Consumer Behaviour: Indian Wine

India has evolved as one of the immense potential markets for wine on the global front. Although the wine industry is currently on upswing but despite of having large population the consumption of wine is India is quite low as compared to other Asian countries. The per capita consumption of wine is very low which suggest the great potential for domestic as well as foreign players to capture this untapped market. Growth of Indian wine industry is mainly dependent on domestic production but imported wine also plays an important role in increasing awareness and demand among consumers.

According to Indian Wine Industry Report as an emerging wine market it is growing at the rate of 30% but this is from a low base consumption. Indian wine Industry experienced a decent growth rate [CAGR] during 2006 to 2011. For the same period the sales by volume has grown by 14.4% (CAGR). The major significant factors associated with the growth of Indian wine industry are increasing disposable income, rapid urbanisation and growth in retail sector, emergence of modern food retail chains, wine tourism and increasing preference of women for wine. In India premium wine segment is primarily dominated by imported (from Europe and USA) wine which is generally highly priced due to high custom duties and tariff rates in India. However due to the affordability concerns locally produced domestic wine still holds a significant mind space in Indian consumers.

Currently the Indian wine market is dominated by few major players. But the industry is an expansion phase with more and more new players are entering in the market which includes small and medium wine producers in India and few large national and international players like United breweries, Diageo, Seagram’s and Cobra. Hence in order to formulate the entry strategy of any new international player, one requires an in-depth analysis of current microeconomic trends, government regulations, consumer behaviour and buying patterns, their preferences and willingness to pay. This aim of this research is to formulate an entry strategy for Dubai based A&E Company who is ambitious to enter into the Indian wine market in coming future.

We started our study with secondary study and literature review. Latter on we also conducted a wine tasting event to gauge the taste and concerns of Indian consumers. As a primary research we surveyed multiple industry players and consumers for collecting their views. At last we analyzed all the data and came up with the critical factors which A&E need to take care before entering into the Indian markets.

Add the study highlights – Results – and Recommendation in one paragraph here.

Table of Contents

Introduction

A&E is the largest wine distributor in the Middle East region, representing diverse wine styles and famed producers from France. This project is being done in order to provide the clear strategy formation to Dubai based A&E Company who is ambitious to enter into the Indian wine market. The objective of this study is to better understand the purchase decisions of wine buyers and consumers in India.. This research attempts to build a map of the macroeconomic potential, barriers, buyer motivations, and consumer preferences of French wine in India. The study is focused to the answer the following questions:

Macroeconomic viability for French wine in the Indian Wine Market

Importer, Buyer and Critic opinion of wine business success

Consumer Preferences and purchase decisions

By the help of secondary and primary research this study attempts to create a viable and sustainable entry strategy for the company in Indian market. This will build a snapshot of the driving factors of business in the wine market to enable better penetration and effect of the sponsoring company, A&E Dubai. Our analysis in this report is most likely to facilitate company in getting a clearer understanding of the present as well as future outlook of the Indian wine market in the India.

Scope

The objective of the study is to find out the consumption pattern and taste preference in Indian wine market. This report describes the drivers of wine market in India namely Social, Channel, Economical and Business engagement. Two types of survey were conducted – Industry and Consumer survey. Survey was done in major metro cities of India like Bangalore and Mumbai. The results were collated to come up with a rational analysis. The macro analysis of Indian wine Industry is also done on factors like demographics, economic, political, taxation and cultural aspects.

Intended Audience

Document Structure

Consumer Behaviour: Indian Wine Consumers

In India, drinking wine is considered a symbol of status and sophistication. However, with the increase in awareness and people starting to realise the health benefits of drinking wine, younger women are now joining the wine-drinking trend. Increased disposable income coupled with wine marketing by manufacturers and the influence of western culture is leading to growth in the wine market in India. The market is still at a nascent stage with considerable potential for high growth. Wine sales are typically restricted to metro cities but there is growing demand from second- and third-tier cities as well. Close to 80% of wine sales derive from urban cities mainly Delhi, Mumbai, Bangalore and Goa. Wine promoted well in these cities could lead to a dramatic increase in sales in India. Working professionals and young adults are also driving sales of wine in India.

