality to price ratios through a wide an deep portfolio,' he adds.

The new Goliath on the wine scene, UB wines does not show any strains of anxiety due to recession, not yet. It is the government policies, whether in Maharashtra or Karnataka that seems to be the matter of immediate concern. 'More than the downturn, I think the worrying situation is the way states are heading towards their respective policies. Maharashtra started it all with discriminatory Excise Duties on wines coming from outside the state. Karnataka has now retaliated with similar import fee of Rs. 225 a bottle on the out-of-state wines,' says Abhay Khewadkar, Business Head and Chief Winemaker for the UB Wines, a division of Vijay Mallya owned UB Spirits, who produce their wines in Maharashtra.

'Manufacturers in Goa have already approached the State Government for similar sanctions. This will only trigger some reaction from states like Andhra Pradesh, Tamil Nadu and Punjab. This would mean that wine is going the spirits way and manufacturers will need to have at least 2-3 wineries in different states. This may wipe out small players and the manufacturers who survive would be obliged to keep end consumer prices high considering the overheads,' he informs delWine.

'In any case with downturn luxury products are bound to suffer. Same will be true for high-end wines and will impact the sale of premium wines. We are definitely going slow on additions of imported wines to our portfolio especially considering that in the last 3-4 months there have been no sales in Maharashtra and the uncertainty in Karnataka now.'

'We have not altered plans for domestic production hoping that Maharashtra and Karnataka governments will take back their respective discriminatory policies,' he sums up optimistically. 
 
Abhay was working with Grover Vineyards in Bangalore, Karnataka when his company was pushing a state liberalising policy, also seeking a tit-for-tat policy for the out-of –state wines. He had spearheaded the offensive in fact, back then.

Grover Vineyards seems to be batting on a good wicket-at least for the moment. The sales of wines from Maharashtra has practically dried, as claimed by many producers from the state which has been acting as a rich-man's island since 2001 when Maharashtra residents like Grover who dared to step outside Maharashtra to set up shop were adequately 'punished'. Being the loan sufferer and with mellow-as-merlot disposition, Grover could not fight injustice alone. 

However, this may be a short term illusive benefit. Already, reports indicate that their supplies are drying up and stocks are not easily available. Moving stocks from other states may not be a brilliant idea- Grover wines are feminine and rather delicate to travel well, often. It may not be easy to jack up production unless they also start to import bulk wine and are able to pass off the bottled wine as the indigenous production. Besides, some of the cheaper but quaffable imported wines (Remember the case of Satori from Sula?) will soon find a new market and compete with them, not to talk of the double-digit wineries that are expected to come up during the next couple of years bringing in an era of long term competition within the state. The likes of UB, Sula and Indage are perhaps already discussing it in their senior staff meetings. A subscriber of delWine who has a distillery in Himachal Pradesh got so enthused by the news in the eMagazine that he has reportedly applied for a license to open a winery in Karnataka.

Seagram, who seems to have taken the low road in promoting their Nashik produced Nine Hills and not decided to ' Jacob's Creek' the wine market just because it is Regal and markets Something Special. The multinational had brought in the 'Hills' in 2006 and believes in slow and steady rise of its Indian wine empire. 'We are keeping our fingers crossed. We shall decide the course in January. But we are not optimistic, says Rukn Luthra, Business Head, who started the wine project and keeps his ears to the ground and nose on the market.

Chateaux d'Ori is a new entrant who followed Nine Hills last year. They produced 6500 cases last year which were not all sold, as several cases of bottles with finished product were laid up to let the oak mellow down. They have recently tied up their marketing with Finewinesnmore, a Mumbai based importer. Says the aggressive marketer, Dharti Desai, CEO of FWM, 'this year we will sell 250,000 bottles- next year's plan is a million bottles. We have just entered Haryana. We are in Delhi market next year as it was too late to enter this year. Rajasthan and Bangalore are next on our agenda and hence the big planned increase.'

Rajeev Samant, founder CEO of Sula Vineyards who has been making long strides in the last 3-4 years is however guarded in his optimism-in fact he is rather pessimist.

'The last five years have seen the birth of quality Indian wine, but the emphasis in the industry has been on growing fast so quality has not been taken up seriously by all the players. At the moment the market is going through an interesting stage, with sales having slowed down significantly in the past two months. Hopefully this is a blip that reflects the horrible state of all markets worldwide, but it does have the effect of increasing the stock of unsold wine with the 2009 harvest coming up shortly, and banks unwilling to lend to wineries to install new capacity. This should teach everyone a lesson to slow down the crazy expansion plans and concentrate on improving quality.'
 
'Sula has decided to scale down 2009 harvest plans. We will probably crush 1000 tons less than our earlier estimates. 2009 will be a year when we focus on our existing wines and try to ramp up quality significantly, especially in our regular reds. However, we are launching a couple of exciting new wines in the next couple of months and hope that will add to the top line.

Karnataka policy is affecting Sula like everyone else. 'Of course, what is also hitting us is the closure of the Karnataka market which is practically dead because of the new Karnataka policy of levying additional excise of Rs. 300 per bulk liter with Goa perking up to increase the duties too. We have been trying to impress on the powers that be, to relent on the out-of-state excise duty and concentrate instead on the issue of so much of bulk wine going into the indigenous manufacture. We seem to be getting nowhere-it does get frustrating at times.'
 
If one were to follow the trends in the West, the recessionary effects are already showing. A Wine Intelligence poll of 1,000 regular wine drinkers in UK shows that the people are looking at the prices more carefully. Wine drinkers now also rate promotions as the number one factor in deciding what wine to buy, a sign that the credit crunch is starting to take its toll on consumer spending. Pubs and restaurants have also seen a sharp increase in the numbers buying wines priced below £12 and a fall in those spending more.

The tightness can be gauged by the fact that the supermarkets that traditionally buy wine at very low margins are feeling the pinch and are squeezing the suppliers. For instance, major drinks suppliers in UK feel they are under duress with an ultimatum by Tesco. The new "take it or leave it" terms by Britain's biggest retailer include an immediate 20% cut in the price, doubling of promotional activity to be funded by suppliers and a ban on any price increase to Tesco for the next year.

In an action reminiscent of what a well-known Delhi-based hotel chain in India did earlier this year to bring the costs down, a supplier to Tesco says he had been given only 3 days to accept the terms, presented on plain paper to prevent Tesco being identified.

The wine season in India starts traditionally in October. The festivities of Diwali and various other festivals throughout the month keep the consumers on a high. Now is the time, the producers might do well to take a cue from Sula and Seagram and have a hard look at their crushing plans for 2009. There seems to be already enough wine in the tanks that has not been sold yet but which is perhaps a part of the declared production figures!

Subhash Arora

 

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