He bought two cases of Indian wines made outside Karnataka yesterday. If you live in Bangalore, I strongly recommend that you do so as well because starting some time soon you could be paying 80-110% more per bottle. That’s absolutely true. Here’s what it’s all about:
There are two wine producers in Karnataka – Grover and Naka Spurt. Their wines and 45 others made outside Karnataka (18 of them from other parts of India) are freely available in Bangalore. The wine-drinking habit is growing very nicely in Karnataka, as a comparison of sales figures for the months April-July 2007 and 2008 shows. Although April to July is usually a slow sales period and the July 2008 figures are incomplete, the figures, nevertheless, are more than encouraging.
An interesting feature of the wine consuming habit almost everywhere in the world is that as the habit takes hold, consumers gravitate from the cheap and cheerful variety to the mid-range and higher quality. The situation in India and Karnataka is much the same with the actual sales in Karnataka during the last financial year. Apparently, wines that retail for around Rs 350 to Rs 550 account for 55% of the entire wines sales in Karnataka. It wouldn’t be surprising if this represents most people’s buying habit – it certainly does mine.
However, hapless wine lovers like us will soon have to pay a great deal more for this pleasure because of an unexpected increase in government prices.
In 2007, the Government of Maharashtra imposed a special tax on wines “imported” from outside the State. It was done to protect their wine makers. Perhaps not coincidentally, one of the most influential politicians in India has for a long been reportedly the major player in the wine-grape farming and wine producing industry in Maharashtra. Consequently, non-Maharashtra wines became more expensive in Maharashtra and, as a result, the two wine growers from Karnataka, Grover and Naka Spurt, found it hard to compete. Subsequently, to dodge the special tax bullet in Maharashtra they set up wineries in the State to produce their brands, and so resolved the problem to an extent by a most commendable business tactic.
On the face of it, this may seem to be an unnecessary additional expenditure, but, for example, with Grover’s national sales increasing with the growing wine drinking habit, and production capacity in their existing Bangalore winery unlikely to meet the additional demand, a second production facility was inevitable. They would have had to build new facilities in the foreseeable future anyway, so why not in Maharashtra where they could address their other problem as well? So far as Naka Spurt is concerned, I would hazard the guess that with negligible interest in their brand in the home market of Karnataka, they could scarcely stand to lose access to the substantially larger Mumbai and Maharashtra markets.
The problem is that these two producers went further. They have actively (and successfully) encouraged the Karnataka government to levy a tax similar to the offensive one in Maharashtra on all wines “imported” into the State from wineries in the rest of India and from abroad.
Now, what does all this add up to in real money terms?
The new levy proposes to raise this so-called import fee on wine from outside Karnataka to Rs. 300 per bulk litre from the existing Rs. 10 per bulk litre. Every case of wine is equivalent to nine bulk litres. So the effective additional fee is going to be Rs 2,700 per case against the existing Rs 90. That’s an increase of Rs 2,610 per case or Rs 217.50 per bottle. Add to that the other levies that will subsequently accrue (including the government wholesaler’s margin, and the retailers margin) and the final retail price to consumers will rise by about Rs 280 per bottle.
Add this amount to the current price of wine from outside Karnataka you are drinking and you will understand the reason you should be emptying out the local wine store right away! Because you will shortly be paying Rs 730-800 per bottle for the Big Banyan, Indage, Mandala, Nine Hills, Revielo and other such wines that you like.
It gets worse: If you use a low-priced wine (like UBS’ Zinzi) for daily quaffing, it will rise from
Rs 250 to Rs 530 per bottle! In fact Mr Mallya’s new wine business is going to take a challenging hit in Bangalore as all his Indian wines are produced in Maharashtra.
The only Indian wines that will continue to cost the same in Karnataka will be the produce of Grover and Naka Spurt. But even that may not last for long: The temptation to indulge in some opportunistic marketing tactics is likely to be irresistible and I’d wager that their prices will see am unannounced rise. After all, they will be cheaper than the rest by a whopping Rs 280; enough of a gap to take advantage of.
Which brings me to a very personal point of view: Should we continue to drink Grover and Naka Spurt wines at all? I most certainly will not. In fact, I have decided to go further and proscribe the offerings of these two producers from any functions I have any control over. I’d rather pay the extra costs than let any of my money flow into their pockets.
As it happens, the Grover wine I favoured was La Reserve but I stopped using it some months ago, when I found its quality had slipped meaningfully. Most of my knowledgeable friends feel similarly. And as for the other bloke’s produce, I tried it once and decided life was too short to have to settle for it.
I have always maintained that if there is a wrong way to do something, our benighted governments will find it. For years they have clubbed wines with hard liquor in the tax regime. Despite this, lifestyle aspirations have encouraged Indians to drift toward wine and the local businesses are growing satisfactorily. But now, with this retrograde step that I gather other rapacious State governments (Goa, for example) are planning to emulate, how many wineries will find their business models ruined?
There’s another most untimely consequence: the entry-level wines will rise from Rs 250 to Rs 530 per bottle. How many of the new acolytes of the nouveau wine-drinking habit will decide this is all too rich for their blood and revert to hard liquor?
In effect, insofar as sales in Karnataka is concerned, the majority of the wine producers in this country are going to take a hit – the emerging wine drinking segment will take a hit – the retailing industry will take a hit – only Grover and Naka Spurt will be in perfect shape.
With wineries in Bangalore, and the price differential between them and the competition, they will expect to take over a major share of the industry in Karnataka. And with their wineries in Maharashtra, they will keep their business buoyant there as well.
We in Karnataka and Bangalore, who have played such a big role in growing the Grover image and turnover, have been given the shaft. Which reminds me of that hoary old story of the Indian species of crab – but you know it already.