Wine Business in India – Opportunity or Dilemma?

Re-plugging this popular post on LinkedIn for the benefit of  the followers of this site.

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The Indian wine ecosystem is evolving and with the rising profile of wine there is a lot of interest in business opportunities available in the sector. But what are the challenges? More importantly, how feasible is it to enter a business whose target market is less than 1% of the total population?
I have always considered the Indian wine market an enigma – on the one hand there is a seemingly eternal and ceaseless optimism about its future, on the other, on-the-ground realities and challenges seem to be too big to overcome in realising its true potential. But this has not deterred many optimists to venture into this tricky market, achieving mixed results at best.

As an active member of the Indian wine community, I am often asked about business opportunities and the pros and cons related to various types of wine businesses here. Although most queries reflect the above mentioned quandary of a wannabe entrepreneur and existing businesses elsewhere, it is also interesting to notice that many feel that the time is right to be a part of the Indian wine story. A lot of this optimism can be attributed to the buzz created by media stories, a lot of which unfortunately is often recycled and are far from ground realities. Therefore personally, I always take a cautious approach in this matter, not because I am not hopeful of its future but due to a realistic assessment of the present market conditions that are far from being conducive for existing wine businesses, let alone new ventures.

So what are the opportunities of entering the Indian wine market?

Let’s explore three areas which attract the imagination of most people nowadays when they think of the setting up a wine business in India. A vast majority of the queries that I receive relate to these sectors.

Import/distribution: This remains the most sought after option of entering the market but also has a disturbingly high failure rate as the short and medium term returns in this business are disproportionately low vis-a-vis the initial investment. Those aware of the market know that in the last few years, many importers have shut shop in India, some incurring heavy losses.

The survival, scalability and subsequent success of import and distribution of wines is only possible if substantial volumes are generated in the on-trade segment, which remains the main source of wine consumption in India. With hotels offering a meagre 20 to 25% on of CIF (Cost, Insurance & Freight), the margins often get diluted in huge costs a bottle of wine incurs upon arrival on Indian shores – customs duties, bonding & warehousing, taxes to state governments, brand registration charges, renewal of registrations, transportation etc. This leaves very little at the hand of the importer, a reason why achieving volumes is the key. Since this poses a big challenge, many have added spirits and beers to their portfolio which offer better margins and certainly volumes. A point in case is Brindco, India’s largest importer and distributor, whose success can largely be attributed to the top brands of spirits & beers it represents in India, including those from the multinational behemoths like Diageo & Brown-Forman.

Then comes the complex task of creating and mastering the art of smoothly operating a distribution network. You can either create your own or use an existing network to reach your customers. While the first requires huge cash injection and fulfilling endless legal obligations, the latter will see your cost skyrocketing and margins plummeting.

Finally, there is always the competition to deal with. A new entrant will not only have to put in everything to grab a share of a highly sought-after pie, he also has to find ways to remain relevant for the long term – no mean ask in a highly competitive but very limited marketplace.

Wine E-commerce: Although India is witnessing an online revolution with eCommerce start-ups leading the way, wine is unlikely to be a benefactor of this boom in the near future, mainly owing to strict (and archaic) government laws related to alcohol consumption. Apart from plethora of hurdles in selling alcoholic products online, the logistical nightmares of lawfully operating such businesses can be too many. Take home delivery for instance, which is an integral component of an entire eComm cycle – a lot of state governments do not allow alcoholic products to be delivered at home making it extremely difficult to justify the very existence of such businesses. Some online wine sellers have found a way of circumventing this problem by routing the orders through retailers who in turn deliver the wines to customers, illegally in most cases.

One should also be mindful of the risks of online wine businesses due to the socio-political sensitivity to alcohol. It may not come as a surprise if one day the government cracks the whip and decides to ban any form of liquor sale on the internet anywhere the country. Many state governments have done so in the past and there is no guarantee that such a step will not become a pan India phenomenon in the future.

Retail: This, in my view is going to be the future of wine business in India. With rising awareness, coupled with highly restrictive prices in the on-trade segment, consumers will slowly drift towards buying wines from retail. It will also be in line with the trend in other wine economies where wine retail followed a natural progression to prominence and now contribute significantly to the local wine economy (Hong Kong & Singapore are good examples).

But there is a catch – since India is unique in terms of the challenges traditional alcohol businesses face, the key to success in any retail venture will also have to be unique. A typical brick and mortar and supermarket model has to be complemented by add-ons aimed at unwavering customer focus, mainly to educate and engage a loyal membership base. These may range from regular tasting & appreciation sessions, brand training, wine masterclasses, paired dinners etc.
The Indian wine story stands at the crossroads where it will either find a much anticipated relevance in the world of wine or will remain a laggard owing to the burden of strict laws and tax regimes. Any new entrant in the business will have to find a way through this ‘either/or’ dilemma to decide whether to set up shop in the country.

Cheers,

Niladri

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Why the Robert Parker brand is irrelevant in India

This post is in response to an article which appeared in the delWine website a few days ago. While it eruditely laid down the hype and commercial implications of wine ratings, the selective role of Robert Parker as a wine critic emerged as one of the highlights of the piece. This gives us an opportunity to find out what India thinks about the emperor of wine and what does his ratings mean to the Indian wine business?

