Re-plugging the first part of my LinkedIn article here on the state of imported wines in India and the role of every stakeholder in its current form.
Many who follow the Indian wine industry or are a part of it, often talk about various challenges that are restricting its potential. Most of them are well-known and have been debated and discussed endlessly since the imported wine sector started to take shape. But here we are, almost a decade and half later, still continuing with the same old narrative of how high taxes, stigma towards alcohol consumption and lack of knowledge are impeding its growth. While these are and will remain valid reasons, there are other significant factors which need closer scrutiny too – more so when we talk about quality wines. Let’s not forget, it is the growth of quality wines which is the real measure of a country’s progress towards a healthy wine culture.
In current market conditions, the most important factor which is hampering the expansion of quality wine consumption is a consistent focus on volume business (with some exceptions, which I’ve discussed later) at the expense of mid and higher end of the market. This is the singular reason why outlook for quality wines in India seems rather bleak for the foreseeable future.
Before we proceed, let me briefly and simplistically explain for the layman what I mean by quality and volume wines in terms of monetary value and in the Indian context. Any wine which is imported at a CIF cost between 1200 – 2200 Rupees (roughly 18 to 33 USD) per case of 12 750 ml bottles falls under volume brands (low-end, cheap, plonk are the other ways of describing these wines). These are mostly sold as super-economy (other name of cheap) labels at retail stores and served as high volume labels at on-trade locations (mostly banquets and as ‘competitively priced’ by-the-glass).
Quality wines, on the other hand, naturally come for a price – anything above Rs. 6500 (100 USD approx.) per case CIF can be placed in this category, although there are different price brackets in this segment depending on demand and quality classification.
The primary indicators –
If one carefully analyzes the growth of wine brands in India for the last five years, it is evident that the lower end of the category has grown the most. A further drilling down will also reveal how some countries/regions have grabbed the majority of this growth pie. Australia, Chile, Argentina and Spain are the most prominent ones in this list, and in spite of their geographical differences, there is one common link – all of them send the biggest shipments of volume wines to India. Almost all importers (barring a very few) have one or more such brand(s) in their portfolio, and in some cases, these labels have become the unofficial flagship offerings of the businesses.
Logically, economy options are always going to be top sellers in a price-sensitive market like India but it is the focus on this category that should worry quality wine producers from across the world, both that are already present in the country and those planning an entry.
Although each category of wines serve a particular price requirement of the market and cannot be compared as genuine peers but both have their respective, and often unique growth opportunities. A simple analysis of sales trends suggests a different story though – that the lower end of the market has grown disproportionately, while the growth of mid/higher tier has remained stagnant at best.
"When the top-line generation is pushed through a greater emphasis on volume achievement, the focus on this segment becomes much more relevant, as in the case of large importers"
So what explains the emphasis on the volume segment? At the crux of it lies the impact on top-line, liquidity flow and in many cases, profit margins of a business. Higher volumes add to the top-line while better margins add to the profitability and a fast moving inventory keeps the cash flow dynamic. When the top-line generation is pushed through a greater emphasis on volume achievement, the focus on this segment becomes much more relevant, as in the case of large importers.
Let’s take two New World brands as a case study, using last three years’ sales data. One is a mass-distributed label solely targeted towards banquet listings, cheap by-the-glass offering and as an entry-level brand in retail shops, while the other a popular quality wine from the same country with high brand value world over. Looking at their performance gives us a fair indication of how most quality wines are faring vis-a-vis mass distributed wines.
How did the low-priced wine achieve such success in the face of stiff competition from well-established brands like the ubiquitous Jacob’s Creek? And why did brand ‘Y’ lag behind and was not able to ‘stay afloat’? The answer lies in my earlier mention of FOCUS – that’s what the chart above represents in a nutshell. Does that mean that with the right focus, brand ‘Y’ could have also performed well? In all probability yes, provided the right promotional strategies were in place, in addition to maintaining a sales ecosystem which balances volume generation with quality focus.
Let’s look at another example by taking into account wines from different parts of the world. For simplicity and broadness sake, the charts below represent styles rather than actual brands.
There are plenty of similar examples in the Indian wine industry which tell us how a business’s emphasis on growing volumes often comes at the cost of compromising with quality. The problem is exacerbated with the number of volume brands an importer represents as the development of quality labels is likely to attract less importance against the attention towards increasing volumes by selling more economy brands.
It is important to mention here though that not all importers and distributors are in this volume game. Some have chosen to maintain a fine balance, and a handful have even focused on quality wines thereby creating a niche for themselves.
In one of my earlier posts, I discussed how the retail sector is poised to become one of the main drivers of wine business in India. As predicted, the segment is on the upmove, but the question remains if the quality segment can benefit from the rise of off-trade business in the country. The trends and strategies adopted by the players at the moment suggest otherwise. Although it may be too early to predict but the lack of right promotional campaigns and pricing strategies suggest that the volume brands are going to be the biggest beneficiaries in the standalone retail sector as well. These, in a way, will eventually turn out to be India’s own supermarket labels.
Other key indicators –
Apart from sales performance, what are the other indicators which suggest that quality wine business is facing consistent challenges in finding a firm foothold in the country? The answers may lie in the following facts:
- Limited use of genuine data analytics and relevant market penetration tools in terms of tracking brand performance. The normal industry convention is to use sales and stock depletion numbers as a benchmark of performance but wineries will be well placed to supplement sales tracking with close monitoring of marketing plans, implementation of growth strategies and most importantly, ensure effective allocation of budgets
- Lack of brand-specific and general wine training across channels as part of a larger promotional strategy, which has a direct impact on sales
- Limited and often ineffective promotional campaigns involving quality wines – a common one being the much clichéd wine dinners, which hardly does anything to increase sales and long term brand value, as established by records.
"Apart from the prospect of commoditizing a lifestyle beverage, focus on volume also puts the future of quality wines at risk"
The effect of fast growth of volume wines is not hard to comprehend in an evolving market like India. Apart from the prospect of commoditizing a lifestyle beverage, it also puts the future of quality wines at risk. This is further compounded when, apart from the importer, another major stakeholder, i.e. the hospitality industry, plays a defining role in this quality vs. volume game. I have seen many wine lists across the country, including of 5 star properties, where economy wines not only occupy vital space in the portfolio but are also actively promoted – often at the expense of quality wines.
While such an approach is purely attributed to business reasons, top hotel brands must realize that this strategy is detrimental to their overall high standard of service offerings and is likely to be unsustainable in the long run.
"It is in the larger interest of the industry and all its significant players to create a fine balance where quality is not compromised"
India offers a host of opportunities for wines of every price and quality category, considering the sheer size of the potential market. While volume wines and the economy segment are expected to continue as the main drivers of the business, it is in the larger interest of the industry and all its significant players to create a fine balance where quality is not compromised. Other growing wine markets around us like China (although paradoxically), have proven that quality can coexist with scale.
No one expects India to be a fine wine market at this stage, or even in a decade or two from now, but we should also not be labelled as a destination for cheap, mass-produced wines. A market growing at 20% annually can surely ensure that.
The second part of this article will deal with what quality wine producers can do to ensure that their business objectives remain secured in India.