To gauge the taste, preference and knowledge of these Indian consumers about wine a consumer survey was conducted. The consumer responses were very interesting and opened a window about their choices and pattern of thinking about Indian consumers. The profile of a typical wine drinker can be chalked out as follows:

Age (in years)

20 years and above

Gender

Majorly males, but recently females have also started drinking wine

Place

Metro cities but recently in tier-ii cities also trend is starting

Qualification

Graduate and above

Profession

College going students, working professionals in corporate, service industry, film industry

Section

A and B

Lifestyle

Modern, cosmopolitan, outgoing, partying nature

Possible touch points

Gyms, sports complex, bars, pubs, restaurants, movie halls, shopping malls, hypermarkets

2.1 The Sample

The consumer survey was carried out in India among affluent people who are the potential wine drinkers. These respondents belonged to different parts of India and gave us the insights into Indian consumer behaviour towards wine. The methodology included filling of survey by respondents before tasting ( Pre-Tasting) the wine and then filling one more survey post tasting.

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Buying occasion:

In India, wine is considered to be a drink of high society people. A high status and sophistication is attached to the wine. Generally wine is purchased on special occasions like birthdays, business/office parties, celebrations, gifting on rare occasions. The consumption of wine in such cases happens either in restaurants or home. The survey also shows the same result where around 72% respondents say that wine drinking is a special occasion product and around 21 % saying that it is luxury product.

Taste profiles and the style of wine preferred

Responses showed that ‘taste’, complement food, routine, treat and health benefits are the most important reasons for drinking wine, especially when compared to beer and spirits. Regarding types of wine, consumers in general had reported more white wine than red. Women prefer wines compared to beer mainly due to taste and smell. Initially women start drinking with white wine but they slowly move on to red wine due to taste and food habits. Men in India mainly drink hard drinks and hence consumption of wine is less as wine is also considered as occasion drinks. As per Indian culture, drinking at home is still discouraged, but due to western influence this trend is slowly changing.

2.1.3 Important things consumers look for when looking for quality

Indian consumers do not have much knowledge about wine and their tastes. They generally believe that foreign made wines are better in quality and taste. They feel that Indian wine companies do not have that expertise in preparing the wine [1] . Hence while buying the wine, consumers look for country of origin or manufacture. The brand name matters and in case of wine specially, they feel that French people can make it very well as it originates from France. Consumers also look for the shape and size of the bottle they are purchasing. Date of manufacturing is also looked upon while buying wine. Thus there are six intrinsic factors like brand, country of origin, region of origin, price, price discount and alcohol content and four extrinsic factors like label style, label colour, closure and medals which are looked upon while buying the wine.

2.1.4 Role of packaging in wine buying decision making

Packaging plays very important role in deciding which wine to buy. The attractiveness of packaging, foreign brand names on the label, cork closure and glass bottle makes wine bottle as a very good gifting item in India though seen only in upper class population. Indian consumers see that local players do not give importance on packaging and use local language and local traditional pictures on the label which discourages consumers from buying the wine. But if traditional cues related to some foreign brands are shown then it creates positive image in consumer’s mind and their decision can be influenced due to it. Survey results also show that people are more influenced by traditional cues, back label information and colour of the bottle.

Indian wine Vs. Imported wine

In Indian society, wine drinking is seen as symbol of status and sophistication. This is mainly due to the fact that Indian consumers believe that wine is mainly a European drink and Indian wine makers do not have required expertise in preparing them. Hence imported wine is perceived as best quality wine in India. Moreover the lack of information about wine drinking, its quality and taste makes Indian consumer helpless in judging the quality of wine. Due to influence of westernization on Indian consumers, drinking imported wine has also become the show-off factor. But Indian consumers are price conscious so if any wine is available in their budget then they would definitely go for it. Survey results showed that Indian consumers are willing to spend Rs.600 to Rs. 1000 for per bottle consumption of wine.

Typical wine buying process in Indian retail set-up (self-serviced/ seller is present):

Macro Analysis

Demographics and Economics

Several factors influence wine market imports in India. These factors include urban population growth, growth of disposable income, consumer spending as well as inflation and exchange rate dynamics. In this section, we provide an overview of these factors and prospects by renowned source.

Figure India Demographics [2] 

According to several sources, the imported wine is mainly consumed by the affluent middle-class and upper class urban population. The urban population in India steadily growths with annual rate of approximately 2% and is projected to reach 395 million in 2016. The most populous cities over 4 million inhabitants include Mumbai, Delhi, Bangalore, Hyderabad, Ahmedabad, Chennai, Kolkata and Surat according to the national census of 2001.

The spending power of consumers is driven by the population wealth growth. The real GDP has been steadily growing with the rate between 6% and 9%.

Figure Growth of Nominal GDP Per Capita [3] 

Per capita GDP was 1370 US$ in 2010 and is estimated to double by 2015. This indicates a substantial growth in disposable income and purchasing power for Indian consumers.

