Abstract
The below mentioned report is a PESTLE analysis on the wine industry in India, which is a potential market for Australian Wine Jacob’s Creek owned and produced by Orlando Wines; currently a part of Pernod Ricard Pacific, a wholly owned subsidiary of Pernod Ricard to launch a base in India and expand their business.
Pernod Ricard – The Distributor
Pernod Ricard is a French company that produces distilled beverages. It was founded in 1975. It s the largest MNC in the wine and spirits industry and the first to enter the domestic wine business. It is a worldwide conglomerate. Pernod Ricard owns the distilled beverage division of the former corporation Seagram, along with many other holdings. In 2005, the company acquired a British-based competitor, Allied Domecq plc. In 2008, Pernod Ricard announced its acquisition of Swedish-based V&S Group, which produces Absolut Vodka. It has 6 subsidiaries and owns a wide variety of beverage brands worldwide. For e.g. Chivas Regal (blended Scotch whisky) , Havana Club (rum) , Jameson Irish Whiskey, The Glen Livet (single malt Highland Scotch whisky), Malibu coconut-flavoured rum etc. Indian Tryst with Wines
The major wine producing regions of India are Kashmir, Punjab, Maharashtra,
Andhra Pradesh, Tamil Nadu, Karnataka and Goa. India has presented tremendous opportunities and challenges for international wine exporters, as the country represents a vast and largely untapped market. In addition to the present market dynamics in India, wine consumption is rising at a rate of 20-25% per year. There are approximately 65 wineries in India. Out of these the major 5 players are: Domestic Production values are estimated in the year 2008 and 2010 ( 9L cases ) Chateau Indage
400000
500000
Sula
300000
420000
Grover Vineyards
100000
150000
Vinsura
25000
40000
Vintage Brands ( Reveilo )
10000
20000
Demand for imported wine is increasing at similar levels and there is a definite market opportunity in India for a successful launch of a recognized brand like Jacob’s Creek which already is the number 1 imported wine brand in India. Pernod Ricard is in a strong position to take advantage of opportunities in this emerging market. The Indian wine market has shown impressive annual growth rates of 20-25% for the last 6 years, and those rates are expected to continue and potentially increase in the coming years. This report details the development of a wine culture in India as an important factor in setting the foundation for long term growth.
The following report gives a detailed PESTLE (POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, LEGAL and ENVIRONMENTAL) implications to be considered while
introducing Jacob’s Creek on nationwide basis in India
PESTLE Analysis of India
A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the environment in which an organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation. A PESTLE analysis is often used as a generic ‘orientation’ tool, finding out where an organisation or product is in the context of what is happening outside that will at some point affect what is happening inside an organisation. The six elements form a framework for reviewing a situation, and can also be used to review a strategy or position, direction of a company, a marketing proposition, or idea. The launch of Jacob Creek could be a breakthrough in the wine industry as so far international wines are specifically imported in India. Political
There are many government controlled regulations which only favour wines manufactured in India. These factors have to be considered before launching Jacob’s Creek. India‘s federal, state and local policies have been controlling the Indian market, a factor that both encourages the growth of the Indian wine market and domestic industry while at the same time increasing the difficulty of foreign brands and their ability to penetrate into the marketplace. But there are risks and rewards inherent with this emerging market. The import duty on bulk wine was zero from 2001 till 2003/04. In the year 2004/05 the duty for wine imported in bulk was raised to the same level as that of imported bottled wine. Simultaneously, the state excise duty on bulk wine which was Rs7 per litre was raised to Rs200 per litre, and later to 200% of CIF value. Hence the concept of bulk wine being imported then bottled in India is no longer feasible. The Central Government levies import duty, in addition to which each State Government further impose their own taxes on imported wine. The taxes levied vary from state to state. They are complex and keep changing on a fairly regular basis. Because of the complex tax structure and permit regulations it is
very hard for a distributor in one state to sell the product to buyers in another state. Each state has different levels of taxation as well as varying labelling requirements, Types of labels, fees for registering labels, etc which need to be adhered to. Wine exporting countries, through their High Commissions and Embassies in India, been making representations to the Indian Government with the support of local producers to streamline the taxation structure and labelling requirements. This has been a slow process and scant progress has been made. Under the WTO agreement and pressure from the US and EU countries, the Government of India announced the reduction in basic duty from 150% to 100% Effective 3 July 2007. However the states increased the excise duty, which not only had an impact the pricing level in retail sales but also made it extremely tough for imported Wine to enter the market.
