INDIAN WINE INDUSTRY

Multiple aspects of Indian Wine Industry

Wine industry is in a nascent stage in India. Estimates suggest an enormous growth

potential of this sector. Both the indigenous wine making industry and the wine market of

India require equal attention for proper growth and expansion. We have definitely

reached an “inflection point” for this industry and therefore an overhaul in all dimensions

and forms seems inevitable. The growth in import, export and consumption suggests that

immediate steps are to be taken at national level to help this sector grow at a faster rate.

Let us outline the primary factors acting as constrain for this industry in India. At the

very outset we have four major issues to note: (a) legal aspect, (b) global aspect, (c)

social aspect and (d) promotional aspect. Though as a part of WTO commitments Indian

government has taken some positive steps to help the industry move smoothly but in

order to secure a massive growth in this sector planned and phased strategies should be

adopted. Let us raise each such issue in the discussion with all possible solutions.

Legal Aspect - The legal issues involve stringent laws and a plethora of duties and fees

such as excise duty, license fee, sales tax, brand/label registration fee, import/export fee,

vend fee, gallon age fee, turnover tax etc. The alcoholic beverages sector being a State

subject States/UTs frame their own policies and taxation regime. Rates of such

duties/fees vary widely from State to State. Though anyone can import wines into a

Customs Bonded Warehouse as no license is required for the same; thereafter, goods can

move either duty free (against a license from hotels) or duty paid to license holders after

paying the relevant customs duties. Wine is still clubbed with spirits for licensing and

taxation by all states and its production and marketing still subject to all the checks and

controls of the „license-permit Raj‟ that constrain growth of a healthy domestic industry.

The Government of India abolished quantitative restriction on the import of Bottled in

Origin (BIO) alcoholic beverages. It has brought down the bound rate to 150% on spirits

(The applied rate on wines and beers is at 100%) in terms of its commitment to the

Uruguay round in the mini budget of January 2004.The Ministry of Food Processing

Industries has also set up a working group comprising of the state excise commissioners

to draw up a policy for rationalization of taxes and developing a uniform excise policy.

Uniform Excise Code seems to be the inevitable step to make stringent and varied laws

standardized.

Global Aspect - There are 7 European companies in wine sector in India. India imports

around 3 million liters of spirit and 7500 cases of wine from Europe. French wines are

still the largest imported, but wines from Australia and California are making

strong inroads. The wine market is growing at 25-30 per cent a year, nearly three times

as fast as beer, whisky or rum, which together makes up 45 per cent of the total. Exports

currently make up about 10-15 per cent of total output. Seeing the rapid growth in this

sector India has to make the environment adaptable for the foreign players to venture

Indian markets and Indian companies to gain maximum advantage of the situation.

At the moment India produces only 8.35 million bottles per year. There is a huge

potential in Indian market itself. For export market, the increasing popularity of Indian

cuisine is an automatic opening. With more and more professionals visiting India on

regular basis, and the fact that Indian wine exports are going up every year, word is

getting spread very fast creating awareness of Indian wines in International market. What

the country needs now is set of rules and norms to monitor quality compliance so that

credibility of Indian wines as a product or brand is established.

Social Aspect - Wine is a complete lifestyle drink very much related to health which can

be an extension of the consumer‟s personality. Though most of the Indian consumers are

unable to relate themselves to wine but off late they have been able to associate with it.

Increasing awareness of wine as a separate drink other than spirits has made it more

socially acceptable. Increasing health consciousness and the increasing spend on

corporate and personal entertainment has given a boost to this sector. The increasing

awareness in Govt. authorities to encourage wine drinking compared to spirits has

certainly brought cheers to the companies in the sector.

The perception of wines as being up-market and sophisticated is helping in bringing

about this change. One sign of the changes happening is the emergence of Wine Clubs in

a number of cities. The per capita consumption in India is only 0.07 liter/person/year. The

biggest consumption up to 80% is however confined to major cities like Mumbai (39%),

Delhi (23%), Bangalore (9%) and the foreign tourist dominated state of Goa (9%), where

as Rest of India has only 20% consumption. Not only has the number of imported wines

increased exponentially, the Indian producers, too, have introduced a number of new

labels and wine styles. Approximately 38 wineries are presently operating in the country

with a total production of 6.2 million liters annually.