Figure Steady Growth of Consumer Spending [4] 

The real consumer spending is projected to increase with 6% to 8,4% year-on-year growth rate.

The purchasing power is highly affected by the inflation. Indian government prefers to loosen control over prices in order to stimulate economy growth. Studies suggest that inflation will be stable around 6,6%-7% in the period of 2012-2016.

Figure Relatively High but Stable Inflation [5] 

While relatively high inflation may affect purchasing power for domestic products, it may be positive for the imported goods. Indeed, if consumers reduce spending on domestic goods, this will inevitably raise spending on imported goods.

Exchange rates can play beneficial or detrimental role for imported goods. While in 2011-2012 rupee has depreciated for around 20%, strong fundamentals, healthy domestic demand, and renewed prospects for higher capital inflows should set rupee to appreciate in long term.

Figure Exchange Rate Dynamics Favourable for Imports [6] 

In overall, the rupee appreciation should play a positive role for imports. Decrease in LCU/US$ exchange rate by 19,67% and in LCU/Euro by 11,30% between 2012-2016 would be very beneficial for European and US wine importers.

Philip M. Parker (INSEAD) defines the latent demand as the industry earnings of a market when that market becomes accessible and attractive to serve by competing firms. It is a measure, therefore, of potential industry earnings (P.I.E.) or total revenues (not profit) if India is served in an efficient manner. The latent demand is highly dependent on income per capita. Although the latent demand does not represent actual sales and does not reflect short-term cyclicality of the market, it can provide important information on demand distribution between India regions and cities.

Political Factors and Taxation

Indian government is conscious about public health. The wines fall under the advertisement regulations and the public advertisement is banned. Nevertheless the on-trade trials and off-trade promotions are possible.

In addition, the Indian government exercise high tax duties and impose import tariffs, which grew up to 150%. Each state sets its own taxation policies and excise duties structure can vary by state. Typical excise duty is of 12,6% [9] .

India is a part of World Trade Organization. Thus, as a part of convention, in long term India is committed to progressively abandon import tariffs and subsidies for local producers. The current policy has summoned discontent of European Union, Unites States and Australia in 2008 [10] . However, the situation is not resolved up to this date.

Cultural Traits

There are no strict bans or religious restrictions on consumption of alcohol in India. Drinking is a common social activity. However, many in India frown upon consumption of alcoholic beverages and especially by women. World Health Organisation (WHO) notes that about 67% of males and 92% of females in India are lifetime abstainers [11] .

Indian state supports the prohibition as a constitutional principle oriented towards public health. Many states implement dry days and partial restrictions. Government has also undertaken several measures to regulate alcohol consumption including increasing excise taxes.

In urban areas the social stigma is rapidly disappearing. It is even acceptable to see women consuming beverages in pubs and restaurants. Per capita consumption of alcohol in India increased from 3,3 litres in 2006 to 5,4 litres in 2011. Indians have traditional preference to strong alcohol including whiskey and recently beer. As noted by many studies the wine tastes are still to be developed.

Drinking at home has been traditionally socially unacceptable. However, recently the attitude towards consumption at home has become more liberal. However consumption by women at home is still a taboo as home is considered a sacred place. Moreover, it is considered irresponsible to consume beverages in the presence of children [12] .

In contrast, there has been increasing demand for alcohol beverages consumption in restaurants driven by rising disposable income and greater social acceptance of drinking.

Bollywood movies have a great influence on liberalization of alcohol consumption. Large number of movies involves scenes of alcohol drinking in various circumstances among men and women making it socially acceptable to drink alcohol and stimulating the consumption.

Wine Industry in India

Indian wine industry has substantially grown in recent years. From 2006 to 2011 the compound annual growth rate (CAGR) of sales by value was 13,9% [13] . For the same period the sales by volume has grown by 14,4% (CAGR). The year-on-year growth was slowing down in 2011 and dropped to 9,2%. The sales are projected to grow at about 5% in the next years.

Figure Sales Growth by Value 2006-2016

Figure Sales Growth by Volume 2006-2016

According to studies still red wines category is growing faster than all other categories with 10,1% in 2011. In terms on-trade / off-trade split, the off-trade sales has grown faster with 9,8% in 2011. The off-trade distribution channels are highly fragmented and include state liqueur shops, kiosks, specialized shops and growing number of supermarkets.