Maharashtra, (state) the largest producer and consumer of wine, has been increasing taxes on imported wine in order to protect the local industry. However when Jacob’s Creek will be manufactured in India it will be favoured by the Government of India ( GOI ) since it has been supporting wines manufactured domestically. The following benefits will be granted 1. Direct subsidies for winery development, initial payment, 25-33% of the start-up costs for capital investments of wineries (to a cap of US$ 160,000). 2. Capacity building initiatives and technical trainings on viticulture, enology and winery development 3. Research Assistance and rootstock trials, variety selection, and pest/disease management research 4. Laboratory development assistance for wine analysis
Economic
The major issues with new launches are the cost
Pricing
This is the most important aspect to be considered when Jacob’s Creek will be locally manufactured. Although India is a steadily growing market, it is extremely price sensitive. The retail price for wines goes as high as 500% of the CIF value for bottled wine. **Taxes and duties subject to change without notice** It is still higher in most 4 and 5 star hotels and upmarket restaurants due to the higher margins they are able to obtain. In
Indian hotels and restaurants imported wine is sold upwards of Rs2200 (A$60) per bottle, with premium wines sold at higher prices. Up to 70% of imported wines are sold through retail outlets at Rs1200 (A$35) upwards per bottle. There is also a one off label registration fee that has to be paid in each State the wine is to be sold. The fee is calculated on the maximum retail price and varies from state to state. Recently, some states (Maharashtra, Goa, Haryana, Karnataka, Delhi) have allowed the sale of wine in supermarkets; an area where Jacob’s Creek could be sold to targeted audience. For example in Goa the label registration fee for a bottle of wine that retails for between Rs2000-5000 is currently Rs45,000. Small restaurants and take away joints do not sell wines. In 2 and 3 star hotels and restaurants, domestic wines are sold at Rs1000 (A$30). To enter the race, Jacob Creek has to be priced competitively.
Source Datamonitor, 2009
Social
The Developing Market – Consumers
According to the Exim Bank Survey it is conservatively estimated that 10 million Indians (around 1% of the population) could be termed as potential consumers of imported wines. They would come from the upper/middle class socio-economic groups. The profile of wine drinkers has changed in the past five years. With India’s steadily expanding economy these consumers tend to have rising levels of disposable income, greater exposure to foreign foods through travel and a willingness to try new products. The most affluent consumer segments in India, clustered in seven cities, account for over 80% of India’s most affluent households (USDA, 2008). These cities are Mumbai, Delhi, Chennai, Kolkata, Hyderabad, Ahmedabad and Bangalore, and are also the locations for a large portion of India’s emerging middle class (Datamonitor, 2009). Other factors bode well for the development of a wine market in India such as high levels of education, a young population in which 50 percent of people are under the age of 25 and fluency in English. A growing awareness of health issues is also prompting some consumers to switch to wine from beverages with higher alcohol content. In urban areas, serving wine at dinner events is becoming increasingly common and consuming
wine can be considered a sign of status. This is due to the fact that many Indians have travelled overseas and have been exposed to a variety of wines. They have started regarding wine as a beverage with health benefits rather than as an alcoholic beverage. Women, too, are increasingly choosing wine as a beverage of choice as it has a certain sophistication attached to it. Wine is also being used more special promotions, product launches etc. The market is growing at a healthy 30% per annum. This works in the favour of Jacob’s Creek since people are aware of the brand and the fact that it will be sold at a cheaper price, makes it more attractive. Though India does not have a culture of wine drinking and many Indians do not consume alcoholic beverages for religious reasons, this concept is changing over the years. Access to reasonably priced Jacob’s Creek will be considered by some to be the key to speeding the development of manufacturing international wines in India.
