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GLOBAL LEADERSHIP CENTRE

INTERNATIONAL BUSINESS

(Batch 2011-13)

ANALYSIS OF SUPPLY CHAIN OF INDIAN AND EUROPEAN

WINE MARKET

Rajat Chaturvedi (33) Faculty Guide:

Rohan Vaidya (62) Ankush Guha

Ritesh Naik (41)

Akash Jain (49)

Prateek Garg (47)

Poonam (17)

Swati Kumari (13)

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EXECUTIVE SUMMARY

The prospects of growth for wine in India are quite high. About 600 million Indian’s are

currently below the legal drinking age and 100 million will come of that age over the next 3 to 4

years. So, the consumption of alcoholic beverages such as wine is expected to increase. In spite

of India’s high import tariffs on wine, this country was one of the world’s fastest growing wine

markets.

However, states like Maharashtra, Karnataka and Himachal Pradesh have taken steps to

encourage wine industry and given preferential treatments by liberalizing their excise regime and

reducing excise duties. Eighty percent consumption of wine in India is confined to major cities

such as Mumbai (39%), Delhi (23%), Bangalore (9%) and the Goa (9%).

The Supply chain of the wine industry in India is fairly linear. Winemakers are the key to the

supply chain and they record good profits. The key to success in the wine business is branding

so, a substantial chunk of dollars are spent in selling and distribution. It is also critical to note

that, promotion of alcoholic beverages is prohibited in India. So, winemakers use strategies such

as surrogate marketing and creating economies of scale.

We analyzed the current situation of Indian wine industry trends, supply chain models, also we

simultaneously reviewed European wine industry, the difference between Indian and European

logistics, recommended how can Indian wine industry compete with their European

counterparts..

One of the most important challenge in organized retail in India is faced by poor supply chain

and logistics management. The infrastructure in India in terms of road, rail, and air links are not

sufficient. The wineries location must be taken into account while thinking about the wine

supply chain. Wine is made of grapes and grapes can be grown in certain locations. Some of the

most important factors that determine a wines location are soil, climate irrigation and geography.

Various models are used in Europe for Wine logistics. According to one model Winemakers or

wine co-ops grow grapes and are responsible for vinification and blending (and sometimes for

bottling). Otherwise bottling, labeling and packaging operations are carried out by Logistics

service providers. To devise a system in which vineyards are customer-driven and to carve out a

crucial role for themselves, wine co-ops will have to merge so that they can develop the technical

and human resources that are required to fulfill a partner’s role.

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Deregulation has led to the growth of wide transport networks. Deregulation of shipments,

optimal route Routing and plan scheduling, and the development of national services. The

membership of eastern European countries in the European Union has resulted in a shift in the

balance among local, regional and long-distance transports.

Outsourcing of logistics activities is widespread in Europe and is gaining popularity. Many

companies hire specialized logistics service providers to do the job. This trend has resulted in

industrial companies outsourcing parts of the standard logistics services like shipping,

transhipping and storage. Added to this development are increasing numbers of high-quality

logistics services and contract logistics.

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TABLE OF CONTENTS

CONTENTS PAGE NO

INTRODUCTION 1

RESEARCH METHODOLOGY 2

INDIA’S OVERVIEW 3

ROLE OF SUPPLY CHAIN IN ORGANIZED RETAIL 4

INFRASTRUCTURE AND PORT OF ENTRY IN INDIA 5

CHALLENGES IN INDIA 6

LOGISTICS IN SUPPLY-CHAIN OF WINE INDUSTRY 7

FACTORS INFLUENCING WINE SUPPLY CHAIN 11

SWOT ANALYSIS OF INDIAN WINE INDUSTRY 20

EUROPEAN WINE INDUSTRY 22

LOGISTICS MODELS IN EUROPE 24

COLD STORAGE IN EUROPE 30

EUROPEAN INFRASTRUCTURE & PORTS OF ENTRY 32

RECOMMENDATIONS 36

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INTRODUCTION

Consumer are constantly demanding better product, at a lower price, along with better overall

services and customer support. Organization, on the other hand, is struggling with shorter

product life cycle, increased product variety and lower profit margin due to competition and

commoditization of product and services. In global world targeting local market is not enough

for long term company survival.

Good supply chain management is becoming for resource optimization, overall experience

enhancement and to achieve competitive strategic advantage in order to obtain sustainable

growth rate. Information technologies like Internet, Barcode system, ERP system are probably

the most important enabler for current changes and trend in supply chain management.

Today, in some industries completion is shifting from competition between the organizations to

competition between the supply-chain of that particular organization. In taking a “supply chain-

wide” into their business strategies some organization are focusing on maximizing the profit of

the supply chain as a whole as a way to maximize their own profit.

WHY WINE?

India in the last decade has become the second largest producer of fruits and vegetables in the

world next only to china. India currently produces about 190 million tons of fruits and

vegetables. It has about 53 per cent of arable land (land available for cultivation of crops as

compared to measly average of about 11 per cent for the rest of the world).

The annual grape production in the country is currently estimated to be 1.8 million metric tons,

and the area under cultivation to be about 80,000 hectares. Approximately 85% of the total

production, irrespective of variety, would be consumed fresh. Of the total grapes produced in the

country only around 1.5% is processed into wine. Per capita consumption in India is only 9 ml.

of wine, as compared to 9,000 ml. consumed in the U.S.A. But, at the same time there are a

number of opportunities, especially with higher spending power that brings about a shift in

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consumption pattern; also rapid urbanization and growth in the retail sector are expected to

sustain the domestic demand for wine.

The wine industry is in its budding stage in the country and so far has not been able to establish

any structure for the integrated development of the wine industry on its own. The Indian wine

market is growing rapidly at 25-30% per annum for the last five years.

