Case study: Developing Indians’ taste for wine

The story
When Rajeev Samant left India to study and work in California, he also found himself learning about wine thanks to that state’s burgeoning industry. After returning to India in the late 1990s, he took over land owned by his father outside Nasik, near Mumbai, and tried growing crops such as mangoes, peanuts and roses.

With Nasik being India’s biggest table grape region it prompted a question: could he grow wine grapes too and develop a winery that could match foreign wines for quality?

The challenge
Growing and processing the grapes – starting with Sauvignon Blanc – turned out to be the easy part. For Sula Vineyards, the toughest test was how to change consumer tastes.

Alcohol has negative connotations in the Hindu, Buddhist, Jain and Muslim traditions, and most Indians had never tasted wine. Getting it into the Indian shopping basket would require a change in social attitudes.

At the same time, excise duties on the production and marketing of wine were punitively high, reflecting both prevailing social attitudes and state governments’ need to raise revenue. As a result, the only wines in Indian homes were substandard, exorbitantly priced imports.

Getting a winemaking licence was a painfully slow process, and Mr Samant also had to create his own distribution chain. Again, since sales volumes were so low, the distribution network was non-existent.

The strategy
Mr Samant focused on persuading Indian consumers to view wine as a social glue for good times rather than as an intoxicant.

One way in which Sula raised its profile was by providing wine at networking events for entrepreneurs at the peak of India’s dotcom boom in 1999-2000, and more recently by launching the Sula music festival.

Mr Samant also seized any opportunities to point out that red wine can be good for health when consumed in moderate quantities. While negotiating with regulators, for instance, he highlighted the health benefits of the drink.

Broader economic trends helped the strategy. Wine has become the preferred drink for many young, urban professionals, and generally Indians are moving to “ready to drink” beverages – those that do not require mixers – with lower alcohol content than hard liquor.

Meanwhile, Mr Samant lobbied regulators in India to argue that taxing wine heavily would hurt grape farmers, and that growing wine grapes would create rural jobs.

He also started to build a distribution system, initially by tapping into existing beer and spirits networks. Transport companies were willing to take small additional loads, while retailers were persuaded to stock wine alongside beer and whisky.

Later, Mr Samant linked up with overseas wine and spirit makers, such as Rémy Cointreau, to become their exclusive importers for India. Sula could make use of the big distribution networks such brands were setting up; in return, it could offer its sales teams and help establish relationships with hotels and restaurants.

The results
Sula has 350 employees and annual output of more than 5m bottles of wine. Sales are expected to reach nearly $30m this year. India accounts for 90 per cent of sales but Sula also sells to high-end Indian restaurants in the UK, and even has a small following in Japan.

However, with current average per capita wine consumption in India at just 10ml per annum, there is still ample opportunity to expand.

Regulatory authorities have reclassified winemaking as an agribusiness, which supports farmers, and have cut taxes and excise duties on wine.

The lessons
Such an initiative takes time: to gain relevant licences; to persuade regulators to change tax regimes; to develop a new audience and a way to get the product to them.

Sula had to persuade consumers to try an alcoholic drink that was considered expensive and unpleasant; it did this by tapping into a new kind of consumer – young, urban and aspiring to fashion.

By lobbying regulators on behalf of the nascent wine industry as a whole, Mr Samant benefited as an entrepreneur in his own right from his exploration of developing an industry.

- Financial Times, 5 Dec 2011