I attended a talk on 21 September organised by Austrade (the Australian Trade Commission) and the Onkaparinga Exporters Club – a regional body that directly assists exporters. The speaker, Mahesh Krishnan from Austrade Mumbai, gave a clear and concise briefing on the Indian wine market – its stage of development in terms of demand/consumption patterns; strategies for entering the market; and the key market challenges facing potential suppliers, particularly those from Australia.

The talk was attended by a select group from South Australian wineries already sending wine to India, including Woodstock and Patritti (which sends de-alcoholised wine); from the South Australian Department of Trade and Economic Development (DTED); from Tradestart (Austrade); and from the University of Adelaide’s Wine2030 group.

The key message that came through was that the Indian wine market is undergoing rapid and significant growth and with the appropriate approach there are opportunities for Australian wineries to become part of it.

Key recent trade developments for exporters are:

2001       Quantitative restrictions on imports to the Indian wine market were lifted

2003       Hotels were allowed to purchase wine duty free

2007       Import duty was reduced to 150 percent from much higher levels and made uniform across the country.

Wine prices in India

On top of the 150 percent import tax there are state taxes that differ across states. Prices for wine tend to be 10 to 13 times the FOB price for duty paid wine and 5 to 8 times the FOB price for duty free. There is then the 300 percent mark-up on hotel wine sales. There are signs that these margins will come down and this has started with some chains such as Four Seasons.

There is a push for uniform laws and taxes across the 28 states but until that time each state must be treated as a separate entity with labels and vintages needing to be registered separately in each state.

In future there is the possibility, even likelihood, that the import duties and state duties will be reduced. The Free Trade Agreement between Australia and India is at an advanced stage and expected to be complete and in place inside a year. Furthermore, there is pressure from the WTO and from Europe to reduce taxes.

Role of hotels in India’s wine market

The hotel chains in India account for about 75 percent of the country’s wine imports so the ability to import wine duty free is of great importance to the wine market. Hotels have about 100,000 rooms and this is predicted to rise by another 55,000 by 2013.

The vast majority of Australian wineries already in India are selling through the hotel chains in small volumes, with examples including Henschke, Taylors, Grosset, Cullen, Howard Park, Fox Creek, Penfolds and Yalumba.

[It was noted that there was a hiatus of about 18 months when hotels suspended buying in wine from overseas due largely to the financial crisis, terrorist attacks and the wine supply glut, but they have recommenced importing so this lull is over.]

Key patterns in consumption and production

On the supply side, both domestic production and import levels have grown rapidly in recent years as shown:

2003/2004           domestic production 423,000 cases          imports 80,000 cases

2008/09                domestic production 1.3 million cases     imports 175,000 cases

These figures reflect the strong and growing wine sector in India, with the main wine region being Maharashtra.

The main areas of growth are with the younger generation and with people who are travelling overseas, including business travellers and students, who experience the wine culture overseas, as the older generation remain predominantly drinkers of whisky and other sprits and beer. About 12 million Indians travelled overseas in 2009 and this is expected to reach 50 million by 2020, so Indian people will become more and more exposed to, and knowledgeable about, wine. Alongside this trend, there is a growth in the number of wine clubs, wine bars and education provision about wine.

It is also important to understand the cultural shift in India that is affecting the involvement of women in the wine market. Until very recently, it would have been a social taboo for a woman to buy wine. However, with supermarkets selling wines, women are now comfortable buying wine in this setting.

Also related to the cultural shift is the increasing presence of wine at promotional and social events. For example, at product launches it is usual for wine to be provided.

Customers like to know about wine show awards and ratings of wines by critics such as Robert Parker and wine media such as Wine Spectator. This gives the wines a competitive edge.

Around 70 percent of India’s retail wine market is ‘budget’ wine, with FOB prices up to A$3.00 (which after taxes translates to A$27). The next 20 percent is in the medium range, with FOB prices up to A$8 (retailing at A$27 to A$32), and the remaining 10 percent is premium priced wine. Hotels tend to focus their sales on premium ranges – the higher priced wines, while also providing some budget wines.

In India the consumption of wine is largely seen as separate to food. Mahesh gave the example of an event where the guests would typically have a glass of wine before a meal, then have water with the meal, and resume drinking wine after the meal was over. Food and wine matching is a new concept to most Indians.

Australia’s share of India’s wine market

Australia has captured 16 percent of the Indian imported wine market, second only to France with 45 percent. Other significant suppliers are Italy and the USA, with growing shares from Chile and South Africa.

Australian wineries shipped around 27,000 cases of wine to India in 2009. There are numerous Australian wineries shipping to India including small, medium and large wineries. Companies such as Yellowtail, Jacob’s Creek and Hardy’s have captured the lower price ranges, while the majority of Australian wineries are supplying the higher price brackets.

How to maximise Australia’s potential in India’s wine market

The key message that Mahesh gave was that relationships are at the heart of successful trading relations with Indian importers and distributors. Importers want their suppliers to be in the market for the medium to long-term, rather than short-term contracts. They want access also to the principals, as opposed to a representative of the supplier.

In building these relationships, it is recommended to visit the hotels and importers and retail outlets in person, at least once a year, and understand the market that is being targeted. There are lessons to be learned also from France in particular has managed to capture such a large share of the market. For example, France has sponsored visits for Indian buyers and hotel managers and decision-makers to France to see the wine regions and to understand and appreciate their wines. Italy has followed the same approach with great success. Along with wine dinners and other promotional events and media in India, this raises brand awareness and has led to a  degree to loyalty and familiarity with wines from these countries.

The AWBC has followed this approach towards Chinese wine markets, sponsoring visitors to Australia’s wine areas. This strategy, if considered viable, would also be helpful for Australia’s access and success in the Indian wine market.

Mahesh considered that Australia has a competitive advantage already in some aspects of its wines – particularly in having a forward fruit style, clear labelling, and affordable and approachable wines. It remains to be seen how Indians will see Australian wine matching Indian food. For example, Australian shiraz, its icon export varietal, may be marketed as a great accompaniment to India’s spicy food. Winemaker dinners are becoming increasingly common in India. This is one avenue to get this message across.

Trade shows are also a key avenue into understanding the Indian wine market and meeting with the decision-makers. Examples of trade shows coming up are:

• IFDE , Delhi – 02 to 04 December 2010 http://www.indiafooddrinkexpo.com/
• Taste India, Mumbai – 27 to 29 January 2011 http://www.taste-expo.com/

See Revisiting the Indian wine market for a January 2012 update by Tigs.

Cheers!

Tigs
@WineSupporter