WINE INDUSTRYSECTORAL ANALYSISSHASHANK SUBRAMANIAN, POOJA KHATIJA, KAREN DIASPGDM- BD

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Table Of Contents• Background History – Time Line• Trends • Consumption• Competition• Stakeholders • Value parameters- Strategy Canvas• Major breakthroughs• Company Profiles• Sources

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History of Wine (Time Line)• Fossil vines, 60-million-years-old, are the earliest scientific evidence of grapes.

The earliest written account of viniculture is in the Old Testament of the Bible which tells us that Noah planted a vineyard and made wine.

• Starting about 1000 BC, the Romans made major contributions in classifying grape varieties and colours, observing and charting ripening characteristics, identifying diseases and recognizing soil-type preferences.

• WORLD'S OLDEST BOTTLE of WINEUnearthed during excavation for building a house in a vineyard near the town of Speyer, Germany, it was inside one of two Roman stone sarcophaguses that were dug up. The bottle dates from approximately 325 A.D. and was found in 1867.

• In 1863 the wine industry encountered the YANKEE VINE-KILLER BUG. This happened because of species of native American grapes were taken to Botanical Gardens in England. These cuttings carried a species of root louse called Phylloxera vastatrix which attacks and feeds on the vine roots and leaves.

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• By 1865, Phylloxera had spread to vines in Provence. Over the next 20 years, it inhabited and decimated nearly all the vineyards of Europe.

• Finally Thomas Munson, a horticulturist from Dennison, Texas, realized that native American vines were resistant and suggested grafting the Vinifera vines onto Riparia hybrid rootstocks thus saving the European wine industry from extinction.

• 1900. Around the turn of the century, the quality of American wines had reached excellence by international standards, as testified to by the three dozen medals won by them at the 1900 Paris Exposition.

• In December, 1917, Congress passed the Eighteenth Amendment to the U.S. Constitution, criminalizing the "manufacture, sale, or transportation of intoxicating liquors“ and by February, 1919, 45 states had ratified it. New Jersey held out until 1922, and only Connecticut and Rhode Island ultimately rejected it.

• There was an explosive demand for fresh grapes and a shortage of refrigerated railroad cars in which to ship them caused prices to skyrocket.

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• Planted acreage nearly doubled from 1919 to 1926. Vineyard land prices climbed from $200 an acre in 1918 to $2,500 an acre in 1923.

• But this explosive growth was shortlived as in 1925, the railroads finally had enough cars, too much fruit was shipped and it rotted on the Eastern docks. In 1926, vineyard land fell back to $250 per acre.

• Before 1920, there were more than 2,500 commercial wineries in the United States. Less than 100 survived as winemaking operations to 1933. By 1960, that number had grown to only 271. California had 713 bonded wineries before Prohibition; it took more than half a century, until 1986, before that many were again operating.

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Global wine industry- trends The global wine market grew by 3.4% in 2006 to reach a value of $227.7

billion.

By the end of 2011, the global wine market is forecast to have a value of $273.1 billion, an increase of 19.9% since 2006.

The global wine market grew by 1.8% in 2006 to reach a volume of 19.4 billion liters.

By the end of 2011, the global wine market is forecast to have a volume of 21.3 billion liters, an increase of 9.8% since 2006.

(Source: Wine - Global Industry Guide)

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Trends contd. Still wine accounts for 73.5% of the global wine market´s value.

Europe accounts for 79.5% of the global wine markets value.

Supermarkets/hypermarkets form the most important distribution channel, with 36.8% of the market´s volume distributed via this channel.

Import wines gain market share. Wines from Italy and Australia, now represent 1 in 3 bottles sold in supermarkets.

The Super Premium category ($7-$14) is experiencing the highest growth.

(Source: Wine - Global Industry Guide)

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Size of the Indian Wine Industry

• The size of the Indian wine industry - $ 26 billion

• Growth in India is at the rate of 25-30% every year in spite of heavy custom duties (150%)

(Source-Assocham, 2010)

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Consumption• 2009-2010 the wine consumption in India was only about 13.3

million litres or 1.5 million 9-litre cases at a value of $82 million.

• Annual Per capita consumption was about

• India- 9 millilitres.

• France and Italy- 70 litres, 25 litres in the US, 20 litres in Australia and 40 millilitres in China.