Europe is the biggest market of wine manufacturing in the world. Belgium is known in the world

for its RED WINE and France is known for its CHAMPAGNE. So considering in mind both the

factors we choose to study wine industries of both the countries.

GOALS FOR PROJECT

The goals for the project is to study and analyze the market trend and the current situation of

Indian wine industry, their supply chain models, their problem areas and opportunities at the

same time analyze European wine industries, the success factors behind them, their supply chain

models and then recommend them how they can reduce cost and make their global presence by

exploiting the resources available and implementing new technologies.

RESEARCH METHODOLOGY

The methodology we are using to analyze industries of India and Europe and develop a

comparative study between them is SWOT (STRENGTH, WEEKNESS, OPPORTUNITIES,

THREAT) Analysis. With the help of SWOT we can analyze each and every aspects of that

industry like what is their present situation, what is the future for industry, in which areas its

required to improve itself and what are the barriers for the industry.

After collecting the data of both the areas we will make a comparative study between them

looking at the SWOT analysis of both India and Europe and their after recommendation will be

made to Indian industries as in what they can do in order to wider their market share.

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INDIA’S OVERVIEW

CURRENT SITUATION IN INDIA

Drinking wine as a lifestyle choice is catching up very fast. "Wine is now always there at places

where it hadn't been even offered before, like parties and weddings. As more and more Indians

travel overseas for business and pleasure, adopt new lifestyle patterns and yearn for the good

things in life, domestic wine consumption too has correspondingly increased. City dwellers still

remain the major guzzlers, prices notwithstanding. Wines made in India are priced between Rs

450-700 and imported ones could cost upwards of Rs 2500. Industry experts predict India to

emerge as one of the largest wine producers in the world by 2058. Wine distribution is largely

dictated by the sales and excise policy of each state. The states are not only allowed autonomy in

formulating policy for the sale of wine and alcohol, they also have fiscal powers to impose

additional excise duties. Mumbai is the leading wine city in terms of volume consumption with

39% of total wine consumed, followed then by Delhi with 23%, Bangalore and Goa 9%

respectively, and the rest of India accounting for the remaining 20% of the market. All of the 28

states and seven union territories operate as individual power centers that formulate their policy

independently.

THE PLAYERS

Champagne Indage has been the pioneer in making French style wine in India. Grover Vineyards

and Sula Vineyards too have made smart strides in a short time span. Recently, companies in the

Indian Made Foreign Liquor (IMFL) space like Diageo, United Breweries and Seagram’s too

have ventured into making wine. While major producers own lands and thus grow their own

grapes, contract farming for wine grapes is extensively practised. Here, wineries offer technical

help and agricultural expertise to farmers. Many major players often use imported vines for

growing the perfect fruit.

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ROLE OF SUPPLY CHAIN IN INDIAN ORGANIZED RETAIL.

One of the most important challenge in organized retail in India is faced by poor supply chain

and logistics management. The importance can be understood by the fact that the logistics

management cost component in India is as high as 7% -10% against the global average of 4% -

5% of the total retail price. Therefore, the margins in the retail sector can be improved by 3% -

5% by just improving the supply chain and logistics management. In India, with demand for end-

to-end logistics solutions far outstripping supply, the logistics market for organized retail is

pegged at $50 million and is growing at 16%.

The infrastructure in India in terms of road, rail, and air links are not sufficient. Therefore

warehousing plays a major role as an aspect of supply chain operations. In the organized retail

market in India the role of supply chain is very important for the Indian customer demands at

affordable prices a variety of product mix. It is the supply chain that ensures to the customer in

all the various offerings that a company decide for its customers, be it cost, service, or the

quickness in responding to ever changing tastes of the customer. The success in this competitive

and dynamic sector depends on achieving an efficient logistics and supply chain, which can be

provided by professionals, as they combine the best systems and expertise to manage a ready

flow of goods and services. With the expansion of retail, supply chain will take on an

increasingly important role. With the end consumer becoming more demanding and time

conscious, the need for just-in-time services is increasing. In retail, where competition is intense

and stakes are high, customer satisfaction is paramount.

Logistics and Supply Chain enables an organized retailer to move or store products more

effectively. Efficient logistics management not only prevents needless movement of goods,

vehicles transferring products back and forth; but also frees up storage space for more productive

use.

Retail analysts say on-time order replenishments will become even more critical once the Wal-

Mart/ Bharti combine begins operations - the American retailer works almost entirely on cross-

docking and is likely to demand higher service levels, including potential levies for delays in

shipment.

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REFRIGERATION AND AIR CONDITIONING EQUIPMENT IN INDIA

The Government of India (GOI) considered air conditioning and refrigeration products as luxury

items about 10 years ago and assigned high duty rates to the products.

Imports of air conditioners and refrigerators continue in small quantities. Indian exporters import

these products for their own use rather than for resale. Until recently, the import of refrigerators

was restricted. Foreign firms are now allowed to establish joint ventures with local

manufacturers. Indian industry looks forward to technology collaborations with other countries

including the U.S.

ROAD SYSTEM AND TRANSPORTATION

India's infrastructure of roads, rails, ports and airports is the most vulnerable part of its supply-

chain presence. India's roads consist of 2.4 million kilometers of paved roads and more than a

million kilometers of unpaved roadway. In both cases, much of this network is questionable as to

reliability for modern transportation needs. While India's rail network exceeds 63,000

kilometers, the best two-thirds are broad-gauge and old.

PORTS OF ENTRY

India's major ports are Haldia, Vishakhapatram, New Mangalore, Mumbai, Jawaharlal Nehru

Port Trust. Plans are for building new facilities in New Mangalore and Krishnaptnam. Sri Lanka

ports are serving India now for large container ships.