Promotional Aspect - Use of the mass media to promote alcoholic beverages is not

permitted, but in-shop advertising or on-premise promotions are allowed in all states

except Delhi. The lack of promotional activities for wine consumption in the country and

unfavorable rules for domestic marketing of wines except in few states has hindered the

proper growth of this sector. Certain promotional strategies, such as easing of tariff

barriers for the wines, developing awareness on health benefits of wine and to supply

good quality wines in reasonable prices in the domestic market should be emphasized.

INDIAN WINE MARKET & CONSUMERS

Indian wine market is currently small, estimated at about 450-550,000 cases (9 liter), but

is growing rapidly at 20-25 percent per annum. Growth in the wine market is fueled by

20 million plus upper class Indians (2% of population) on increasing disposable incomes,

changing lifestyles, increasing foreign traveled professionals and improving quality of

local wines. An increasing number of health conscious urban Indians are eschewing

traditional heavy liquors (whisky/rum) in favor of wines. It is becoming fashionable to

serve and drink wine, especially amongst women. Today, serving wines at small

dinners/parties in the cities is becoming increasingly common in sharp contrast to few

years ago when wine was served on only special occasions (or when foreigners were

invited).

The Indian wine market currently stands at 4.6 million litres in volume terms and

Rs 450 crore in value terms.

The wine market is expected to grow to 8.3 million litres by 2010. Per capita

consumption of wine remains extremely low in India; however, there is growing

consumer interest in wine with a number of wine clubs opening in Delhi,

Chandigarh, Hyderabad and Bangalore.

Nearly 80 per cent of wine sales are accounted for by the major cities, especially

New Delhi, Mumbai, Chennai, Kolkata, Pune and Bangalore.

West India accounts for over 41 per cent of total volume sales of wine in India,

followed by North India, which accounts for 29 per cent of volume sales.

Nearly 90 per cent of wine sales are for still (that is, red and white) wines.

Sparkling and rose wines, in contrast, target select segments of particularly

affluent consumers.

In most states the sale of wine remains restricted to license off-and on-trade

outlets, which means a limited number of outlets selling wine.

Around 63 per cent of the volume sales of wine are through off-trade channel in

five-star hotels, pubs and bar-restaurants.

1. Wine consumption trends

The industry analysis shows that current consumption trends are favorable for the

domestic wine market, especially for producers of premium wines. Total domestic wine

consumption has increased each year since 2000. Overall wine sales have increased 25%

percent per year over the past five years. The dramatic growth in retail wine sales can be

attributed to the increasing popularity of premium wines amongst the urban Indians.

The consumption of wine is unevenly spread across the country. Although wine is sold in

around 20 cities in India, 4 cities namely Mumbai, Delhi, Goa and Bangalore contribute

to almost 70% of the total wine consumption. As per classification based on the type of

wine consumed, red wine has the largest market share (45% of total wine consumed).

White wine stands second with a market share of 40%, followed by sparkling wine (13%)

and rose wine (2%).

Experts attribute the growth in the premium wine market to the increasing disposable

incomes in the Indian economy, changing life styles, an increasing number of

professionals coming back to work in India, and a growing awareness of the health

benefits of wine - as well as the perception of wines as being up-market and

sophisticated.

2. Overview

The wine industry has witnessed a CAGR of over 25% over the last 3 years in the

premium wine segment mainly fuelled by the strong growth in the domestic wine

consumption.

The industry has low entry barriers because of its low capital-intensive nature

however the industry is under pressure for profits due to high marketing costs and

low volumes. With demand increasing at a steady pace, the industry is expected to

go through a consolidation phase.

The fortunes of the industry are linked to the trend in the changing drinking habits

of Indians, higher disposable incomes, growth in the foreign tourists, and

government regulations and policies.

There is a strong growth in the imported wine market with Indian importers

importing hundreds of brands from countries like Australia, US, Bulgaria,

California and many more.

Despite the prohibitively high duties in India, sales of imported wines have grown

from about 20,000 cases about seven years ago to about 1,20,000 cases now

Levy of excise duty on wines in India is the domain of the State government. The

excise rates thus vary across the country as each State decides the rates after

considering its revenue targets and other factors. While the excise duty on wines

has been exempted in some states like Maharashtra, it is very high in some others.

The customs duty on imported wines ranges from 150% to 175%.

3. Potential

There is immense potential for growth, with the growth of economy going up to 8

per cent, the middle class income booming and changing lifestyles, wine culture is

increasing more than ever as more Indians are exposed to western cultures and

producing wines in India as well.

