 |
| July 19th 2008 |
|
| Roads to market in India |
by Subhash Arora
The wine world has high hopes for India, given its population and rising wealth, which is creating an interest in Western goods in general and wine in particular. But not so fast, because anybody looking to enter the market needs to consider a number of obstacles, including punishing duties.
|
|
|
The unrestricted import of wine and other alcohol has been allowed by the Indian government for more than five years now. The number of importers has increased from about 35 a couple of years ago to nearly 80 - and will soon touch 100 if one considers the many new arrivals, plus the old ones who had stopped importing wine due to stringent laws, heavy duties and a restricted market which is now expanding at over 30% a year.
Distribution restrictions
The barriers to import remain high. The bonded warehouses—public and private—are the initial barriers, requiring considerable financial investment and bank guarantees.
Excise bonded warehouses and a license is required in each state. Brands have to register each label individually, on top of paying a hefty annual license fee. In Delhi alone, the license to sell wine, beer and liquor costs Rs.5.0 lakhs ($12,300/€8,000) annually. Even if the license is taken for a month, the same amount has to be shelled out, before a single bottle can be sold. There is no separate, cheaper license for wine only.
The two restrictive measures set a sufficient barrier to new entrants, who are generally forced to use the services of existing bonders. The commission payable for these two services alone varies between 10-20% of the cost of wine. This affects the viability of the small importer, who is obliged to rent these services.
Yet, the new importers are making a place for themselves with an eye on future expansion. At the break even of 1200-1500 cases sold annually, there are few exits and the number of importers is steadily going up, even though the market isn’t big enough for everyone to thrive.
The distribution leaders
Primarily due to the two factors, the new importers have not been able to make a significant dent so far and the old order remains. Brindco, the largest importer, took the pole position and maintained its leadership; it has increased sales by more than 70% over the last two years, to around 51,000 cases.
Sonarys leapfrogged into the second spot; with its own bonded warehouse, it has been able to reach 24,000 cases annually. In third place is Moet Hennessy, which has aggressively promoted its Champagnes and other wines, pushing the volume to 21,000 cases. Global Tax Free Traders has been stagnating in fourth place at around 13,000 cases.
How our tables were calculated
The figures and position of the importer in the hierarchy has been determined by conducting a survey among about 40 of the known importers. A major difficulty is assessing the actual volume of sales. Value is not a feasible criterion, as there are no official figures available and there are many re-exports. Plus, no importer, large or small, is willing to reveal revenues.
The volume-based import figures are also not easy to come by. Each importer was also asked to estimate the volume of the competitors based on |
|
|
|
|
|
|
|
|
their market reach, brand popularity, market penetration etc. Wherever feasible, different staff members and partners were quizzed at different times.
Another tricky factor to consider was the unsold stocks of imports during the year. Although the left-over stocks from previous year would have been sold in the current year too, a factoring was done based on the market conditions to allow for excess left-over stocks this year. There was a slowdown in sales due to Maharashtra imposing heavy excise duties at 200%, resulting in practically no sales during July-November 2007.
The bulk wine imports have not been included in these statistics. A majority of such wines are bottled and sold as Indian wine. Recently, Champagne Indage started importing wine and this will reflect a significant share of the next year's statistics.
A numerical overview
The total sales of imported wines through legal channels were about 210-220,000 cases in 2007-08, including duty free sales of around 7,000 cases nationally. The survey showed somewhat higher sales than the generally presumed sales of 180,000-210,000 cases.
The top three importers accounted for 96,000 cases, or 44% of total sales, compared to 60% about two years ago. The top five importers were able to sell a total of 121,500 cases, a share of only about 55 %. Today, the top six importers control 60% of the market, where only three companies controlled that much two years ago. The top 10 between them sold 159,000 cases, or a 72% share.
Distribution pattern
The sales are controlled by each state individually, which will continue due to the constitutional powers. More and more states are allowing the sales through easier channels like supermarkets, while stores that sell only wine and beer are given cheaper licenses. The states of Maharashtra, Karnataka, Haryana, Goa and Punjab have a liberal retail policy, paving the way for continuous growth through these channels. Delhi is still restrictive. Such policies are likely to change the market trends, with the retail sector expanding during the current year.
Each state requires wholesalers to have their own excise license. The importer and distributors must sell their products through these wholesale licensees. While bigger importers like Brindco and Sonarys act as wholesalers in some states, others rely on local wholesalers. The state of Haryana allows retail sales through a license issued annually through the drawing of lots. But the retailer must buy through wholesalers who have to get a separate license. The distributors have to sell through these wholesalers, adding to the cost of distribution.
During the coming years, there will be more sales through the retail channels. With giants like UK's Berkmann Cellars, UB, and Diageo entering the market, and Indian wine producers like Champagne Indage and Sula stepping up their import activities, the distribution hierarchy is expected to undergo an overhaul.
|
|
|
|
|
|
|
|
|