SERVICE PROVIDERS FOR TRANSPORT LOGISTICS

The three major international carriers have made large investments in India and play a vital role.

UPS is investing in new UPS Stores in New Delhi, Mumbai, Pune and Bangalore.

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CHALLENGES IN INDIA

In the case of liquor and wine companies, the supply chain is determined by excise policies in

individual states. The distribution systems are different in various states like Maharashtra, Goa,

West Bengal, Karnataka, Andhra Pradesh, Rajasthan, Delhi, Chandigarh, Himachal Pradesh, and

Uttarakhand Tamil Nadu. Supply to retailers is not allowed in Tamil Nadu. All supply to

institutions and retailers is totally controlled by the prevalent excise policies in the individual

states. Transport permits to supply wines and liquor are valid for a limited time period only

COLD CHAINS IN INDIA

The cold chain industry is still at a nascent stage in India with few players operating in the space,

and the current cold storage infrastructure and capacity are grossly inadequate. Improvement and

development of the cold chain infrastructure is crucial for the Indian economy. The total cold

chain market in India is worth Rs. 21,375 million, which is equivalent to US$ 475 million. The

Indian cold chains market is largely untapped and lined by several players in the unorganized

sector which clues for immense investment and development opportunities. The flow of

information is essential for correcting processes, overcoming exceptions, and addressing pain-

points across the supply chain. Information transfer across the cold chain supply is crucial for

ensuring the viability of the very process including logistics. Information from sensor-equipped

RFID planted in the goods transported (bins or units included) during the entire cold-chain

process needs to be assimilated real-time. Grants to establish new storage facilities to the tune of

25 per cent of capital expenditure, reduction in peak import duties on equipment imported for

storage facilities and taxes on them, are some of the incentives provided.

With almost 30 per cent of the total fruit and vegetables produced in India perishing due to lack

of post-harvest handling facilities in the country, which amounts to almost $10-15 billion, the

economic justification for investments in this sector exists.

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LOGISTICS IN SUPPLY-CHAIN OF WINE INDUSTRY

In every sector supply chain is main concern, as it is the thing which decides the whole price and

the distribution of the product. In today’s business scenario where distribution is complex and

fragmented and it’s really difficult for the manufactures to source its products effectively.

The wine supply chain has always been complex and fragmented and with more distant suppliers

and ever-more demanding customers, this brings challenges to the manufacturers to implement

effective supply chain system.

It is determined that the wine supply chain could be broken down into the following key areas:

Grape Grower

Wine Producer

Bulk Distributor

Transit Cellar

Filler / Packer

Finished Goods

Distributor

Retail

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GRAPE GROWER

This is the initial stage of the vine producing. As many as 4000 varieties of Vitis Vinefera have been

developed and are used in the production of wines. Diversity and quality of wine results not only from

the type of grape used, but also from the distinctive qualities of soil, topography, and climate. As we also

cannot keep grapes for the long time as they are perishable in nature so it’s necessary to have a better

supply chain from the field to the vinery/vine producer. It’s save grapes from rotten. Which also results in

reduces costs.

Good supply chain also results in quality of vine. As it delivers raw material for procuring at time to time.

Disciplined record keeping is a key success factor. It is essential that the grower keep records for each

plot or block under his control. This includes details about the location, type and manufacturer.

WINE PRODUCER

After growing, it’s very important that grapes should reach to the producer at the right time.

Vinery should get grapes at prescribed time so that it not affects the manufacturing cost. As the

idle machine also increased the cost.

Supply chain here should be specific in nature as it should inform about the supplier, batch/lot,

and type of product and from where it’s coming. The supply chain should consist all information

like this.

BULK DISTRIBUTOR

The bulk distributor is responsible for receipt, storage, dispatch, processing, sampling and

analysis of bulk wine, as well as record keeping of appropriate information about what is

received and what is dispatched. Bulk distributor is one who should have proper supply chain

basics, as he has to supply product to its different location, he should maintain its records

separately. It should be more specific to the product initials. He also have to maintain its

inventory as he is a bulk distributor, he has to maintain its inventory as a lot. So there is a chance

of wastage if there is not a proper supply.

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TRANSIT CELLAR

The transit cellar is responsible for the receipt, storage, dispatch, processing, sampling and

analysis of bulk wine, as well as record keeping of appropriate information about what is

received and what is dispatched. The transit cellar can be part of the filler/packer company

(geographically separate or not) or can be outsourced. What differentiates the bulk distributor

from the transit cellar is that the former has a commercial role (he sends invoices) whereas the

latter has only a role of transit with no commercial and no invoicing goal.

FILLERS/PACKER

Fillers are the filling unit in vinery. They separate vines from their transit cellar and distribution

part. It is responsible for the receipt, sampling, storage, filling, and dispatch of finished goods.

From this point finished goods direct source to its distribution area which are located in different

areas. Here also they keep records of the different lot and batch and supply accordingly to its

different distributors.

DISTRIBUTOR

The finished goods come to the distributor for retailers. Distributor sends it to the retailers in

different locations. He is also responsible for the inventory and re-labeling for the product. He

also has to keep all the information about the sourced product. He also has to maintain proper

supply to its retailers according to date and time. The finished goods distributor receives pallets

and cartons from the filler/packer. These trade items and logistic units are identified with lot

numbers, which are recorded. The finished goods distributor may also re-pack and re-label the

products as per specific customer requirements.

RETAIL

Here the retailers received the pallets and cartoons from the distributors and sells it to its end

customer. Retails send the pallets and cartoons from the distributor to the retail stores, and from

there it’s directly sells to its end customers.