As more foreign business delegates and tourists are visiting India, sale of wine in

hotels and restaurants is increasing rapidly.

With the government making concessions for wine makers, the wine market is

growing at 100 per cent on a CAGR. The growth may not be comparable to

international standards but in the Indian context it is very high.

The Wine market is expected to continue growing at 25% this year and sell

750000 cases in 2006-07

4. Import Market

Given the traditionally closed nature of the Indian import market, exorbitantly high

import duties, multitude of state taxes and complex state licensing/approval process, the

existing market for imported spirits, wine and beer is very small. The market for

imported wines is estimated around 150,000 cases with imports in Indian fiscal year

2006/07 (April/March) estimated at $ 10.6 million. The major suppliers are France ($4.0

million), Italy ($1.5 million), Australia ($1.2 million), U.S.A ($0.8 million), U.K.,

Belgium, Argentina, Chile and Germany.

Despite the high duties and other policy bottlenecks, there has been considerable interest

from foreign wine producers/exporters in the past few years. Compared to the presence

of about 10 imported brands a few years ago, between 70-80 brands are in the market

from countries like France, US (California), South Africa, Australia, Chile, Argentina.

Prominent of the Californian wines having a presence in India are E&J Gallo, Brown &

Forman, Constellation, Robert Mondavi and Kendall-Jackson wines.

For more information on the Indian market, I would advise you to refer to our reports (i)

Exporter Guide (IN7094), (ii) India Allows Partial Duty Free Imports to Hotels (IN3062)

and (iii) The GOI Abolishes Additional Duty --- (IN7059). These reports can be

accessed from our website www.fas.usda.gov, click on icon “Attache Report”, and then

type in the report numbers IN7094 in the select option 3.

5. Marketing/Distribution System

Marketing of liquor, including wine, is largely a state subject in India and imported wines

have to grapple with the highly controlled and complex domestic marketing and taxation

procedures followed in each state. Besides the phenomenally high import duty, every

state charges varying state excise duty (varies 30 percent to over 100 percent) and sales

tax and vending fee. The wine importers also face the challenge of procuring licensing

clearances for distribution and sales of wine/liquor in every state where they intend to

market. With each state having their own licensing procedure, it is a gargantuan task to

achieve clearance from the state governments in the targeted markets. Due to these

factors, imported wines have failed to make any significant appearance in the retail

market, remaining limited to luxury hotels and restaurants for in-house consumption (pay

state excise/sales tax) and diplomatic usage.

Most of the imported wines in India are marketed to hotels/restaurants directly by the

importer or exporter agent. Some of the importers/agents also directly market their

products to the diplomatic missions and foreign passport holders. The removal of QR's in

April 2001, and increasing awareness and exposure of Indian consumers about wines

have caught the attention of Indian liquor companies who are making efforts to

establish/strengthen their wine portfolios. Some companies have tied up with foreign

wine producers/exporters for importing and distributing their brands in India. A few

others have gone for importing bulk wines, and marketed as foreign wines bottled locally.

6. Market Entry Strategy

Given the high import duties and other taxes, the duty free import segment of the HRI

sector offers considerable strategic marketing opportunities to potential wine exporters.

U.S. firms should consider the following before selecting an importer/agent: (a)

determine which hotels chains are being serviced by the importer/agent; (b) recognize

that importers/agents with fewer principals often are more adaptable and committed than

those with big reputations; and (c) check the potential agents reputation through local

industry/trade associations, and other foreign companies. Please find attached a partial

listing of importers/distributors of spirits and liquor in India.

7. India Spells Big Business Ideas

Import of fine wine to India could well become a big business idea for global

entrepreneurs as the tastes of the country's fast-growing middle class are growing beyond

swanky cars and jazzy mobiles and now include a bottle of Chardonnay. Import of fine

wine to the country has emerged as one of the „12 best new business opportunities in the

world‟ compiled by a Fortune group magazine.

The Business 2.0 magazine, a part of global media giant CNN-Time Warner group, said

in the cover story of its latest issue that the increasingly refined tastes of India's

burgeoning middle class mean that the wine market in the country was set to grow ten-

fold over the next decade.

