India Still a Sour Grape for World's Winemakers

The boom in wine drinking is passing foreign wineries by as Indian vintners improve quality and keep prices low

Lakshmi Chand took a thoughtful sip of the ruby liquid in her glass, rolling it across her tongue as she wondered aloud: "Doesn't it go dead on your palate?"

The 29-year-old with cropped hair was one of the more curious at a recent wine appreciation event where a group of 20 sniffed and sipped on a sultry New Delhi evening.

Chand returned to India two years ago from Singapore where she acquired a taste for wine—increasingly a marker of hipness and class in India.

Now she says she drinks mostly Indian wines. "They're cheaper and I really feel they're not bad," she said at the tasting organised by the six-year-old Delhi Wine Club.

Foreign winemakers may gnash their teeth—and connoisseurs turn up their noses—but there is little they can do as a boom in wine drinking appears to be passing them by.

The quality of Indian wine varies enormously, with the better regarded vineyards relying on French and American experts to produce to international standards, while others simply use table grapes.

After one tasting, US wine blog Vinography praised several Indian wines, including a popular white for its apple flavours and "smooth, silky body," but urged drinkers to avoid others, noting that one red smelled of "wet Band-aids".

For some in the industry, quality is relative. "If you compare the quality of India's wines to China or any other new wine countries, we are ahead in terms of quality," said Aman Dhall, director of liquor distributor Brindco, India's largest wine importer, adding there is plenty of room for improvement.

"We have to continuously produce better quality wine." But Dhall is bullish on domestic wines—in spite of a slash in import duties last summer, a complex web of levies, taxes and mark-ups that keep foreign wines out of reach for all but the wealthiest Indians.

The cheapest glass of domestic plonk in a restaurant costs about Rs 300 or roughly seven dollars—more than two days' salary for the average Indian.

Wine magazine Sommelier India reported recently the capital's colonial-style Imperial Hotel had within a month sold six bottles of a French wine bottled in 1947, the year the country became independent, at Rs 100,000 each.

Even ordinary wines can cost many times more than their Indian counterparts and that huge price differential has led to a windfall for India winemakers, who hold about 80 percent of the market in spite of tariff cuts.

Last July maximum import duties on wine were reduced to 150 percent from 266 percent after the European Union complained to the World Trade Organisation.

The move raised hopes that foreign wines would cost less. But states can also impose levies on liquor and coastal Maharashtra, home to India's wine industry, quickly added a 150-percent tax on wine coming into the state before upping it to 200 percent at the end of the year.

Wine imports were hit badly in Maharashtra, which consumes 40 percent of all wine drunk in India.

"We have had a very big setback last year," said Brindco's Dhall. Elsewhere, five-star hotel restaurants price their foreign wines at five to ten times retail cost -- although they are permitted to buy a fair amount of foreign liquor duty-free.

Industry observers in Europe and the US say the typical mark-up is three times retail.

After the Indian government recently threatened to remove the hotels' duty-free perk, some major hotels lowered prices slightly but others have yet to follow suit.

"They can actually buy wine cheaper than hotels in Paris," said French-certified sommelier Magandeep Singh, who believes price gouging by hotel restaurants has also steered people away from foreign wines.

And although wine sales are growing by at least 30 percent annually, the foreign producers are fighting better-established Indian labels for what is still a tiny market of about one million cases a year.

India wine consumption is expected to grow to around two million cases a year by 2011, according to market watchers.

"What the city of London or Paris sells in a week is what is sold and consumed in all of India in a year," said Rajeev Samant, founder of Sula Vineyards, which sold 155,000 cases in India last year.

"With all the duties, the problems with storing wine and lots of buyers who don't pay on time, that makes life pretty miserable for people who are only doing imports. If you don't have a local wine to sell you are in trouble."

While some importers have abandoned wine altogether -- one reportedly switched from wine to bottled water while some have changed to foodstuffs -- others are launching their own Indian wines.

Over little more than a year, Seagrams India, owned by French parent company Ricard Pernod, launched Nine Hills; Bangalore-based United Brewery began selling Zinzi; an IT businessman-turned-wine importer brought out Chateau D'Ori; and Mumbai-based Globus wines began offering Miazma.

Brindco also went local, last year buying a 20 percent stake in the country's third-largest wine producer Grover Vineyards.

"Our company made a strategic shift to looking at new horizons," said Dhall, who foresees "strong" barriers to entry for the next few years.

Many foreign winemakers have headed home after dipping a foot in the Indian market.

"Out of 100 who come to look, two to three stay but get disappointed and go back," said Delhi Wine Club president Subhash Arora.

"They feel that it's not a market. There's too many players and not enough people to buy."