Robert Parker Jr. is probably the most celebrated wine critic of all times. Photo courtesy Wikipedia

It is inevitable that whenever wine ratings are discussed, Robert Parker, by default, becomes the focal point, and it is no different in the mentioned article also. No one in the knowledge of the world wine industry can deny the influence of his ratings on the trade. I have personally written and spoken about this at different forums, particularly his expertise and fascination with a few chosen wine regions and their wines (Bordeaux and California happen to be on the top).

To understand Robert Parker’s eminence as a wine critic, one has to study the man’s rise following the pronouncements of 1982 Bordeaux vintage. He was probably the only expert who stuck his neck out in conviction about the quality of  this vintage when most others wrote-off the year as average. The fact that it turned out to be one of the best vintages of  the century in subsequent tastings, was a vindication of his unquestionable tasting abilities. Incidentally, most who disagreed with him in the beginning had to fall in line with his ratings. This was not only the start of the making of ‘Robert Parker brand’ but also a sign of things to come for the future – the emergence of the ultimate wine critic in true sense, a cult-like figure who possesses a unique ability to affect wine price indices with a single whiff, sip and stroke of his pen.

Like most critics, in addition to a large army of dedicated followers, he has his fair share of detractors too, who feel that ‘Parkerization’ of the wine world has done more harm than good to wine’s cause. While many call him biased and manipulative, there are also those who feel that he is the best thing that could have happened to the modern wine world.

But in spite of Parker’s standing as one of the tallest authorities of wine ratings in rest of the wine world, his influence in affecting drinking habits and the trade in India is almost non-existent. The Parker effect, if any, happens indirectly and outside the country’s boundaries where prices are decided as per his ratings. Inside India, so far there has been no indication of any significant impact of his ratings and reviews.

Why Parker and his ratings are not important in the current Indian wine scene:

1.)  We are not a fine wine consuming nation, which happens to be Parker’s strongest domain. The consumption of wines rated 90+ and more by him is limited to a miniscule part of the wine drinking community in this country (price and availability being the two main reasons). Although there is no data to suggest how small this segment might be, it can be safely assumed that it is in the sub-zero percentage, when compared to the overall price brackets.

The same is true when it comes to collectible and investment grade wines.

2.)  Overwhelming majority of Indian wine consumers do not know the break-up and significance of the 100-point rating scale. Therefore  all the talk about a wine’s placement in the market just based on Robert Parker’s scores does not make any difference. At the most, it is nothing more than a numbers game which only the wine importers like to highlight as strong selling  propositions to the top hotels

3.)  One of the major areas of Parker’s influence is a category which belongs to the futures trade (En Primeur). Since this segment hardly features in the Indian trade, his ratings of these wines are of little or no consequence to the market in the country

4.)  In contrary to suggestions made in the article, even the hospitality industry does not consider it necessary to factor-in Parker or Wine Spectator ratings when selecting wines for their portfolio. Appellation, vintage and brand recognition play much more significant roles in wine selections. Therefore, the reason a 2000 Chateau Petrus ends up in a luxury hotel’s wine list is because the name has a tremendous brand value, belongs to a famous Bordeaux Right Bank appellation (Pomerol) and is from a great vintage. The fact that Parker scored this a perfect 100 is most likely to be a mere coincidence. Now, please don’t suggest that 2000 turned out to be a great vintage because of Parker’s ratings!

Why is this so? Simply because the role of critics in our drinking habits is negligible, to say the least. Ask any sommelier in the country and they will confirm that wines are never sold or selected based on critics’ ratings.

Now coming back to the article in question, and why I was tempted to express my views on the subject. Here are two examples from the article:

Example 1.

I feel, this is just over the top! There was a time when this statement would have been true to a large extent but to suggest that he ‘single-handedly controls the wine rating system’ is unreasonable in today’s context. Thanks to many other equally capable (if not more) critics and credible wine review sites, it is no longer a one man show. Nowadays, many serious wine consumers and fine wine investors refer to multiple reviews and ratings before choosing their wines.

Leading wine websites like Wine-Searcher.com have realized this fact and it is becoming more and more common to find multiple ratings for a particular wine:

Based on consumer demands, it is common to find multiple ratings for wines on top wine websites like Wine-Searcher.com

Example 2.

The statement above is only partially true. No doubt that such scores are likely to add to the wine’s commercial value, but there are many wines scored 90 and below by Parker which are considered great value for money (better quality to price ratio). Additionally, there are also those which receive better scores later, following a period of bottle-aging. Generally, Parker mentions about the likely evolution of certain lower scoring wines into better products, in his tasting notes.

The rise and influence of the wine critic in conventional wine cultures is best exemplified by Robert Parker. An institution in himself, he has re-written the rules of the game which, many believe, will be the cornerstone of wine critiquing business for a long time to come. But as new wine cultures are born and new market dynamics emerge, Parker’s legacy may not have the same relevance. India is one such market where the man with ‘The Million Dollar Nose’ is yet to make a mark. Only time will tell if the Parker brand is able to mesmerise the Indian wine lover in times to come as it has for decades in other parts of the world.

Cheers,

Niladri