India has already become a Prime destination to start importing the US, Australian, and

other wine labels to satisfy the increasingly cosmopolitan tastes developing among its

people. Moreover, the wine boom would largely bypass the domestic brands as the

country is too hot for serious viticulture, it said. To top it all, the duties and excise taxes

on imported wine have been slashed considerably over the past two years. The magazine

noted that an American importer who gets in early and establishes a foothold would reap

the benefits of even lower duties down the road. While acquiring distribution rights is one

of the first requirements to start the business, the right selection of wines could also play

a key role.

The magazine quoted the experts as saying that fruity whites from California and

Australia, products that did well in the United States when wine took off in the 1980s,

should be on the top of the list. Also, one does not need an import license and anyone can

bring wine from abroad into a warehouse bonded by the nation's customs office.

]

INDIAN POLICY

1. Import Policy and Tariffs

Since April 2001, India has allowed imports of all alcoholic beverages, including wines,

under an open general license without any quantitative restrictions. However, imports of

all alcoholic beverages are subject to compliance with various mandatory requirements

and taxes/levies as stipulated by various state governments where the imported product

will be marketed.

The GOI through a notification issued on July 3, 2007, exempted wine from the

additional duty, which ranged from 20% to 75% depending on the CIF value per case (9

liters). Simultaneously the basic import duty on wine was raised from 100% to the WTO

bound rate of 150%. Consequently, total import duty on wines is 161.6 percent

advalorem. Earlier the import duties on wines were exorbitantly high ranging from 155

to 275 percent advalorem, with higher duties on lower value wines (see attached

worksheet). Under the new duty regime, import duties on cheaper wines has come down

significantly, but the duties on costly wines (more than $ 87) will effectively increase.

In May 2003 the Government of India allowed luxury hotels (3-star and above) and other

tourism sector providers exemption from the import duty on liquor and wine up to 5

percent of their average foreign exchange earnings over the preceding three years. The

entitlement for duty free imports offers a significant cost relief to the luxury hotel

segment, which has resulted in increased imports by this sector.

2. Storage Regulations

Imported wines and all other alcoholic beverages must be stored at a government

approved custom bonded warehouse or excise department bonded warehouse1. Wines

can be released from the bonded warehouse for distribution only after the

importer/distributor meets all the mandatory requirements of the state where they plan to

market the product.

3. Labeling Regulations

Bottled at origin (BIO) wines are subject to the labeling provisions of the Standards and

Weight and Measures (Packaged Commodities) Rule, 1997, when imported into India.

Compliance with this rule should be ensured before the import consignment is cleared by

customs.

The labeling declaration on a wine bottle should include:

1 Importers can keep the imported liquor in excise department approved warehouses after paying the import

duty. Normally, imported liquor is kept in the custom bonded warehouse, where it can be stored without

paying import duty upto six months, and are charged interest on custom duty if cleared after six months.

1. Name and address of the importer.

2. Generic or common name of the packaged commodity

3. Net quantity in terms of standard units of weights and measures. In the case of

wine, the unit is milliliters or liters.

In addition, the Standards and Weights and Measures (National Standards) Rules, 1988,

prescribe that the alcoholic strength be declared on the label as a percentage of volume

with the symbol “% Vol”.

4. Other Regulations

The government of India has banned direct or surrogate (eg: sponsoring major sport

events, brand related promotions, etc) advertisement in the mass media for promotion of

consumption of liquor including wine.

Although the Bureau of Indian Standards (BIS) prescribes standards for various alcoholic

beverages, these specifications are not mandatory for imported products. Market sources

report that India does not impose any specified standard regarding approved composition

and additives for imported wines.

STATE GOVERNMENT REGULATIONS ON IMPORTED WINES

1. Marketing Regulations

Marketing of alcoholic beverages, including wine, is largely a state subject in India. The

state governments heavily depend on revenues from the liquor industry. Every state (29

in number) and Union Territory (8 in number) has its own excise policy on the

manufacturing and marketing of alcoholic beverages that includes warehousing,

distribution, retailing, and labeling and disclosure requirements. The state excise policy

is reviewed annually, and the State Excise Department monitors and implements the

excise regulations.

After the liberalization of imports of alcoholic beverages in 2001, several states have

come out with explicit excise policies for the marketing and distribution of imported

alcoholic beverages, including wines. However, there are some states (Tamil Nadu,

Rajasthan, Kerala, etc) that reportedly do not have a specific policy on imported alcoholic

beverages including wines. It is a gargantuan task to get licensing clearance for the

marketing of imported wine BIO in these states.