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FACTORS INFLUENCING WINE SUPPLY- CHAIN

Imagine starting a winery for just Rs 2200,000 in a country where the wine industry is growing

at a rate of 25% to 30%.

Yes, the Wine Industry of India is at its introduction stage of its life cycle and a small winery can

be started in India with an investment of about Rs 2200,000. Required know-hows and

machinery are available locally.

For the year 2008-2009, the wine consumption in India was only about 13.3 million liters or 1.5

million 9-litre cases at a value of Rs 4100 million. At a per capita level, the consumption was

about 9 millilitres annually. In the same year, the world wine consumption was 2.6 billion cases.

The size of the Indian wine market is small when compared to global consumption and annual

per capita consumption of 70 litres in France and Italy, 25 litres in the US, 20 litres in Australia

and 40 millilitres in China.

The prospects of growth for wine in India are quite high. About 600 million Indian’s are

currently below the legal drinking age and 100 million will come of that age over the next 3 to 4

years. So, the consumption of alcoholic beverages such as wine is expected to increase. In spite

of India’s high import tariffs on wine, this country was one of the world’s fastest growing wine

markets. Until the year 2008-2009, growth was about 25% to 30% every year. However, sales

fell in the year 2009-2010 for the first time since 2001. Wine exporters blame the slump on the

26/11 Mumbai terror attacks two years ago that led to a dip in tourism in India. Despite the

recent setback, consumption of wine in India is projected to increase to 2 million cases by 2011

and 4 million cases by 2015.

It is critical to note that, the level of tax burden for both local winemakers and importers of wine

is high. Control over selling, distribution, and pricing of wine belongs to state governments. Each

of India’s 28 states and 7 union territories has its own rules and regulations for sale of alcohol. In

some states an imported wine may cost almost 4 to 5 times of its price, with over 50% of its

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revenue shared between various levels of government. A wine bottle that leaves France at three

euros is sold in India at approximately 15 euros.

However, states like Maharashtra, Karnataka and Himachal Pradesh have taken steps to

encourage wine industry and given preferential treatments by liberalizing their excise regime and

reducing excise duties. Eighty per cent consumption of wine in India is confined to major cities

such as Mumbai (39%), Delhi (23%), Bangalore (9%) and the Goa (9%).

The Supply chain of the wine industry in India is fairly linear. Wine makers are the key to the

supply chain and they record good profits. The key to success in the wine business is branding

so, a substantial chunk of amounts are spent in selling and distribution. It is also critical to note

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that, promotion of alcoholic beverages is prohibited in India. So, winemakers use strategies such

as surrogate marketing and creating economies of scale.

Success in the wine business in India is conceivable if you do the hard yards of government

regulations and have the right marketing mix.

PRODUCT BREADTH

If one conclusion needs to be drawn from this thesis, it is that it is almost impossible to talk

about “the” wine supply chain. Producing and selling a bottle of wine that will sell for a retail

price of Rs 10,000 a bottle is different than doing the same for the bottle of wine that will sell at

Rs 100,000.

From a supply chain perspective, we also have to make a difference between producing for the

packaged (i.e. bottled) or bulk markets, as they also involve different products, different markets

and different logistics.

Product breath seems to have an important impact on the grape procurement process, overall

capital requirements, target market, production processes and commercial processes.

GRAPE PROCUREMENT

Wine still remains mainly an agricultural product Even though many new technologies have

been introduce in the twentieth century (and some before) that enables wineries to better control

the wine production process and develop better am more stable wines from lower quality

supplies, the quality of grapes still plays a major role in the final quality of the product.

It is not difficult to understand why grape growers are most important strategic suppliers for

wineries. Grape grower” that by nature are 'forced to make long term investments in their

vineyards and whose production depends highly on natural factors as climate, seem to be very

sensitive about their relation with wineries. The relationship between wineries and grape growers

has never been an easy one. History is full with cases on forward integration from the side of

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grape growers creating co-operative wineries and backward consolidation from the side of

wineries buying land from grape growers.

Large wineries rely mostly or "third-Party providers to manage capacity, it is safe to say that the

more premium their product, the more they rely on self owned vineyards.

Obviously, for premium products, wineries need to better control the grape growing process. As

it plays a more strategic role in overall wine production process. This happens not only because

wineries are not only dealing with a premium product but also because less technology and

chemicals are being used throughout the production process and therefore the quality of grapes

has a deeper Influence on the quality of wine produced.

A typical example of how complicated the relationship between wineries and grape growers is

can be described as follows: the grape growers grows and harvests the grapes but It is the

winery who gets to decide which grapes are Suited for production. The more premium the wine,

the more carefully It will select the grapes. A question then arises: who will pay for the unused

grapes'? Furthermore, how can the grape grower possibly predict how much of its production he

will be able to sell to the Winery? Were a given lot of grapes mistreated during harvesting,

transportation, or inside the winery? As one can then imagine, the fact that the final decision

relies on such subjective matters can easily generate a situation in which having an outside

supplier is more complicated than producing the grapes in self-owned wine yards.

Having said this, only small "boutique wineries” that sell wines in upper price level described

above seem to rely solely on their own production of grapes. Wineries that produce premium

wines, like Robert Mondovi, have been successful in developing long term relations with grape

growers , supplying capital and training when necessary, and agreeing on a certain level of

quality.

On the other side, production of large volume of table wine is more related to typical transaction

cost relationship. Profits are the major issues for these organizations, and the quality of grapes

does not play such a strategic role, although capacity management issues remain crucial. These

companies usually purchase grapes from a variety of providers, establishing long-term contracts

as well as performing one-time transactions They buy grapes, must (already crushed grapes), or

generic ( wine from wine brokers that brokers might even import from other countries, to blend

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them with their own, production or to label it under a different brand . As we will see, all these

issues will obviously have an important impact on logistics relationships.

