Dispirited wine industry struggles to stay afloat

Saddled with loans and meagre margins in a tough, cut-throat market, most of the smaller wineries are on the verge of closure

June 24, 2017 07:58 pm | Updated June 25, 2017 09:19 am IST - BENGALURU

Grape farm in Coimbatore

Grape farm in Coimbatore

Excitement about reds and rosés ran high when the wine industry took roots in India three decades ago. But the industry wears a pallor now, with many among the 100-odd wineries across the country — mostly in Maharashtra and Karnataka — either struggling to stay afloat or shutting shop.

In Maharashtra, of about 75 wineries, a majority of which were started after the government offered subsidies to encourage wine production, only a few remain robust. About 12 to 15 small-size wineries are surviving on local wine tourism, and boutiques or bulk sales of wine. The rest, mostly saddled with loans, are closed or on the verge of closure, multiple sources in the industry confirmed.

“On paper, around 50 wineries could be working. In fact, those that are not in the market are also keeping their licence active by paying the licence fee, which is meagre,” a winery owner said.

In Karnataka, where 17 wineries are registered, the pressure has started showing. Unable to weather the cut-throat market conditions, a winery on Bengaluru’s outskirts recently merged with a top winery that has a nationwide presence. According to industry sources, at least three more wineries in the State are up for sale and more may follow suit. One winery has stopped production. Some have reduced the quantity of grapes crushed. In fact, the Karnataka Wine Board, the first of its kind in the country set up to promote wine, has not received any application to start a winery in the last three years.

“It is difficult for small players to sustain in the industry. Wine production has become an expensive affair with labour becoming scarce. At the retail end, it becomes very difficult for the small wineries to sell their wines,” said Bengaluru-based Heritage Wines producer P.L. Venkatarama Reddy, who is merging his business with the country’s largest wine brand, Sula. “Only companies with deep pockets can survive in the wine business,” he added.

The managing director of Bagalkot-based Elite Wineries D.V. Guraddi also acknowledged the precarious condition of the wineries. “It is a very tough industry working on meagre margins. Most wineries are making losses.”

A small pie

A large part of the problem is the small size of the wine market in a country where consumption is restricted to a few large metros.

Though the volume of wine sold has more than trebled in the last 15 years, industry estimates peg the current per capita consumption of wine to be a meagre 10 ml to 15 ml per annum, when compared with the global per capita consumption of around four litres per annum.

The wine market, which is currently estimated to be around ₹ 500 crore (including domestic and imported wine), forms a tiny fraction of the liquor business in the country, but remains crowded. While the total volume of sales in the Indian liquor industry is pegged at around 560 million cases annually, the combined sales of wine in the country is pegged at just around 1.5 million to 1.6 million cases. The four biggest wine makers — Sula, Grovers, Fratelli and Big Banyan — together have nearly 80% of the market share. Market leader Sula alone has more than 60% of the market share, industry veterans say.

“Though figures show a nearly 25% growth annually, it is mainly in the cheaper wine segment and not the premium wines segment, which is growing at 2-3%,” said Parag Kamat, the chief operating officer of the Nashik-based Charosa Wineries, which is backed by Hindustan Construction Company. According to him, the selling and marketing cost of wine is very high. “The cost is also high in the production of good wine,” he said. To add to this, the industry has not seen an exponential growth. “The industry, which was hit badly by recession in 2008-2009, has been seeing an incremental increase. Unless the business has sound financial backing, wineries cannot sustain in market in the long run.”

Different rules

Differential excise rules across the country have also put wine makers in a quandary, especially prohibiting smaller players from accessing these markets. Currently, Maharashtra, Karnataka, Goa and Delhi continue to be big markets for wine consumption.

“There are different rules applicable in 36 States and Union Territories, and high fees limit the spread of wines in these States. The volumes from each winery under each brand is low compared to the liquor business, which is limiting the growth of the wine industry. It is not sustainable,” said Neeraj Agarwal, executive vice-president (Operations) Sula Vineyards. In fact, in some States, it is easy to register an imported label without even selling a single bottle in any other State, he added. “However, local wineries need to show that they have sold a minimum number of cases in other States. This is a ridiculous rule for the domestic wineries,” he argued.

Wineries have also been affected by policies in Maharashtra and Karnataka, where the market potential is huge. “In a bid to protect their own wineries, both Maharashtra and Karnataka have imposed high fees on wines brought from outside their States. While this has limited the access to small wineries, the bigger wineries have bought or tied up with local wineries to sell their brand,” wine and logistics consultant Robin Somaiah said.

Unreasonable discounts sought by the retailers to push wine has been another bane for wineries. “Sometimes, the discount sought is so much that it does not even cover the production cost — it can go up to 50%. How can wineries be expected to hold margins and reinvest to improve quality of wines?” Mr. Somaiah asked.

Farmers affected

The problems plaguing the wineries have had a cascading effect on the farmers in the last few years. Vineyards developed on contract farming have shrunk, with many shifting to table grapes cultivation, or sugarcane in irrigated areas. In and around Bengaluru, where wine varietal cultivation started in the late 1980s and where brands like Grover and SDU have their wineries, real estate boom has also triggered uprooting of vineyards by farmers who saw a better return in real estate.

While the Karnataka Wine Board claims the State is having nearly 2,000 acres under wine grapes cultivation, industry estimates say the figure could be around 500 acres. “Many farmers under contract farming have shifted to other crops. I also shifted from wine varietals in a portion of my land,” said viticulturist V.G. Patil, who has been a consultant to many wineries in Karnataka.

Wineries which were unable to sell their stock stopped buying grapes from farmers with whom they had a contract. Wine varietals of grapes — unlike the table variety — cannot be sold to consumers. So farmers had to shift," said Mr. Guraddi. He estimates that about 40-45% of vineyards may have been uprooted in the wine regions of north Karnataka.

On a more optimistic note, Mr. Agarwal said that though the area under wine varieties reduced after the global recession in 2008-2009, re-plantation has started in the last couple of years. “Approximately 600-800 acres of plantation is happening annually in the last three years, more than 50% of which has been added by Sula alone,” he added.

Enquiries with other wineries also suggested that more area is being brought under cultivation only by companies as farmers are wary of their income being dependent on the fortunes of wineries.

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