(Source- cawg.org)

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Wine consumption as per Price Structure

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Year Domestic Imports Total Growth Units 2003-2004 425,000 74,000 499,000 - 9 Litre cases 2004-2005 515,000 100,000 615,000 23% 9 Litre cases 2005-2006 652,000 137,000 789,000 28% 9 Litre cases 2006-2007 931,000 168,000 1,099,000 39% 9 Litre cases 2007-2008 1,250,000 224,000 1,474,000 34% 9 Litre cases 2008-2009 1,300,000 175,000 1,475,000 0% 9 Litre cases

Price per bottle Domestic Imports Total Units Under $10 700,00 - 700,000 9 Litre cases $10 to $19 468,750 48,600 517,350 9 Litre cases $20 to $29 112,500 87,500 200,000 9 Litre cases

$30 and Over 18,750 38,900 57,650 9 Litre cases

(Source – Wineinstitute.org)

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CompetitorsUNIT LOCATION WEF CAPACITY KL KEY BRANDS

Grover Vineyards Bangalore 1992 500 Grover

Heritage Grape Winery Pvt Ltd Bangalore 2004 300 Heritage Port

Hampi Heritage Winery Bijapur 2006 - Kinvah

Pampasar Distillery Ltd Bangalore - 1000 Golconda ruby

Le Meredien Distillry & Winery Goa - - Donna Maria

Naveen Distillery Goa - - Vinho de Goa

Nita Industries Goa - - Port No 7

Oceanking Distilleries Goa - Mapusa - - -

Pinsons Wine Industires Goa - - Pinsons

Springfields (India) Distilleries Goa 2003 - San Andre etc

Vinicola Goa - Margao 1975 - Vinicola

John Distillers Goa (Cuncolim) 2004 - Goana's

Vinbros & CoGoa (Margao) & Pondicherry

2005 - Globus, Vinho de Goa

Associated Wines Pvt Ltd MHR - Baramati 2005 100 -

Baramati Grape Industries Ltd MHR - Baramati 1975 - Bosca

Malhar Winery Pvt Ltd MHR - Baramati 2005 110 Chateau d’Ori

Pyramid Wines Pvt. Ltd. MHR - Baramati 2004 100 Yellowstone

Chateau d'Ori MHR - Nashik 2007 200 Chateau D'Ori

Chaya Winery Pvt Ltd MHR - Nashik 2005 35 - 12

India-Major Competitors• Chateau Indage (Indage Vintners)- 43%

• Sula Vineyards – 33% market share and growing

• Grover Vineyards – 11% market share

• Vinsura – 3% market share

• Vintage Wines

13(Source – ImaginMor)

14Source - ImaginMor

Global Players

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Stakeholders • Grape Growers • Fruit and vegetable processors• Flour and Starch Manufacturers• Solid Paperboard Container Manufacturers• Glass and Glass Products Manufacturers • Wine Manufacturers• Logistics and Liquor Wholesalers• Liquor Retailers• Pubs, Taverns , Bars, Hotels and Restaurants• Biotech R&D• End Consumers

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Consumer- demographics% of adults consuming different wines

Categories Domestic table wine (%)

Imported table wine (%)

Sparkling wine (%)

18-24 years 13.20 4.70 9.20

25-34 years 20.50 6.30 12.00

35-44 years 23.60 7.50 12.00

45-54 years 24.20 9.00 12.20

55-64 years 21.50 7.10 7.70

65+ years 17.70 4.40 5.40

Females 21.80 6.90 10.90

Males 19.80 6.30 9.30

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(Source- Euromonitor, 2009)

Consumer Segments

Source : Nielsen

Types of Wine consumed

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(Source – ImaginMor)

Value parameters • Cost, • brand/ quality,• celebrations/ occassions, • vintage, • appearance• color, • taste/ flavor- sweet to bitter• health benefits,• complementing foods,• packaging,

• alcohol content,• location of produce,• preservation procedure,• automation,• type of crop (location, GM),• Clarity• Body and weight• texture- dryness

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Strategy canvas

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Top Breakthroughs• 1866: Pasteur worked with the wine growers of France, and developed a way to pasteurize and

kill germs. He was granted U.S. patent 135,245 for "Improvement in Brewing Beer and Ale

Pasteurization."

• 1870’s: Wine makers began changing the form of the glass bottle and started to utilize the cork

to seal these new bottles. This helped better storage and transportation. The storage allowed

wine makers to age the wine in individual bottles rather than in large barrels, meaning that they

could cut their inventory and leave the storage up to the consumer and the merchants.

• Grover Vineyards along with Michel Rolland introduced a breakthrough invention in wine

bottling – the Stelvin Cap (S–Cap). This cap seal, is not just the traditional cork seal but a prefect

sterile seal, which cuts off any bacterial contact with the alcohol content of the wine and thus

ensures that the wine is devoid of a musty wet odour.