It is reported that Cabernet Sauvignon and Shiraz/Syrah were the most popular red wine varieties, accounting for 47% and 33% of total volumes, respectively, in 2011. Chenin Blanc and Sauvignon Blanc were the most popular white wine varieties sold in India, accounting for 42% and 41% of total volumes, respectively, in 2011. Most wine drinkers in India are not very aware of the different varietals in wine. They are used to drinking cheap port wines but this trend is slowly changing. This indicates the need for educating customers about different wine styles.

The market is dominated by local producers that have substantial subsidies from the government. The government intervention in Maharastra state lead to an over-production. The local producers are in position to dump their products on the market with heavy discounts. In 2009-2010, the volume wine import dropped representing 34% to 12% of sales by volume respectively. The government continues to support the local producers.

The market is dominated by Samant Some Wines Ltd and their Sula Vineyards brand. Sula held 34,7% of the market in 2011. The closest competitors Grover Vineyards Ltd held 18.3%, UB Group 8,8%, Indage Vintners Ltd 5,6%, Pernod Ricard Groupe 5,0% of the market.

Figure Indian Wine Industry Analysis

Figure summarises the competitive landscape of Indian wine industry. The competition between existing players is high since the market is very fragmented. The potential of new entrants is quite high due to relatively high growth of the market and subsidies by the government. This risk is offset by the barriers such as high tax duties, high import tariffs, advertisement regulations, fragmentation of distribution channels and cultural traits. The buyers are extremely price sensitive, they need education about different varieties. Suppliers power is low due to high fragmentation and low differentiation of their products. Beer, whiskeys and traditional soft drinks represent serious threat of substitution. The switching costs are quite low, since beer and soft drinks are less expensive, they represent high share of wallet and their popularity grows with a tremendous pace.

Wine Industry Trade Survey Results

The wine industry has two planes of business that are common globally; supply-to-consumer and supply-to-business. This section of the report will establish motivators within businesses demanding wine supply from exporters, but who also speak directly with the consumer. These are industry’s gatekeepers.The objective was to better understand inner industry drivers, especially those with the potential to convert into sales for international exporters.

In an industry that new consumers can sometimes find intimidating, the views of opinion formers hold much power influencing consumer tastes [14] . This is not just true for wine, but most products of subjective nature such as music, food or art. To much extent, consumers look to industry; importers, critics and sommeliers for guidance on wine selection and to tell them what wine are going to enjoy.

Wine industry opinion formers were sought from across India and by holding this gate-keeping roll have huge responsibility to expand the industry in a positive direction. These characters were therefore of obvious interest because they are highly engaged with the industry, understand their taste preferences well, and will be far more in touch with future trends and business problems.

The Sample

Of the respondents, 78% came from Hotels/Restaurants and 67% from West India (essentially Mumbai). There was input from Wine Clubs and Industry consultants and from locations in all quarters of India, excluding the East. Sample bias came from 100% male respondent rate, which alsosuggeststhe industry’semployment demographics. It potentially promotes a bias to the more masculine motivators. From an industry point-of-view however, this would have been more concerning in consumer testing. The average age of the sample was 43 years.

Table 1 shows that the typical Indian wine portfoliois largely dominated by red wine. However compared to emerging international marketsthere is an obvious acceptance of white wine products. For example of table wine production in France just 17%is white wine, while red and rosé wines account for the remainder [15] . Admittedly, rosé quantities remain negligible in India while the category has shown enormous growth across Western Europe and Australia in recent times and may be interesting in suiting the climate.

Ultimate end users of wine sold in the on-trade

Figure Ultimate end customer by sex, age.

Quite overwhelmingly, the target customers of most wine businesses are men aged above 45. They were the ultimate end customers for 56% of respondents. As 78% of survey respondents work in hotel and restaurants, it assumes these venues have male dominant customers.

Women of all ages combined were the dominant consumer for 22% of respondents. This too, is an encouraging figure for an emerging market, especially considering the on-trade bias of the sample. Consider that it has become very easy for women to go and buy alcohol in cities such as Hyderabad, Bangalore and Delhi where supermarkets and hypermarkets have licences to sell alcohol. This contrasts to buying from less welcoming government-run wine shops. This phenomenon has led to a dramatic increase in off-trade alcohol sales [16] . It also validated the commentsof customers with female end users, who saw a positive association to in-house socialising being driven by women (refer to Section 3.4.1).

Combining women and young adults (men and women under 45) accountfor 44% of the on-trade’s ultimate end customer. This is a promising statistic with a global consideration of wine drinkers in hotels and restaurants. For India, where per capita GDP is very low, it suggests an already socially accepted embracement of wine by those wealthy enough to enjoy hotel’s, restaurants and cafés. Looking forward, the increase in clubs and discotheques that is driving sales of alcohol in the on-trade [17] may point to a positive trend with women and young adults.