CAPITAL REQUIREMENT

Wine production is in essence, a financially intensive business. The two main reasons for this

are the naturally ageing process of the wine, and vineyard ownership.

Depending of the type and quality of wine, wine needs ageing and this means inventory and

working capital. A look at the balance sheets of public held wineries; in the US, France suggests

inventories/sales ratio of an average of 230 days. While wines can take up to 14 years to reach its

peak, other wines can reach the markets as soon as 6 months after the crush. Even though

wineries do not need to hold the wine until it reaches its peak, this process certainty affects

working inventories. Many new technologies have enabled wineries to raise the Quality of their

wines while avoiding long ageing periods, but for premium wines the process remains

essentiality the same and this step is hard to avoid. The fact that grapes are harvested during a

short and specific period of time during the year also adds to this problem, as wineries need to

produce during this period of time the wine they will be selling throughout the year.

In addition, producers wines tend to own their wine yards. This means that a substantial amount

of capital needs to be used to buy land for planting wines. Wines take up to 4 years of intensive

care and human labor to produce substantial yields of grape juice to produce wine and they yield

economically accepted volumes of juice for approximately for 25-30 years. If we consider the

fact that they are prone to disease, and it years to replant the wine yards to accommodate the

change in the market trends, we can see that the financial risks of these are not to be let unseen.

Furthermore, the amount of juice that can be used from grapes to produce wine differs between

with the quality and type of wine with a general rule that more premium the wine the larger the

volume of grapes that needs to be used to produce the same quantity of wine. With such financial

pressure on them, vineries seem to have found different methods to overcome these problems

COMMERCIAL PROCESSES

Perhaps one of the most important aspects of product breath is the effect it has on the

commercial and marketing processes of the wineries, or how wine is sold:

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“Price is closely related to image. Many people evaluate wines based on price: the higher the

price, the better wine must be. Conversely, lower prices are associated with lower quality. A

prestigious brand is incompatible with low prices and mass distribution. It must deliver value

over time to sustain its price and limited production”.

Small wineries that typically produce between 5000 or 10,000 cases of premium wine a year

need to get their label to be known to a select group of premium buyers around the world. On the

other hand, wineries that produce 1,000,000 cases of table wine need a way to push their

products through the chain (or get them to be pulled, in an ideal situation) as fast and profitable

as possible.

Some wineries pursue strategies to generate the brand awareness in order to be able to pull the

product through the distribution chain; others try to work closely with wholesalers in order to

find the best way to push the product through the chain.

In any case and any kind of product, wineries are competing in a global market against a huge

amount of different brand labels, each of them with different characteristics. As economies of

scale and target markets enable wineries to pursue different strategies, the wineries need to work

closely with other players in the chain in order to design the best fit for the market they are trying

to reach.

WINERY LOCATION

The wineries location must be taken into account while thinking about the wine supply chain.

Wine is made of grapes and grapes can be grown in certain locations. Some of the most

important factors that determine a wines location are soil, climate irrigation and geography.

The following characteristic illustrates how some of these factors influence the supply chain:

1. As a thumb rule, grapes grow between 30 and 40 degrees in northern and southern

hemisphere.

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2. Wines are dormant below 10 degrees and ripening occurs only above 17 degrees. Wine

functions are diminished above 24 degrees and may completely shut down above 32

degrees.

3. Wines typically need 500mm to 750 mm of rainfall in a year depending upon the average

temperatures. There does not seem to be a maximum amount of water they can take as

they can recover from floods fast.

4. Frost affects the quantity of grapes that ripe, but does not affect the quality of grapes.

5. The ideal soil therefore has good drainage with access to retain water at some depth if

irrigation is not an option.

LEGAL ISSUES

Level of regulations is high

Level of regulations is steady

Given the traditionally closed nature of the Indian import market, its high import duties, the

multitude of state taxes and complex state licensing and approval process, the existing market for

imported spirits, exporting wine to India can be a regulatory adventure. The following key

regulations apply to the wine industry in India:

1) State authority

Control over selling, distribution, and pricing of wine belongs to state governments under

Section 47 of the Directive Principles of the Indian Constitution. India is a federal nation, and

like the U.S., the central government has empowered states to generate revenue and control sales.

Each of India’s 28 states and 7 union territories has its own rules and regulations for alcohol

control. The following apply to regulation in states:

a) Differing methods of alcohol control in specific states

Gujarat, Lakshadweep, Mizoram, Nagaland and Manipur are states that enforce total prohibition

of wine. Sates like Haryana, Tamil Nadu and Andhra Pradesh briefly instated prohibition. States

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like Uttar Pradesh and Tamil Nadu control imports by refusing to issue an excise Transport

Permit. The Transport Permit is the distribution authorization form that allows goods to be

released from warehouse and delivered to designated customers like hotels or authorized retail

outlets. States like Kerala do not allow retail sales of imported wine. The states of Punjab and

Himachal Pradesh are more liberal in their rules and procedures but maintain high excise duties.

b) Possession of Wine

Every state has its own law dealing with the amount of wine a family can store in their homes

without acquiring an excise license. No state allows maintaining a wine cellar with more than

100 standard bottles of wine without a license.

c) Wholesale and Distribution License

Each state has its own licensing system. There are several licenses for wine import, transport and

warehousing of wine. The Licensees required for wine are L-2 (Retail Vend: 309), L-3 (Hotel-

Room Service: 1), L-4 (Restaurant: 251), L-5 (Hotel-Bar: 47) and L-19 (Club: 54) etc.

Permit Branch issues Import permits for import of liquor and Transport Permits for

transportation of liquor from Bonded Warehouse to off and on site licensed consumption.