2. Wholesale/Distribution License

In several states, the importer/distributor either has to apply for a foreign liquor-

marketing license (FL-1 license) to the state excise department or market his wine

through an approved FL-1 licenseed distributor. For the FL-1 license, the licensee must

have a registered office in the state and meet other requirements that may vary from state

to state. The FL-1 licensee has to pay a fixed fee every year. In Karnataka, a state owned

entity „Karnataka State Beverage Corporation Ltd. (KSBCL)‟ that has monopoly

marketing/distribution rights, and the importer has to market all their products through

KSBCL.

4. Brand/Label Registration

The FL-1 licenses (importer or distributor) have to apply for the brand (and label in some

cases) registration with the state excise department for marketing the brand/label in the

state. The state excise department charges a fixed registration fee, and the registration

has to be renewed every year.

At the time of registration, the state excise department provides guidelines on specific

labeling requirements for sale. State specific labeling regulations may include –

1. „Alcohol Consumption is Injurious to Health‟ in English (and local language in some

states)

2. „For Sale in the state of xxxxxxx only‟.

3. Maximum Retail Price Rs. xxx.xx only.

Upon registration of the brand, the licensed wholesaler/distributor can market their

product in the state, either through government approved retail outlets or hotels and

restaurants that have license to serve liquor. In Karnataka, the importer has to apply to

the KSBCL for the registration of the brand.

5. Transport Permit

Upon receiving an order from a buyer (hotel or retailer), the licensed

wholesaler/distributor places a request for a transport permit or order with the excise

department to allow transfer of the specified quantity (no of bottles/ cases) of the product

from the custom bonded warehouse to the retailer/hotel.

The state excise department will issue the transport permit after receiving the payment of

state excise duty, vend fee, and other taxes as applicable in that state. Upon presentation

of the transport permit, the bonded warehouse will release the specified quantity of wine

to the retailer/hotel and the licensed distributors will transfer the product to the

retailer/hotel after paying the sales (value added) tax.

6. State Excise, Sales and other Taxes

Every state charges a different state excise duty or vending fee and sales tax. Although

exempted from central import duties, the hotels and restaurants have to pay the state

excise taxes and other duties.

In states that have adopted value added taxation (VAT) system, the VAT on wines is 20

percent plus the education cess on the sales prices. In addition, there is a central sales tax

of four percent if the liquor is stored in a custom bonded warehouse at one state and

marketed in another state.

Appendix 1: Specific Marketing Fees/Labeling Regulations for Imported Wine in Delhi

(Subject to change)

FL-1 License Fee: Rs. 200,000 per annum

Brand/Label Registration Fee: Rs. 3000 per annum

(Each label of a brand has to be registered)

Vend Fee: Rs. 150 per bottle (750 ml)

Labeling Regulations

“MRP Rs. xxx.xx”

Appendix 2: Specific Marketing Fees and Labeling Regulations for Imported Wine in

Maharashtra (including Mumbai): (Subject to Confirmation)

Recently, the Maharashtra government has announced a new excise policy for imported

liquor and wine. The foreign liquor and wine importers have to get an K-1 liocensee

besides the FL_1 license. There has been a change in Rate of special fee from Rs. 202

per bulk liter to 150 per cent of the assessable value. The label registration fee Rs. 5000

per label upto 10 labels.

FL-1 License Fee: Rs. 660,000 per annum

K-1 License Fee: Rs. 250,000 per annaum

Label Registration Fee: Rs. 5,000 per annum

In Mumbai, the city authorities charge an additional Octroi fee of 8 percent on the total

cost of the product (include CIF value, all duties and taxes and market margins).

Labeling Regulations:

“MRP = Rs. xxx.xx”

“For Sale in Maharashtra Only”.

Appendix 3: Specific Marketing Fees and Labeling Regulations for Imported Wine in

Karnataka (including Bangalore). (Subject to Change)

Brand/Label Registration Fee: Rs. 10,000 per annum

Literage Fee: Rs. 1.45 per bulk liter

Special Fee: Rs. 70 per bulk liter

Labeling Regulations:

“MRP = Rs. xxxx”

“For Sale in Karnataka Only”.

“ Consumption of Alcohol is Injurious to Health”.

Please note that KSBCL is the monopoly wholesaler/distributor in the state of Karnataka.

There is no specified policy for marketing of imported wines BIO in the state of Tamil

Nadu and therefore in Chennai. Whatever small quantities of foreign alcoholic

beverages, including wine, are available in Chennai through the gray market.