Bloomberg News

India Winemakers Tap Growth as Duties Boost Imports’ Prices

July 27, 2011

(Updates with Wilkinson’s comments in 17th paragraph.)

July 27 (Bloomberg) -- Patrons at the Polo Bar in India’s Hyatt Regency Delhi pay $147 for a bottle of 2010 Cloudy Bay Sauvignon Blanc. That’s more than at the Grand Hyatt Tokyo in the world’s most-expensive city.

Wine and spirits imported into India are subject to duties of at least 150 percent and costs are further inflated by other taxes. That benefits homegrown vintners including Sula Vineyards, India’s largest, as the industry is projected to grow 40 percent in the two years through 2012.

“The demographics favor the growth of wine in every single way,” said Sula Vineyards Chief Executive Officer Rajeev Samant. “Young, urban professional women are starting to drink socially, which never happened a generation ago, and a lot of them are preferring wine.”

Wine consumption in India increased 16 percent to 15.9 million liters in 2010 and may grow about 19 percent this year and 18 percent next year, according to London-based Euromonitor International. Sula, which sells a 750-milliliter bottle of its Dia wine for as little as 240 rupees ($5.43), will probably ship 20 percent more this year, Samant said in an interview.

Salaries in the world’s second-most populous nation may grow this year by an average of 13 percent, the fastest in Asia, according to a March survey by Aon Hewitt LLC, with the government forecasting economic growth of 8.5 percent.

Wine Culture

Sakshi Manchanda, 24, said she gave up tequila and vodka after visiting France two years ago.

“After having my first glass of wine, I realized this is the only form of alcohol I could enjoy,” said Manchanda, who works at her family’s real-estate and construction business.

“It’s one of the most sophisticated forms of alcohol. I’m trying to get my friends hooked on to wine, too, to keep me company.”

She regularly visits New Delhi’s Olive Bar & Kitchen, which on a recent Saturday night was full of diners choosing from a list of almost 60 wines to pair with their Mediterranean food.

“In the last seven years, wine culture has really evolved,” said Anshuman Vyas, Olive Bar’s manager. “We used to sell three to four bottles at that time. Now, we sell 14 to 15 bottles a day.”

Whiskey Consumption

Wine still trails whiskey in popularity with India’s drinkers. Whiskey accounted for 31 percent of the alcohol consumed in India last year, with a volume of 1.2 billion liters, according to Euromonitor’s data.

Yet the growth in whiskey consumption may slow to 12 percent next year, compared with 15 percent in 2008.

“An increasing number of young people like to have wine, because wine is seen as up-market, sophisticated,” said Alok Chandra, a wine consultant with Gryphon Brands Inc. in Bangalore. “There are two or three levels of consumers. One is the 50-year-old guy who says ‘wine is good for health, let me change to wine.’

“The second is women. Spirits are something they don’t want.”

Mumbai-based Sula’s 1,500 acres of vineyards are in Nashik, the country’s largest wine-producing region. India, which produces as much as 11 million liters of wine yearly, grows wine grapes on about 6,000 acres, according to estimates by Indian Wine Academy, a New Delhi-based consulting company.

Faster Than China

Overseas companies including Pernod Ricard SA, maker of Chivas Regal whiskey and Absolut vodka, have a combined share of India’s alcoholic-beverage market, at less than 23 percent, Euromonitor data show.

“There is a case for liberalization,” Peter Wilkinson, director of international affairs at the Scotch Whisky Association, said in a phone interview from Edinburgh yesterday. “Consumers in India don’t have access to the same products as their counterparts in China, Brazil, South Africa, Russia at anything like affordable prices.”

The top-selling imported wine in India is Pernod’s Jacob’s Creek, with a 1.5 percent market share, according to the data. Pernod CEO Pierre Pringuet in February forecast India will be among its top three markets in five years.

While the South Asian nation outpaces the expansion in Chinese wine consumption, the size of India’s wine market by volume is less than 1 percent that of China, which had 13 percent growth last year to 3.48 billion liters, according to data from Euromonitor. Wine consumption in Japan may fall 2 percent to 885 million liters in 2012, from 903 million liters in 2010, the data show.

‘Excessive’ Taxes

Sales for the Indian wine industry will probably grow between 15 to 20 percent every year for the next decade, and Sula’s growth may outpace the industry, Samant said. The company’s revenue grew by about 40 percent last financial year, and Samant expects the same rate of growth this year, he said.

“We really dominate, at this point, India people’s preference for good Indian wine,” Samant said. “For every one bottle all the other wineries sell, we sell two.”

Yet even Sula’s cheapest wine is out of reach for most people in India, where 828 million live on less than $2 a day, according to World Bank estimates.

The World Trade Organization in 2008 called India’s taxes “excessive” after the U.S. and European Union filed complaints.

28 Different Countries

Besides the 150 percent import duty, local governments impose excise duties. New Delhi collects as much as 65 percent of an importer’s declared wholesale price. The Customs Tariff Act imposes another 4 percent duty.

“The market here is fragmented, it’s like operating in 28 different countries,” Chandra said.

A bottle of 2010 Cloudy Bay Sauvignon Blanc sells for $114 at the Amber restaurant in Hong Kong’s Mandarin Oriental Hotel, or 22 percent less than the price at the Hyatt Regency in New Delhi.

In Tokyo, it sells for 10,500 yen ($135) at the Grand Hyatt and 10,000 yen at the Ritz-Carlton. Cloudy Bay Vineyards Ltd. is owned by LVMH Moet Hennessy Louis Vuitton SA.

Tokyo is the world’s most-expensive city, according to data compiled by the Economist Intelligence Unit in London. It’s the second most-expensive city for expatriates, with New Delhi ranking 85th, according to Mercer’s 2011 Worldwide Cost of Living Survey.

Japan levies a maximum tax of 201.6 yen, or less than $3, a liter for wine, according to the Japan External Trade Organization. Hong Kong doesn’t tax wine imports.

The EU is in discussions with India about reducing import duties, according to the European Spirits Organization.

“At the same price level, Indian wines are superior” to imported wines, Chandra said. “At 800-900 rupees, Sula’s Dindori Reserve is an outstanding wine. Good grapes and good wine are good grapes and good wine anywhere.”

--With assistance from Masaaki Iwamoto and Shunichi Ozasa in Tokyo and Michelle Yun in Hong Kong. Editors: Frank Longid, Michael Tighe

To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net.

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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