Import permits are issued to the L-1 licensees on demand which is duly recommended by the

inspector posted at Bonded Ware House. The applicant immediately on the approval of L-1

License has to deposit License Fee, Brand registration fee and Brand Fee & apply for,

Registration of Brands, Approval of Bonded Warehouse, Approval of Label, and Fixation of ex-

distillery price.

2) Marketing Regulations

In India, there are restrictions on promotion of alcoholic beverages like wine and beer. So,

creating a strong umbrella brand for various products is important. For example, Kingfisher’s

alcoholic beverages cannot be advertised however, the Kingfisher brand is now promoted

through the airlines and its various sporting activities. The industry calls this, ‘surrogate

advertising’ or ‘brand extension’, which has now become the order of the day in India.

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3) Exemption of federal customs duties for specific entities

In the year 2003, the Directorate General of Foreign Trade (DGFT) in India announced that

Hotels (3 Star and above) and other service providers in the tourism sector could receive a duty-

free import entitlement equivalent to 5% of their average foreign exchange earnings for

beverages and spirits including wine.

4) Storage regulations

Imported wine must be stored at a government approved custom bonded warehouse. The wine

can be released from the bonded warehouse for distribution only after the importer/distributor

meets all the mandatory requirements of the state where they plan to market and/or sell the

product.

5) Labelling Regulations

Imported wine, often referred to as bottled in origin (BIO), are subject to the labelling provisions

of the Standards and Weight and Measures (Packaged Commodities) Rule of 1997.

The labelling declaration on the wine bottle must include:

Name and address of the importer

Generic and common name of the packaged commodity

Net quantity in terms of standard units of weights and measures. In case of wine it should

be in milliliters and liters.

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INDIAN WINE MARKET ANALYSIS

STRENGTH

Indian wine consumption has grown 30% annually over past 5 years

Good climate for grapes harvesting

Urbanization

Wine is becoming more acceptable to women and youth

Youth are craving an alternative to hard liquors and developing a more refined taste.

WEAKNESS

Wine remains an elite taste.

Lack of cold supply chain so it’s difficult to store

Less than 50 percent of the population is legally old enough to drink (25 yrs. old).

Poor awareness of wine and infrastructure.

OPPORTUNITIES

100 million persons will be legally allowed to drink alcohol (25 yrs. old) in the next 5

years.

Supermarkets are emerging to support wine distribution infrastructure.

Domestic market with increasing disposable income.

Growing tourism industry.

Growth in wine segment at 25-30% from past 5 years

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THREATS

The Indian constitution discourages alcohol consumption.

Indians still prefer whisky.

Advertising for alcoholic beverages is banned.

Domestic wine production is coddled by state governments.

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EUROPEAN WINE INDUSTRY

The European Union (EU) is the world‘s largest wine producer, consumer, exporter, and

importer. Total EU-27 MY 2010/11 wine production is still preliminarily estimated at 156 Mhl,

down 3.5 percent from the previous marketing year. Sharp production decreases in Germany,

Romania, and Hungary and small decreases in France, Italy, and Spain were only partly offset by

significantly higher production in Portugal. Domestic EU wine consumption continues to decline

due to the continued general economic crisis and is forecast to stagnate in MY 2010/2011. EU-27

wine exports partially recovered in MY 2009/2010 and are expected to further increase in MY

2010/2011 thanks to growing demand both from developed countries (United States, Canada,

Japan) and BRIC economies (such as Russia and China). The United States remains the leading

export market (24.6 percent of the total in volume and 30.7 percent in value) for the EU-27. EU

wine imports slightly declined in MY 2009/2010 but are expected to increase in current

marketing year.

The European Union (EU) is the world leader in wine production, with almost half of the world‘s

total vine-growing area and 60 percent of production wine volume. Within the EU, France, Italy,

and Spain represent about 80 percent of total production. Other important EU producers include

Germany, Portugal, Romania, Greece, and Hungary. Wine is also an important sector in Austria,

Bulgaria, and Slovenia. The following table shows production trends in the leading EU wine

producing countries during recent years.

EU vine-growing area has been declining for the past few years due to shrinking margins and the

implementation of the new Common Market Organization grubbing-up scheme (see the Policy

section for details). The grubbing-up scheme involves voluntary withdrawal from vine growing

by decreasing subsidies over three years to reduce production of uncompetitive wines, cut

surpluses, and compensate producers by offering them alternatives. Thus far, 175,000 hectares

have been taken out of production, with additional reductions expected in 2011 – the third and

final year of the scheme.

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CONSUMPTION

Domestic EU wine consumption continues to decline, despite a slight economic recovery. Per

capita wine consumption has been falling for decades, especially in southern European countries,

where changing consumption habits (increased outdoor drinking, substitution of other beverages,

changing tastes) affect overall demand. Another important factor is the anti-alcohol drinking

campaigns, especially aimed at youth, conducted in some countries, primarily France and Italy,

which has made advertising wine virtually impossible. In addition, health concerns and concerns

about drinking and driving have pushed local authorities to implement more stringent

legislations, which further dampened alcohol consumption.

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LOGISTICS MODELS USED IN EUROPE FOR WINE INDUSTRY:

MODEL 1: BRANDED WINE

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Winemakers or wine co-ops grow grapes and are responsible for vinification and blending (and

sometimes for bottling). Otherwise bottling, labeling and packaging operations are carried out by

Logistics service providers.

