‘India’s Wine Woes Now Will Benefit Consumers Later’
By Rajeev Samant, CEO Sula Vineyards for Wall Street Journal
At the biennial Vinexpo in Bordeaux last month, the world’s largest wine expo where producers, importers and other members of the wine trade gather for a five-day bacchanal, it was almost funereal compared to the frenzy of past fairs. Visitor numbers were down 10% from 2007 and a number of booths looked deserted, with forlorn producers sipping ruefully on their own wines and wondering what hit them. The global wine business is hurting this year after many years of steady growth and, frankly, producers need to share a healthy part of the blame.The crisis has hit the high end and low end alike. Bordeaux first growths that commanded ridiculous $500-a-bottle “en primeurs” (pre-release) prices last year have quietly released this year’s primeurs at half the price. And in the New World, Australia’s dream run where it seemed like the world was going to be conquered by their cheap “critter wines” has come to a grinding halt. Australian exports are down 15% this year and the value per bottle has plunged 25% and more in the key U.S. and U.K. markets. The Yellowtail phenomenon that was so touted as a classic “Blue Sea” case study has delivered a nasty bite, leading consumers to label Australia as a producer of basically cheap Chardonnay and Shiraz. So producers and importers settled for sitting back with a glass of wine and catching up on things – with no pressure to buy more labels and hit big sales targets. Completely different from the aggressive meetings of the 2007 Vinexpo where producers were releasing ever more expensive labels and importers were lapping them up. This time it wasn’t about new relationships and markets, it was more about cementing existing relationships and hunkering down till things pick up again.
“Farmers who didn’t know the first thing about wine and jumped onto the winery bandwagon are pulling out and new winery projects are on hold.”
Here in India we haven’t been spared. The world’s fastest-growing wine market for the past five years came crashing down to earth in 2009 with sales falling for the first time since 2001. Local producers who jumped into the game expecting quick returns in a “can’t miss” market with 25% annual growth are now sitting on full tanks of wine which they have to empty before the next harvest, when their contracted grapes come flooding in.
Meanwhile the banks which were once so eager to lend are getting impatient and the dreaded Non-Performing Asset phrase is bandied around depressingly often, usually pertaining to small farmer-operated wineries that really never figured out how to make quality wine and had even less idea of how to market it. Grape growers who rushed to plant wine grapes without having contracts with wineries have been left high and dry in the just-concluded harvest, with the most unfortunate ones having to leave the fruit to rot on the vine. And no new wine vineyards were planted in the planting season in December 2008, compared to a frenzied 2,000 new acres annually from 2004 to 2007. But there’s a bright spot to all this. The situation has led to ripe pickings for consumers, who are spoiled silly with special offers at their local wine stores in Mumbai – “buy one, get one free” being the most common mantra, giving them a peek into the once-unthinkable fast-growing Indian wine lake.
New producers who once thought nothing of pricing their wines at 500 rupees-plus, even with zero market pedigree, have learned their lesson the hard way. Pricing is much more sober these days and more and more winemakers are realizing that the “sweet spot” is between 150 and 300 rupees, not the glorified 400-800 rupees that the market seemed to have accepted earlier. The hottest wine launch of 2009 is a sub-200 rupee quaff called Samara, which is flying off the shelves as consumers realize wine doesn’t have to be expensive to be eminently drinkable.
The Maharashtra government has also rushed to the rescue, announcing three major policy decisions that should make wine drinkers in the state very happy. First, local duty on imported wine has been slashed, and the effect will be most dramatic on higher-end wines and champagne. Second, out-of-state wines have to pay much lower registration fees, which were earlier stiflingly high and had led to retaliatory duties in Karnataka which hopefully will get rolled back. Finally, local producers will get a big VAT refund which will be a lifeline to those gasping for air. All in all, Maharashtra will regain its title as the wine-friendliest state. And other states aren’t far behind; Karnataka just put in place a wine-friendly policy that slashed tax on local wine and unveiled a new cheaper “wine bar” license.
So 2009 is a turning point, but I see mostly good things ahead. Most importantly, local producers have realized that simply fermenting grape juice and sticking a label on the bottle is not the same as making decent wine. Farmers who didn’t know the first thing about wine and jumped onto the winery bandwagon are pulling out and new winery projects are on hold.
Growers will also have to think hard before planting new vineyards on a whim. They’ll have to plant varieties that the market might need in the future, and they’ll have to use best quality, sustainable viticultural practices. That’s the only way profitability will be sustained over the long term. At Sula we’ve been emphasizing quality over quantity for years to our growers, and now the lesson has hit home. Those who grow quality grapes will always find buyers even in the hard times.
The consumer will see more and more varietal wines like Chenin Blanc and Shiraz at prices below 300 rupees. Wines at prices above 500 rupees are likely to be of much better quality than in the past, and some of these Indian wines will wine medals at world shows in the not-so-distant future. Apart from the usual suspects, exciting new varieties like Viognier, Riesling, Malbec and Grenache will tickle the palate, spoiling the consumer for choice.
All in all, the Indian wine drinker is in for a great time in the years to come, so here’s to that!