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BreakthroughsLean+Green® wine bottles

• 15- 28% weight reduction- better packaging, and transport cost reduction

• A 20% reduction in energy use to produce the same number of bottles;

• A carbon dioxide saving of more than 11,130 tonnes of CO2 per annum;

• Overall water savings of 4,720kL or the equivalent of 6.3 Olympic swimming pools a year; and

• Lean + Green™ can allow 840 more bottles to be packed into a 20ft shipping container. This is an efficiency increase of 6.25%.

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Breakthroughs Incubator

• Hanzell founder James Zellerbach and his winemaker, Brad Webb, created an innovation incubator at their little hilltop winery above Sonoma Valley. (1956)

• New cellar equipment and techniques

• Applied gentle but technical care to its wine

• Temperature-controlled stainless steel fermenters, an early nitrogen-sparged bottling machine and other rarities such as a custom stainless steel crusher-destemmer.

Gondola

• Michael Martini includes on this list the invention of the vineyard wind machine using an old airplane engine based on his father, Louis P. Martini's, understanding of inversion layers; 2-ton grape gondolas that could be pulled through vineyards; and the first planting of Pinot Noir in Carneros in 1948.

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SULA• SULAFEST 2011 also featured the ‘Sulafest Bazaar’ - art and craft shops, clothing,

eco-friendly gifts, and other food stalls. Other activities on-site included a tarot card reader, jewellery stalls, grape stomping, tattoo, nail and caricature artists, jugglers, fire spinners, lavani, pottery workshops and more! The Cointreauversial bar whipped up some exotic cocktails prepared with the epic Cointreau liqueur. Bournville fine dark chocolate and loads of fun, all in the enchanting setting of India’s finest vineyard!

About Sula Vineyards.• Over the years Sula has pioneered many classic grape varietals in India like

Sauvignon and Chenin Blanc in 2000, Zinfandel in 2001 and Riesling in 2008. In 2005, Sula launched its first reserve wine, the Dindori Reserve Shiraz, as well as India’s first dessert wine, the Late Harvest Chenin Blanc.

• The company is also a leading wine importer under the umbrella of Sula Selections, with a portfolio of prestigious brands from leading producers like Remy Cointreau, Hardys, Chianti Ruffino and Asahi Beer.

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Grover• The only wine manufacturer that develops French grapes in India.

• The 13th Grover Vineyards Inter-Club Golf Championship which was held on 21st & 22nd February 2009, brought together players from the four leading golf clubs in Western India: Bombay Presidency Golf Club (BPGC), United Services Club (USC), Willingdon Sports Club (WSC) and Poona Club –Golf, making it the biggest amateur -golf event in Mumbai. The championship was co-sponsored by Parle Products. Jet Airways sponsored prizes.

• Grover Vineyards launched the Art Collection at the French Embassy to commemorate the 20th Anniversary of the winery. Famous Indian artists were brought together under one umbrella to crown the labels of the best Indian wine with their masterpieces.

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Gallo is the worlds largest winemaker.

Traditionally focused on lower price categories, particularly jug wines.Newer brands such as Turning Leaf and Gallo of Sonoma are targeted at higher priced segments.

2010 Revenues of $3.65 billion.

Major Brands: Carlo Rossi, Gallo, Gallo Reserve, Night Train, Ballatore, Rancho Zabaco.

Distribution Channel

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Flow of orders• The supply chain of Wine Industry in India is fairly linear.

• The flow of orders comes from the bottom of the channel i.e. from customers and goes to the top and the flow of products is from the top to the bottom.

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% margins at the front end• Agencies: 3-4%

• Wine shops: 9-12%

• Restaurants, hotels, bars, pubs, etc.: upwards of 20% to 200%

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Barriers to entry• Interstate trading- high regulations due to varied state policy

• New entry- low barriers required for licence

• Restricted import and sale- Bihar, Daman & Diu, Jharkhand, Tamil Nadu and Uttaranchal.

• Complete prohibition-Gujarat, Lakshadweep, Mizoram, Nagaland and Manipur .

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(Source: Ministry of Food Processing Industries (MOFPI), ‘Grape wine’)

TaxationImport duty:

• Open General Licence (OGL)

• Wine importer – registered Indian company with an Import Export Code (IEC) issued by the Director General of Foreign Trade, Ministry of Commerce.

• This can be stored in a Customs Bonded Warehouse (CBW) for up to 3 months without having to pay customs duty.

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Taxation contd.• Duty free

• Basic Customs Duty-150%

• All brands (whether imported or produced in India) have to be registered with the Excise Department of each state

• A uniform 20% VAT is charged on the total cost of the product, which is passed on to the consumer at the point of purchase.