Consumption, Language and Preferences in the Indian on-trade.

Ultimate end customers by existence in the on-trade.

Figure Ultimate end customers by existence

An equal splitbetween Business Men and Local Population being the end consumers of wine consumed in the on-trade was seen. Business Women were not primary end users, although tourists or local population may be female. The hypothesis that women are social drinkers, while men are both social and business drinkers in India remains plausible (section 4.3.2).

Tourists make up 11% of the ultimate end users in the on-trade. Expectation is that cities with high expat and tourist populations, such as Goa, would see a far higher value here if studied independently. Such diversity encourages future reports on a state-by-state basis.

Occasions driving wine consumption in India.

India wine drinking culture is very fractionalised and trends can be hard to define with broad scope. The initial modern drive to drink alcohol came from returning World War veterans who had learnt to drink with western counterparts. This western influence continues today and alcohol is exposed to younger generations through diverse channels. The sample were asked their opinion of ‘occasion drivers’ which is selling wine today, which were then summarized into four key driver segmentations: Economic, Social, Channel and Business Engagement.With this in mind it becomes clear why amongst available alcoholic choices, wine is steadily gaining acceptance against spirit and beer competition.

Table 2 Flow Chart of the drivers of increasing wine consumption in India

Views on Indian Wine Consumption Growth Challenges

Figure Challenges facing wine consumption growth viewed from the on-trade (5-star rating)

Challenges facing growth in India are often discussed in media and industry conversation [18] . Typically, this suggestion is of a potential to follow China as an explosive high-value market, particularly if punitive taxes on alcohol and imported wines are removed (refer toAndrey section on taxes 3.2.1).Conforming to this view, survey respondents sawtaxes and duty costsas the greatest current day challenge.This is having a considerate effect on consumer value. Alternatively, government corruption, accepted to be present at nearly all levels of government [19] was not seen as a great challenge for the industry’s trade.

If a wine business want to face these challenges, the ability to influence taxes, duties, government officials, and religion is not reasonably possible (expect for perhaps for mega corporations like United Breweries). Therefore investment might best be pointed towards Education, Transport and Warehousing, all recommended above the 3-point “take action” threshold by the sample.

While storage and transport is a direct cost that requires directmonetaryoutlay to satisfy customers, wine education (score 4.22) can be implemented almost instantly if the resources are in place.Some of the current program’s already being used to engage customers are listed in the business engagement drivers of section 4.3.2. Structured wine education programs targeting both businesses and their customers would be positively welcomed by industry gatekeepers.

Motivation indicators of customer’sselecting from a portfolio

Figure 4 shows the product characteristics that industry assumes to drive customer purchases. There are three distinct groups for which the most valued is: Brand Recognition, Price, and Recommendations from either an employees or friend. Certainly price has been shown to be the most important factor across global markets [20] , although quantifying how much price drives purchase requires further studies.

Characteristics consumers have less concerns for is interesting, as it contrasts with mature markets such as France and the UK. Closure type (ie. Cork, Screw-cap) is not an issue, and alcohol is contextually less relevant also. In China, the positive health perceptions of red wine stem from its lower alcohol than spirits and marketing the same effect may be needed in India to enhance this motivator. In any case producers and importers should focus on price positioning and brand perception as opposed to altering product design decisions.

Interestingly, recommendations were shown to have the greatest weight when offered by Friends. Critics, the mainstay of the British wine trade ranked in the bottom half of drivers. Employee recommendation split these two, although still achieving a +4 score highlighting the overall importance of word-of-mouth.

Motivation descriptors of wine in India in the on-trade

Figure 5 is a measure of descriptors positively used in the industry to promote wine. It can be compared to the consumer wine description motivators outlined in section 5.3.4. In Australia, the presence of a motivating taste description has been shown to increase wine selection by 7.4% [21] . Overwhelmingly, “Fruity” and “Elegant” are motivators that a sommelier assumes to be favourably appreciated by clients. Equally for exporters to India, wines true this style could be promoted positively to industry gatekeepers.

Wine producing countries most exciting to the Indian wine trade

Major wineproducing countries were suggested to the trade to evaluate if there was a country of origin preference. There were decisive preferences, led by French country of origin wines. As France is the market leader of imported wines with 33% market share in terms of both value and volume [22] their strong positioning is impressive. This real value of French wine might actually be higher as Singapore and the UK are the 4th and 6th largest wine exporters to India are respectively, sug