Environmental
The heat and humidity of India’s wine region dictates many of the viticulture choices that are made in the vineyards. Vines are often trained on bamboo and wire in a pergola to increase canopy cover and to get the grapes off the ground are more prone to fungal diseases. The canopy protects the grapes against sunburn and rows are spaced wide to help with aeration between the vines. Irrigation is essential in many of India’s wine regions and since the 1980s, drip irrigation has been widely used. The tropical conditions often promote high yields which requires frequent pruning throughout the year. While a large portion of the Indian subcontinent is not ideal for viticulture, the large diversity of climate and geology does cover some areas with suitable terroir for winemaking to thrive. Grape cultivation is one of the most remunerative farming enterprises in India.
Variety
Area (ha)
Production (t)
Anab-e-Shahi (white, seeded)
3000
135000
Bangalore Blue Syn. Isabella (black, seeded)
4500
180000
Bhokri (white, seeded)
500
15000
Flame Seedless (red, seedless)
500
10000
Gulabi Syn. Muscat Hamburg (purple, seeded)
1000
30000
Perlette (white, seedless)
1500
60000
Sharad Seedless – A mutant of Kishmish Chorni (black, seedless 1000
20000
Thomson Seedless and its mutants (white, seedless)
2200
550000
Total
34000
1000000
The above mentioned varieties of grapes are grown in India which can be effectively used in the production of Jacob’s Creek since white grapes are abundantly used in wine making. Chenin Blanc, Sauvignon Blanc, Clairette and Viognier are the most common varieties of white grapes cultivated in India, while Shiraz, Cabernet Sauvignon and Zinfandel are the most common red grape varieties. Some companies have begun experimenting with new types of varieties, such as Sangiovese and Riesling (Euromonitor, 2009, and Gryphon Brands Inc.). Increasing market demand has also led to a rise in the price of grapes. In 2005, the price of red grapes was approximately Rs25 ($0.57) per kilo, increasing to Rs35 ($0.80) per kilo in three years time (Arora, 2008).
Legal
In addition to high federal central tariffs, Indian wine importers face a complex and cumbersome system of excise taxes and licensing requirements that vary by state. This the main reason as to why imported wines cannot flourish in India. Some other reasons are Promotion Regulations The government of India has banned direct or surrogate advertisement (sponsoring major sport events, brand related promotions, etc) in the mass media for promotion of consumption of liquor including wine. Most liquor and wine promotions are done through organizing on remise promotions such as wine tasting events, sponsoring cultural/entertainment events, POS and gift materials. Since Jacob’s Creek is an already known brand, it will not require heavy advertising Tariffs, Taxes and Distribution Policies
Federal and state wine polices and restrictions continue to favour and support the domestic industry, with wine imports still facing considerable tariffs (AAFC, 2009).The high import duty, every state charges varying state excise taxes, sales tax, vending fees, procuring licensing clearances for distribution and sales of wine/liquor in every state where they intend to market their product are some of the legal issues importers have to comply with. Along with this additional duty, distillery/brewery license fee, bottling fee, litterage fee, assessment fee, franchise fee, permit fee, gallonage fee, raw material excise, availability fee, brand/label fee, transportation fee, import pass fee, export pass fee, welfare cess, sales tax/surcharge, and toll tax (Dubey, 2008) are applicable. Also with each state having their own licensing procedure, it is a substantial task to achieve clearance from state government. The plan to manufacture Jacob’s Creek in the state of Maharashtra allows the following exemptions: In July of 2009, the government of Maharashtra modified its excise policy when it published the “Maharashtra Potable Liquor (Fixation of Maximum Retail Prices) (4th Amendment) Rules 2009.” The rules establish a special fee (equivalent to an excise tax) of Rs. 400 ($8.90) per bulk litre for wines with a maximum retail price of up to Rs. 900 ($20); a special fee of Rs. 300 ($6.70) per bulk litre for wines with a maximum retail price of Rs. 901 to Rs. 6,000 ($6.71 to $134); and, a special fee of five percent if the