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Value Added Tax (VAT)

•State of Maharashtra – 20%•State of Delhi – 20%•State of Haryana – 20%•State of Chandigarh – 4%•State of Karnataka - No VAT •State of Tamil Nadu 53% •State of Kerala – 12.5%

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• Bureau of Indian Standards (BIS) prescribes standards for various alcoholic beverages. The Standards of Weights and Measures (National Standards) Rules 1988 prescribe that alcoholic strength be declared as % of volume .

• Standards for water used

• guidelines for hygienic practices

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Surrogate advertising

• No direct advertisement is permitted for promoting consumption of

liquor.

• However, in order to enable consumers to make an informed

choice and to promote responsible drinking, communication at the

point of sale/consumption could be permitted.

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Packaged Commodities Rules

• Affixing of labels incorporating following declaration:

• (i) Name and address of the manufacturer,

• (ii) Common name of the commodity

• (iii) Net quantity when packed,

• (iv) Month and year of manufacture,

• (v) MRP

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Contd.

• Safety holograms approved by the Excise Commissioners to be

printed on every bottle of liquor.

• Barcodes- security and prevention of imitation or reuse of the

packs of branded liquors.

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Support System

• States like Maharashtra, Karnataka and Himachal Pradesh -

liberalized their excise regime and reducing excise duties.

• Maharashtra has abolished excise duties on wine whereas; an

excise duty of USD 22 per case has been levied on other alcoholic

beverages.

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(Source: Central Board of Excise and Customers – Government of India, Gryphon Brands Inc. and Seth Associates)

Licensing

• Resto bars- Rs 11000 pa ($ 210)

• Liquor licence for 5 star and above- 5 lakh pa.

• Beer and wine licence- 5000 to 37500 pa, varies with location.($94-

$700)

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(Source- primary data, Maharashtra specific)

Upcoming trends

• The site - CropWatch Online (CWOL), offers comprehensive

information on disease, pest and irrigation alerts, new research

findings and the latest localised weather reports.

• ‘Disease Diagnosis’ module- features detailed information in four

categories – insects, leaves, vines and grapeberries

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Upcoming trends contd

• Biotech R&D – developing newer, more viable, and resistant

varieties of Vitis vinifera

• Currently used pergola system- 1000 vines per acre

• Proposed Single Cordon Method- 2500 vines per acre

43Source- Chateau d’Ori.com

Wine shop data

• Wine shops get from Rs. 1000 ($ 22) upwards for branding visible

storage areas.

• On an average wine shops sell upwards of 200 bottles (in terms of

720 ml bottles) of alcoholic beverages per day.

• Customers are mainly youth and middle aged men.

• Female customers for wine is 1.3%, while for beer it goes upto

almost 8%44

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Segmentation Matrix

Need Gap Analysis

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Back End

• Current grape vine procurement @ Rs. 35/kg

• Currently 6000 acres of land under grape cultivation.

• Manufacturers like Vinsura and Chateau d’Ori outsource only upto

20%

• Transportation damages fruit and causes wastage.In 2010- 21%

Grapes are sorted manually.

47Source – Wine Society of India

Front end

• Most sales through retail stores.

• Women form less than 1% of this footfall.

• However they are the major consumers (Euromonitor, 2009)

• Wine buying culture for women.

• Wine and dine on wheels.

• Introducing the culture of using wine in cooking by targeting the urban

localities.

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Front End Contd.

• Better trained sommeliers at fine wine restaurants.

• Insufficient information about the wines available. Sommeliers may

upsell certain brands.

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Recorded Responses• 27% drink wine on a weekly basis.

• 22% have wine with their families at gatherings and at home.

• 78% still buy wines from retail stores and only 1% of these are women.

• 35% of the wine drinkers do not know about the taste preferences that

wines are associated with.

• 43% of wine drinkers thought that having Red wine chilled was the best

preferred way.

• 85% of the wine drinkers are open to experimenting to wine being used in

different mediums like cocktails etc.

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Consumers • Wine flavoured candy, confectionery

• Wine flavoured condoms

• Health wines- for heart and coronary diseases

• Sommelier application esp for restaurants.

• Edible Jewellery

• Wine baskets- for gifting-bottle, about it, pairing advice, paired sample with

recipe or could be customized based on research on type of wine person

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Sources• Euromonitor.com: Information concerning recent trends in sectors,

market segment data, forecasts, market share information, customer demographics and company profiles.

• Business Source Premier article “Moving Forward”: Regional data of US wine consumption

• History-of-Wine.com: Everything from the history of wine, wine production around the world, the popularity of wine in various regions

• Winebusiness.com: Retail wine sales information from the end of September 2002.

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Sources • Gallo.com: Company Information

• California Association of Winegrowers (cawg.org): Industry News, per capita consumption statistics

• Wineinstitute.org

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Thank You

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