The three Cs of business
In my guise as a “wine Consultant”, I have advised quite a few people and companies on how to enter — or to not enter — the wine industry. On an average, I get four to five enquiries a week and one of the first things I am asked is, “Do you know how to make a small fortune in wine”? The answer is, of course, “Start with a large fortune.” If they are still talking to me, then there’s scope to go further.
Investing in the wine industry is a perilous undertaking, regardless of whether one wants to “Make in India” or import the stuff. At the risk of understating the issues involved, there are three key constraints to doing a profitable business in wine in India.
Cost: You should have at least ~10 crore in both capital expenses and working capital at the start. The breakeven (if it comes) will not come before five years. Starting a vineyard is difficult in states like Maharashtra or Karnataka as buying agricultural land there has numerous conditions. In any case, it makes commercial sense for vineyard ownership to be separate from wine production. And do remember that it takes as much time and expense for marketing your product as is spent in setting up production. Also, while one can get loans for capital expenses and working capital, nobody will fund overheads and sales expenses.
Similarly, wine imports require one to plan for nine to 12 months of stocks and sundry debtors, and since VAT and other taxes need to be paid up even if payments have not come in, managing the working capital can be a challenge. And that’s after providing for customs duties totalling 166.6 per cent of cost, insurance and freight expenses — among the highest in the world.
Complexity: Effectively, India is 29 plus seven markets for wine: alcoholic beverages are a state subject, and every state has its own rules and regulations (and duties and taxes) pertaining to all alcoholic beverages (spirits, wine, and beer). Of course, little information on how to do business in each state is available online, so you mostly have to catch someone who “knows the ropes”.
Importing wine has its own challenges. You have to get a licence from Food Safety and Standards Authority of India, have “India-specific” back labels affixed on all bottles by the producers and navigate all the paperwork involved in importing, storing and selling the stuff to vendors after registering labels separately in each state, each year.
Competition: After all this, you need to compete for “share of throat” with not just other wines but all alcoholic beverages. This effectively means jostling for space on retail shelves and wine lists with categories that are a hundred times larger in volume and revenue than your wines, prices that may be a fraction of what wines sell for and brands that are a lot better known.
These challenges are not new. The obvious question is why people with no background in wine get into an industry that has lower returns and higher risks than most other businesses.
I can only imagine that this is due to the upmarket image of wine and its growth potential. Wine is now an inescapable component of most “high society” events and there’s a market for wine at every price point — from ~100 to ~1 lakh per bottle. Too, wine consumption in India is still a niggardly 35 ml per capita as compared to a world average of 3.3 litres, and will continue to grow at 15-20 per cent annually for the foreseeable future, even with all existing constraints.
So I keep looking for people willing to “spend a large fortune” to enter the wine business in India — there’s always hope that government policies will make this business easier and more profitable.
Wines I’ ve been drinking: The SDU Winery was set up in 2012 outside Bengaluru — though the vineyard actually dates back to 2003 — and has been producing award-winning wines. Its newest offering is the SDU Winemaker’s Selection 2014, a Cabernet-Syrah blend made from 10-year-old vines that have spent 12 months in oak casks. Lots of fruit and spices on the nose translate into a rich, medium-bodied taste with smooth tannins and a good finish. Great value for money, too, at ~1,500 in Bengaluru.