In most wine merchants’ opinion, a company’s main strength is its brand name. Ginestet’s

Managing Director says for example, “Bordeaux’s brand name is its ace in the hole against New

World wines”. With branded wines it is possible to produce large volumes of wine of consistent

quality. This model is characterized by the strong value-added that derives from

communications. This means that the wine merchant is the strong link in this particular supply

chain. Wine merchants transmit operational information (sales forecasts, blending specifications,

bottling, labeling, and packaging) to service providers and winemakers. Wine merchants

sometimes determine grape-growing specifications in the branded wine supply chain, although

not always. Every time a service provider receives an order from a distributor it will either send a

further order on to the supplier or winemaker or else draw from its own stocks. Wine merchants

work closely with consumers and are therefore very aware of market trends. As a result, they are

the ones to decide which wines to market. This takes power away from winemakers and leads to

lesser product diversity. Winemakers no longer control the composition of their wines.

In time, wine merchants will seek to take over production activities and drive this function from

the downstream side. This piloting will be mainly achieved through partnerships and alliances.

To devise a system in which vineyards are customer-driven and to carve out a crucial role for

themselves, wine co-ops will have to merge so that they can develop the technical and human

resources that are required to fulfill a partner’s role. If vineyards are to be efficiently managed

from the downstream side, wine co-ops will have to be able to determine their own grape

specifications and pricing schedules. Information on orders circulates from one link in the chain

to the next, starting downstream and moving backwards. One criterion of success is the ability to

work within a highly integrated chain, one that uses a standardized type of information.

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MODEL 2: STORE BRANDS

In this supply chain, winemakers are in charge of grape-growing, vinification and blending.

Bottling,

Labeling and packaging operations are carried out by the logistics service providers. This is a

configuration where the wine merchant level has been eliminated. Major retailers play a role in

product design and communications. They source directly from winemakers and become the

chain’s key link, replacing wine merchants. The major retailers are the ones steering the

information flows, much as wine merchants do in the branded wine supply chain (c.f., model 1).

In the store brand supply chain however there is a higher degree of commercial integration, due

to the retail sector’s greater ability to exchange information in real-time.

All flows are piloted on the basis of forecasts that are updated daily in such a way as to reflect

actual consumption. This and the lean management of flows are what explain the chain’s

flexibility. The risk with this particular supply chain structure is that it is piloted by actors who

are not wine sector specialists. This reinforces major retailers’ power over winemakers and

causes an imbalance in their relationship. Major retailers are very involved in this kind of

strategy. Store brands have risen sharply over the past decade and account for about 30% of all

sales of wine in major retail outlets. Products of this nature can be expected to undergo a number

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of changes in the years to come. Today store brand wines amount to something like 100 million

bottles of red and white Bordeaux wines per annum.

This schema characterizes the Grand’s Crus logistics chain by depicting the traditional

breakdown of value-added in the Bordeaux wine region. In this chain it is difficult for the

winemaker to get demand-related information, and value-added operations are distributed

unevenly. In terms of product promotion, (French) nationwide communications are organized by

Trade Associations and funded by membership fees. Collective communications account for

48% of advertising expenditures. However, promoting this category of wine, with its highly

dispersed supply structure, is no easy task. It remains to be seen whether collective campaigns

have an efficient impact on consumers’ purchasing acts. In the export markets, promotion is

undertaken by Trade Association task forces and by ONIVINS.

There are three types of collective communications: -

1. Communications highlighting all French wines

2. Specific communications focusing on the country’s main winegrowing regions

3. Communications lying somewhere between brand advertising and generic publicity Looking

to the future, the wine merchant level, which accounts for 95% of Grand Cru flows throughout

this chain, runs the risk of losing market share to the major retailers, who have been increasingly

positioning themselves in the market’s top-of-the-range segment. Lean workflows predominate

in this model, one in which logistics performance is taken very seriously. Winemakers are the

key actors in this logistics chain. The fourth schema is characterized by winemaker’s

involvement in all of the chain’s value-added activities, albeit with occasional help from logistics

service providers.

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MODEL 3: WINES MARKETTED DIRECTLY BY THE WINE MAKER

This model enables a great deal of agility to changing market demand in as much as winemakers,

who are the main actors in this chain, are in close touch with the end user. The model’s

drawback is that winemakers must possess a great deal of logistics maturity, given the multitude

of activities they undertake. An awareness of logistics is something new to winemakers whose

core business is wine production. Furthermore, wine merchants no longer act as logistics partners

in this model. This precludes any strong marketing action promoting the wines. Winemakers

focus their efforts on vinification, this being their true profession. They increasingly turn to

outside service providers for other operations. In this model, the winemaker is practically the

only actor in the logistics chain, and therefore captures all of the value-added.

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COLD STORAGE IN EUROPE

Fine wine does not take kindly to overheating or freezing. Wine needs a cool, constant

environment, yet is too often shipped around the world with less care than cartons of lettuce.

Despite the great care winemakers devote to every step in the vineyards and winery, transport

and storage conditions can ruin wine before it ever reaches the consumer. The topic of

temperature conditions has always been elusive – the dark secret that everyone knew was lurking

but no one wanted to discuss or address.

Over the last 200 years, there have been few changes in the way wine is shipped to market. One

innovation was “Mise en bouteille au château,” another reefer container and reefer truck.

However, the use of reefer containers varies widely: Approximately 50% of shipments from

Bordeaux to Japan use reefers, whereas they are used for only 5% of shipments from Bordeaux

to China. (Source JF Hillebrand) More importantly, the reefer container covers only a portion of

the wine’s journey from producer to consumer. Very few efforts have been made to assure that

the world’s fine wine is delivered in the best conditions possible to the final consumer, using the

“cold chain” practices common in the food and pharmaceutical industry. The cold chain assures

that proper temperatures are maintained at every step of the journey and each participant in the

distribution chain has a responsibility to uphold.

Changes in the Structure of the Wine Market

The evolution of a global wine market is relatively recent. Historically, wine traveled mostly

from Bordeaux and Burgundy to the UK and Europe. In 2009, the world’s vineyards produced

36 billion bottles of wine. 35% of the wine was drunk locally and quickly. 47% of the wine, or

17 billion bottles were stored and transported within domestic markets. 18% of the wine, or 6

billion bottles were exported from the world’s wine producing countries, representing $23 billion

dollars of wine. (Source: Australian Wine & Brandy Corporation)

What is happening to these wines in transit?

When exposed to temperatures above 30⁰ Celsius for too long, on both domestic and

international shipments, wine can be “cooked.” According to eProvenance temperature

measurements from 2007 to 2011, the percent of wine cases exceeding 30 degrees Celsius during

shipment was 10.6 percent. More than 29.7% of wines were exposed to temperatures over 25°C.

While less frequent, wines can also be damaged when exposed to temperatures below freezing,

resulting in tartaric precipitations and even frozen bottles that can break. 17.12% of wine cases

reached temperatures below 5 degrees Celsius as per eProvenance 2007 to 2011 measurements,

and 3.42% reached below 0°C.The temperature of fine wine sent from France to the US, UK,

China, and Japan is typically stable during the ocean voyage but wide temperature fluctuations

appeared both before and after. Air shipments are not necessarily better. While the hold of the

airplane is fine, few air shipment channels are organized to maintain a cold chain during

offloading, customs, and local transport. Cases shipped to Hong Kong recently via airfreight

reached 35° Celsius. In the USA, FedEx and UPS are not fully organized to provide

temperature-controlled chains for wine. Such services are provided for pharmaceuticals and

temperature control may be provided for portions of the wine’s journey (e.g. the hold of the

airplane).

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What problems result from these temperature fluctuations?

Unfortunately, the sturdiness of the glass wine bottle disguises the fragility of the organic

contents. Independent research carried out by ETS Laboratories in St Helena in 2008 (financed

by eProvenance), demonstrated that wine can be damaged by excessive heat before any signs of

visible deterioration (leakage, corks pushing) can be discerned. Exposure to temperatures

exceeding 30°C for duration of 18 hours or more can significantly damage the wine’s color,

clarity, aromas and taste. A decrease in free sulfur dioxide also occurs, decreasing the wine’s

ability to age over time. The damage is not obvious, and is discernible only by tasting or

chemical testing. Damage often remains undiscovered until years later, and often a “cooked

wine” is not differentiated from a “corked wine.” Consumers view it as bad wine, and simply do

not re-purchase it, negatively affecting the value of the brand.

Who is responsible for this situation?

The wine industry involves a complex, multi-step distribution chain, and no one has

responsibility for the entire process. Many players in this distribution system work on thin

margins, and tend to avoid the “extra” expense of climate control. Some industry participants

have stated they would rather not have the storage and shipping information, fearing economic

consequences. As much as $2.2 billion in wine experiences improper temperature conditions

during transport and storage, but the industry cannot manage what it does not measure. While

there is no systematic measuring or monitoring system in place across the distribution channel,

ultimately we are all responsible for what happens to fine wine on its journey to the consumer.

EUROPEAN INFRASTRUCTURE

Deregulation has led to the growth of wide transport networks. Deregulation of shipments,

optimal route Routing and plan scheduling, and the development of national services. The

membership of eastern European countries in the European Union has resulted in a shift in the

balance among local, regional and long-distance transports.

The number of long-distance transports has grown considerably.

In recent years, the largest growth in transport volume has been achieved by freight transports on

roads and rails, closely followed by sea freight.

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Logistics requirements and service areas

Outsourcing of logistics activities is widespread in Europe and is gaining popularity. Many

companies hire specialized logistics service providers to do the job. This trend has resulted in

industrial companies outsourcing parts of the standard logistics services like shipping,

transhipping and storage. Added to this development are increasing numbers of high-quality

logistics services and contract logistics.

Logistics centres in Europe

The largest logistics markets in Europe are Germany and France, followed by Great Britain, Italy

and Spain.

The largest logistics service providers in Europe include DHL, Maersk, Schenker, TNT and

Kühne & Nagel and Kerry.

Major Ports of entry

Belgium: Antwerp

France: Le Havre, Marseilles, Cherbourg

Germany: Bremen, Hamburg

Italy: Naples, Genoa, Palermo, Trieste

Netherlands: Rotterdam

LE Havre is the major port in the world-wide transit of wine in Europe. Leading port in Europe

for the import-export of wine and spirits with a traffic more than 620 million bottles.

9 river hubs are set up in the “Paris area”, the first consumption area in Europe, closest to the

main French wine producers (Champagne and Burgundy).

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RECOMMENDATIONS

Technology plays a key role in the development of new grape varieties, plantings and irrigation,

quality assurance and traceability systems.

Though India has a lot to learn about wine making from its European counterparts, its capability

in the following technical areas have been rapidly increasing:

Viticulture services: vineyard establishment, input management, canopy management,

Technologies to improve health of grapevine root stocks and grape yield,

Energy efficient air conditioning-systems and insulation products

Irrigation and waste water management

Vineyard and winery equipment

Winery design

Oenology services: wine making, wine consultancy services, wine education

Another area which needs to be improved is of cold supply chain, where there is lots of scope for

improvement in Indian wine industry. This is possible only by close co-ordination of govt. and

private companies. Also there is need of investing in current supply chain infrastructure of the

country

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REFRENCES

http://www.europeanwineresource.com/

http://en.wikipedia.org/wiki/European_Union_wine_regulations

http://winebloggersconference.org/america/

http://articles.timesofindia.indiatimes.com/2012-04-03/drinks-corner/31029641_1_wine-society-sula-

vineyards-wine-industry

http://www.chillibreeze.com/articles_various/Wine-industry.asp