maximum retail price is more than Rs. 6,000 ($134). Wine produced in the State of Maharashtra is currently exempt from these fees. ** Note that these fees apply to litres and must be multiplied by 0.75 to arrive at the rate for a 750 ml bottle of wine**
The maximum retail price (MRP) calculation is determined as follows: MRP = (2 X manufacturing cost) + Special Fee + Customs Duty (160%) + Sales Tax (25%) For a 750 ml bottle of wine with a manufacturing cost of Rs. 100 and an assessed value of Rs. 125, the MRP is determined as follows:
Manufacturing Cost (MC) of Rs. 200 which is 2 X manufacturing cost +
Special Fee (SF) of Rs. 300 which is equivalent to Rs. 400 X 0.75 +
Customs Duty (CD) of Rs. 200 which is equivalent to 160 percent of the assessed value of Rs. 125 +
Sales tax of Rs. 175 which is equivalent to 25 percent of (MC + SF + CD) =
An MRP of Rs. 875 ($19.55 per bottle of imported wine with an assessed value of Rs. 125 ($2.80))
The following legal procedures have to be followed
1. The Govt .vide its order Home Dept.No.BWR.1108CR-59EXC-3 dated 2412 2001 authorized the district collector to grant the wine manufacturing licensee. 2. The Govt .vide its order Home Dept.No.BWR.1105CR-9EXC-3 dated 31stMarch 2006 remits wholly, the excise duty leviable under the side Act, on the holders of BRL licenses issued under the Maharashtra Manufacture of Beer and wine Rules, 1966 in respect of the wine manufactured from the grapes produced within the State of Maharashtra and without using alcohol or without blending of any other wine, for the period up to the 23rd December 2011. 3. The rate of excise duty is 125 per cent of the manufacturing cost, if wine is manufactured as own brands from the grapes produced within the State of Maharashtra with addition of alcohol. (Govt. Notification no. BWR.1105CR-9(1)EXC-3 dated 31st March 2006) 4. The rate of excise duty is 150 per cent of the manufacturing cost, if wine is Manufactured as own brands from the bulk wine or wine concentrate or grape juice or grapes imported from across customs frontier or from other State or blended with wine produced in the State with or without addition of alcohol. (Govt.
Notification no. BWR.1105CR-9(1)EXC-3 dated 31st March 2006) 5. The rate of excise duty is 200 per cent of the manufacturing cost, if wine is Manufactured as foreign brands from the bulk wine or wine concentrate or grape juice or grapes imported from across customs frontier or from other State or blended with wine produced in the State with or without addition of alcohol. (Govt. Notification no. BWR.1105CR-9(1)EXC-3 dated 31st March 2006) 6. The Govt .vide its notification Home Dept.No.BWR.1105CR-11EXC-3 dated 24st November 2005 has allowed licensee to purchase wine directly from the winery. 7. The Govt .vide its order Home Dept.No.BWR.1105CR-9(4)EXC-3 dated 1st December 2005 remits so much special fee chargeable under rule 4 of the Bombay foreign liquor and Rectified Spirit ( Transport Fees) Rules, 1954, on the wine concentrates or wine (i.e. wineries) in the State of Maharashtra, as is in access of rupees fifteen per bulk litre. 8. The retail sale of wine is allowed through FL-BR-II license and also separate license in from E-2 & form FLW-II are created. 9. A separate license for sale of wine by wholesale only (FLW-II) is granted at Rs.6000- (license fee for the year 2008-09) 10. A temporary club license for special function is grated at Rs.600/-per day.
Technological
The machinery used in wineries are available at relatively cheaper rates in India than other countries. These include ‘Wine making equipments, Barrels, Wine making chemicals, Laboratory Equipments, Ebulliometers, Wine bottles, GAI bottling line, corks, Capsule, Barrel cleaning machines, Blending materials etc. Jacob’s Creek could take advantage of these when manufacturing wine in India.
Conclusion
References
1. Agriculture and Agri-Food Canada (AAFC). (2009, January). Agri-Food Past, Present & Future: India. 2. Allindiawine.com (2011) All India Wine Producer Association > Markets > International. [online] Available at http://www.allindiawine.com/Markets/International.aspx [Accessed: 9 May
2013].
3. Arora, Subhash. (2008, August 1). Top Ten Importers of India in 2007 – 2008. Indian Wine.
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15. Kevalws.com (2013) winemaking products equipments supplier. keval wines & spirits, India. [online] Available at: http://www.kevalws.com/ [Accessed: 9 May 2013]. 16. Siyamalan (2012) Jacobs Creek is now the No. 1 imported wine brand in India. [online] Available at:
