In September 2010 I wrote about key features of the Indian wine market – bite-sized overview, looking at trade, production, consumption, marketing and opportunities for Australian wine producers. Such a complex market with huge potential deserves to be revisited, particularly since Australia was the largest exporter of wine by volume to India in 2010, and the second largest by value, after France.
What is special about the Indian wine market?
India’s wine market is unique for several reasons. Firstly, the nature of the potential wine-consuming population may be outlined with the following characteristics:
- the traditional alcoholic beverages of choice are whisky, rum and beer
- there is no national culture of wine drinking
- a substantial share of the population do not consume alcohol due to their religious beliefs
- domestic wine production is significant relative to consumption
- hotels dominate wine sales
For each of these points, a soupçon of supporting data is taken from the 2011 USDA GAIN Report.(1)
There are an estimated 200 million regular drinkers of spirits and beer in India, consuming approximately 200 million cases of these beverages each year. By contrast, the number of wine drinkers is estimated at between 1 and 2 million, consuming a total of 1.3-1.4 million cases annually (equivalent to 12-13 million litres). This represents a tiny fraction of the Indian adult population.
Wine is not part of the Indian culture, with those who do drink preferring beer and spirits, and a large number of people choosing not to drink alcohol at all due to their religious beliefs. Wine is also not usually consumed with food – at events where wine is served it is more common to have wine before a meal, water with the meal, and resume drinking wine after the meal. Food and wine matching is a new concept in its very early stages of development.
Domestic wine production has grown rapidly during the last decade. There are no official statistics, but estimates from USDA report are of 13.5 million litres (1.5 million cases) in 2010, which is nearly four times the level in 2003. There were estimated to be 60 wineries in production, with another 30 having registered to produce wine. The largest wine-producing state is Maharashtra which accounted for two-thirds of the 2010 total, with the balance made up by the state of Karnataka and port production (estimated at 300,000 cases – included in the 1.5 million total) in Goa. So in theory, India could be self-sufficient in wine, with consumption at a similar level – however, India does export its wine and imports have also been growing, as discussed below.
The distribution and availability of wine in India has been determined by state and federal policy, which is expanded on in the next section. Hotels, restaurants, bars and pubs sell about 50 percent of wine to consumers, the remainder being through retail, mostly ‘wine shops’ – supermarkets are starting to be allowed to sell wine in some states.
Overview of Indian wine market regulations and costs
India’s wine trade is highly taxed at the federal and state level. In addition, the trade and marketing regulations are extremely cumbersome and complex and vary widely according to the particular destination. As a direct result of this, the availability and affordability of wine are seen as two of the key barriers to the growth of the wine-drinking culture in India.
Federal restrictions are as follows:
Prior to 2001, India’s quantitative restrictions on wine imports acted effectively as a ban, with some exceptions for the tourism industry. In April 2001, the federal government lifted the restrictions on imports of wine for general consumption. Therefore import data presented here starts from 2002, the first full year following this change.
The next major development was in 2003 when hotels and parts of the tourism industry were allowed to purchase a certain amount of wine without paying the hefty import duty. This continues to be the case in India, which explains the dominance of hotels in the sales of wine.
Pressure from the World Trade Organisation (WTO) resulted in import duties being simplified and reduced overall to 150 percent and made uniform across the country.
State restrictions vary widely. Four states prohibit the sale of alcohol (Gujarat, Manipur, Mizoram and Nagaland). There is a government-controlled distribution structure in Andhra Pradesh, Delhi, Karnataka, Kerala and Tamil Nadu. In some states there is an auction for retail licences and in others there is an open market, where private sector sales of alcohol are permitted with a retail licence. Each state imposes a range of excise tariffs, sales fees and licensing fees on wines coming in from other states and imported from overseas.
The largest wine consuming cities are Mumbai, Delhi, Chandigarh and Bangalore, so overseas wine suppliers wanting to sell to India might be advised to consider these areas first, and concentrate on satisfying the requirements of the relevant state.
As mentioned in the previous Tig article, with the import duty, additional state taxes, and 300 percent mark-up on hotel wine sales, wine prices to consumers can be as much as 10 to 13 times the FOB price for duty paid wine and 5 to 8 times the FOB price for duty free. The retail price of even the cheapest wines can be $20 or more per bottle making wine a drink only for the wealthiest consumers.
Indian wine imports
The Indian wine market is clearly a challenge for wine exporting countries. Australia has performed well in recent years, as shown in the table, with the highest volume in three out of four years between 2007 and 2010. By value, France has traditionally led the field, with Australia in second or third place.
Volume of Wine Exports to India (1,000 litres)
Trends and tactics
As stated in the Tig article, developments such as the Free Trade Agreement between Australia and India, pressure from WTO and Europe to reduce taxes, and state-specific changes may ultimately help to make wine more affordable and available to Indian consumers. In the shorter term, suppliers to the Indian wine market must rise to the challenges there in order to be successful. This requires understanding and working with the trends and constantly revising and reviewing tactics. Some key trends to watch are as follows.
Some states are relaxing constraints on the retail of wine, for example, Goa, Karnataka, Delhi, Maharashtra and Haryana have started to allow the sale of wine in supermarkets. Retail restrictions are expected to change across India, so this should be watched closely.
With growing domestic wine production, wine will become more available. The key wine-producing states of Maharashtra, Karnataka and Goa are introducing measures to protect and support their own wine industry by reducing excise on wines produced within their own state, relaxing distribution and licensing regulations and providing financial incentives to produce wine.
Coupled with this increase in availability, the attitude of consumers towards wine is changing as wine becomes more familiar to them and infiltrates the culture. With a large number of Indians travelling overseas, they return to the country with an appreciation for wine. It is becoming more acceptable for women to consumer wine. It is also staring to become part of tine food culture, although it is very early days.
There are tight restrictions on the advertising of alcoholic products across India, for example, it may not be used in the advertising of major sporting events or to support branded products. Promotion of alcohol, including wine, is mostly through events such as specific wine-tasting events and entertainment events. The most obvious route for Australian wine producers to promote their wine is through food and wine fairs. Key annual shows are: Annapoorna (Mumbai); Fine Food India (replacing the International Fine Food Exhibition – New Delhi); Taste (Mumbai); Upper Crust (Bangalore, Mumbai); and IndSpirit (Mumbai).
Relationships are key to successful trading relations with Indian importers and distributors. They will prefer suppliers who they can trust to be in the market for the medium to long-term and they prefer access also to the principals in the wine company, rather than simply representatives of the supplier.
This requires visiting the hotels, importers and other retail outlets in person, holding wine dinners and other promotional events and media in India, to create brand awareness and ultimately brand loyalty. Other countries have employed just such tactics, particularly France, which has been successful in capturing the largest share of the market by value. Furthermore, the French sponsored Indians to visit French wine regions, promoting understanding and appreciation of their wines.
Australia has made a fantastic start in India, and Australian wine has a competitive edge, with its reputation for affordable and approachable wines, fruit-forward style, clear labelling, and can-do attitude. This is an ongoing success story!
Footnote 1: US Department of Agriculture Global Agricultural Information Network (GAIN) report number IN1134, India, 2011. Unless otherwise stated data are for 2010.