With the global economy just about recovering from the recession, Champagne sales are still down. LVMH whose portfolios includes the likes of Moet & Chandon, Dom Perignon, Veuve Clicquot and Chateau d’Yquem, said that revenue had fallen by 17%. According to the Federation des Exportateurs de Vin et Spiritueux de France, exports of Champagne to India dropped by 70% so far this year. With these statistics, it begs the broader question is there room for more foreign labels? Shiv Singh reflects on the question.
The majority of wine sales in India go to hotels and restaurants. These hotels and restaurants are suffering a decline in traffic and resultant revenue. Local producers have seen significant sales drop. According to Alok Chandra in this Sommelier India article, sales of imported wines will certainly decline from the 200,000 cases of 2008, while domestic wines will perhaps grow marginally, by only 5% or so. And yet from what I hear international producers write to importers everyday asking about the Indian market and whether they will import their wines.
What’s missing here? There are the widely known factors at play.
Firstly is the dated hype surrounding the growth of the Indian wine market. The harsh reality of the economic downturn is only beginning to catch up with the hype. Many international producers see the growth rate statistics that were flaunted (and pushed by the industry and the media alike) and believe the market is there for the taking. They don’t realize that a lot has changed in the last year. Many also focus on the growth in percentages ignoring the fact that in real volume terms the numbers are still very low.
Another factor at play is that foreign producers who don’t know the Indian market tend to assume that it is similar to other markets where retail plays a much larger role. The truth is that as far as foreign labels are concerned the market is primarily hotels and restaurants. Retail plays a much smaller role. These hotels and restaurants have seen a sharp decline in sales in the last year. The Indian hospitality sector declined by as much as 64 per cent during January-Mach 2009 according to The Associated Chamber of Commerce and Industry of India (ASSOCHAM). What’s more they already have complete wine lists that have been carefully crafted with the assistance of the largest importers and independent wine consultants. There may not be room on these lists for new wines when old stocks are still in place.
The third factor at play is the Indian consumer. India is a whisky and beer drinking country. That hasn’t changed and won’t for a very long time if ever at all. (Very different to the USA where wine sales now exceed those of other alcoholic beverages). Wine sales in India are barely a fraction of the whisky and beer sales. Indians are taking to wine but not in huge numbers. It isn’t happening in the millions. The market remains small but it is growing steadily.
And what’s more, most Indians don’t know too much about wine. We’re still young to the world of wine and many of us prefer to think in terms of wine regions, grapes and prices rather than individual labels. Which means that when we look at wine lists, we’re choosing wines based on those factors and less so based on the individual labels. What does this mean? As long as a restaurant has representative wines from all the regions and covering all the varietals most of us are perfectly happy. In such an environment, hotels and restaurants feel less of a need to change their lists frequently.
A fourth factor to consider is that life is easier for wine importers, hotels and restaurants when the volume on their existing labels go up versus volume being spread out more thinly among many international labels. They’d rather do more business with a fewer labels than have to introduce more and more labels into their portfolio. The hotels and restaurants have a practical issue of having to train their staff each time a new label is added to the list too.
Does this spell doom for the international labels? The other side of the coin.
Not necessarily, there are some key opportunities too.
Firstly, there’s the Sommelier India Wine Competition (SIWC). Winning in the SIWC is an Indian stamp of approval for the wine. With Indian importers, hoteliers, wine consultants and sommeliers judging and participating, there’s hardly a better way for a label to get privileged visibility and create demand within the Indian wine industry. What’s more with the media coverage accompanying the SIWC, the label is sure to get significant attention among Indian wine consumers as well. Everyone will know the winners and remember them. The SIWC provides an incredible platform as a result.
The second the economic slump is not going to last forever. Importers tell us that sales are starting to pick up once again as tourists have started flowing back into the country and with Indians travelling out more again. Some would argue that if there’s ever a time to penetrate a new market it is in a downturn when every other player cuts back on promotions and advertising.
The third factor is that Indians always appreciate something new and innovative. Whether the innovations come through the price point (we’re extremely value conscious) or through a special wine by the glass program (maybe using one of those new wine dispensers coming into the country), there is room for new labels if there is something special about them or their marketing and advertising.
Finally, taxes are finally starting to drop (as witnessed by what happened in Maharashtra lately) and more and more retail outlets are cropping up. In time, these are going to change the face of wine in the country and the 11 million people who drink wine today will grow quickly.
So what can we conclude?
At the end of the day, choosing whether to enter the Indian market and when to do so is always going to be a tricky decision. The market is complex but it is changing too and whether it is the SIWC or innovative advertising can make a difference. But there’s no getting away from the fact that the potential is real even though today’s economic environment is very different to what it was barely two years ago.