Bangalore, known as India’s very own Silicon Valley and home to many information technology multinationals and start-ups, recently raised a toast of a different kind: The city hosted an International Wine Festival.

Spread over three days and across sprawling grounds, the wine festival offered Bangaloreans an opportunity to understand the basics of wine, varietals, wine tasting and food pairing. There was also grape stomping, musical concerts, a fashion show, a display of vintage automobiles, a flea market and food stalls.

Behind the apparent frivolity, though, was serious intent. Organized by the Karnataka Wine Board (KWB) and co-sponsored by other government agencies, including the ministry of food processing industries and the National Horticulture Board, the event was the first of its kind in the Indian wine sector to be hosted by a government organization. It provided a platform for international and domestic wine makers, grape farmers, machinery suppliers and other service providers to network and showcase their offerings. There were also various technical sessions for both existing and aspiring players on the different aspects of wine making, development of vineyards and viticulture practices.

But wine consumption in India currently is minuscule, with the annual per capita consumption estimated to be less than 10 milliliters. Compare this to the world over, where the global yearly per capita consumption of wine is around four liters. According to recent news reports, in 2011 the U.S. was the biggest wine market with annual consumption of 3.7 billion bottles of wine. The reports suggest that by 2015, the per capita consumption of wine in the U.S., which is currently around eight liters, will increase to 13 liters. China, which in 2011 replaced Britain as the fifth largest consumer of wine, is expected to have a per capita consumption of two liters by 2015. In France, it is over 40 liters.

Given India’s small wine market, one could well wonder what propelled the government agency to host the event. Subhir Hari Singh, chairman of the KWB shares his logic: “True, the wine market in India is very small at present. But we see a huge growth potential in this sector and we want to facilitate the growth by creating an enabling environment for all stakeholders in the chain — from the grape farmers to the end consumers.” The Southern state of Karnataka is the second-largest producer of wines in the country, next to the Western state of Maharashtra, which accounts for the majority of India’s total wine production.

Alok Chandra, founder and CEO of Gryphon Brands, a Bangalore-based wine consultancy firm, notes that while traditionally Indians have been more inclined toward spirits and beer, wine has been steadily gaining acceptance. He estimates that over the past decade, the market has been growing at over 20% each year. There has also been a substantial increase in the number of wineries in the country, from less than 10 in 2000 to around 75 at present. Most of them, however, are very small. And just a handful of players have a pan-India presence, Chandra points out. “Wine is a state government subject in India and every state has its own tax rules and regulations. This makes it very difficult to operate outside one’s own state. It also adds to the end price for the consumer,” says Chandra.

According to Anand Dikshit, executive director of corporate finance & investment banking at PricewaterhouseCoopers (PwC) India, the wine market in the country has grown “consistently at 15% to 18% over the past few years” and at present is close to 17 million liters with a value of Rs. 1,400 crore (approximately US$280 million). “Given the slowdown being faced in the market, we believe that the market might grow at a rate of 10% to 12% in the coming years,” he notes.

Industry players and other observers are more optimistic, however. Chandra, for instance, predicts that total wine sales in India “can increase to 8.3 million cases [one case is equal to nine liters] by 2020.” Rajeev Samant, founder and CEO of Sula Vineyards, the leading wine company in India, and Kapil Grover, director of Grover Vineyards, the country’s second-largest wine producer, expect the market to grow at a minimum of 25% year-on-year for the next 25 years. “If the government policies change, it could be far higher,” says Grover. Adds Samant: “There is no way but up.”

Retail sales of wine also reflect its growing popularity. According to industry estimates, in the organized liquor retail segment, wine now accounts for 30% of all sales as compared to 22% to 25% just a year ago. Whiskey and rum together account for 33%, while beer accounts for 22% and white spirits 15%. Talking recently to the daily newspaper, The Times of India, Ponnu Subramanian, senior vice president of food and supply-chain at Max Hypermarkets (India), which runs the Spar Hypermarkets in the country, said: “In a short span of time, wine will emerge as the single largest segment in liquor retailing.”

While the premium and super-premium wine segment (above Rs. 750 or US$15 a bottle) in the country is largely dominated by imported wines because of the perception that they are of finer quality, the total consumption is driven more by domestically-produced lower priced wines, observers note.

A Changing Lifestyle

Observers point out that there are multiple drivers shaping India as a growing wine market: The country’s economic growth over the past years; growing disposal incomes; increasing foreign travel and exposure to global lifestyles; more women in the workforce resulting in greater social mobility and higher social acceptability of women consuming alcoholic beverages; younger-skewing demographics; greater awareness of the health benefits of wine and easier availability through newer retail formats.

Some government measures have also added to the expansion. For instance, a couple of years ago, some states like Karnataka delinked wine from hard liquor and beer and introduced the concept of “wine tavern” licenses. These cost only a fraction of a regular bar license or a beer pub license, making it easier and less expensive to serve wine. According to Singh of the KWB, other policy measures like the removal of the inter-state taxes and slashing of import duties are also being considered. This is expected to give a further impetus to the market. Recently, India became a member of the Paris-based International Organization of Vine and Wine (OIV). Chandra believes that this is a significant step for the industry. “It brings you in line with international standards and practices,” he says.

M. V. Rajeev Gowda, professor of economics and social sciences at the Indian Institute of Management, Bangalore, notes that “the shift in social attitudes toward consumption of wine and its growing popularity [in India] is reflective of deeper social and cultural changes that are taking place in the society.”

Harish Bijoor, brand strategist and CEO of Harish Bijoor Consults and a visiting professor at the Indian School of Business, Hyderabad, adds: “Economic prosperity has found ways of flowing out into social prosperity, and the eating and drinking out levels have grown exponentially. With this, wine finds center-stage.” Bijoor points out that wine has become the entry-drink in the food chain of liquor consumption. “Wine is seen to be the least harmful and the least potent and therefore wins.”

Grover compares the Indian wine market with that of China. He notes that like in India, wine consumption in China was traditionally at very low levels. But in the past few years it has galloped and the country has become one of the biggest markets across the world. “There is no reason why India should be so far behind. It is just a matter of time before we reach the inflection point. But the government also needs to do its bit to make it easier to produce and consume wine,” he says.

Creating New Wine Experiences

India’s leading spirits and beer major, the Vijay Mallya-led UB Group, is keen to get a significant part of this growing pie. Four Seasons Wines, the fledgling wine arm of the UB Group, was launched in 2008 and has been growing at “30% to 40% year-on-year on a cumulative basis,” according to Abhay Kewadkar, chief wine-maker and director. He expects to continue this pace in the coming years.

In 2006, the UB Group acquired Bouvet-Ladubay, a French winery, and the following year it set up United Vintners, under which it imports wine from across the world. Kewadkar explains UB’s interest in this segment: “UB is a leader in spirits and beer. You can’t be a global leader in the alcoholic beverage space and not have wine in your portfolio. And with the potential that India has in the wine market, it is a natural move.”

Kewadkar’s strategy for growth at Four Seasons Wines is based on the three pillars of “education, awareness and accessibility.” “Over the years, wine consumption has remained metro-centric in India and it has a very snobbish appeal in the consumer’s mind,” says Kewadkar. “We have taken it upon ourselves to educate the consumer to demystify wine as a category and [make them aware] that wine is like any other beverage meant for enjoyment.” As part of this, his team has been conducting vineyard tours, wine tastings and wine appreciation sessions for corporations and various other consumer groups.

Kewadkar notes that the large distribution network of the UB Group gives him an advantage in reaching out to tier-2 and tier-3 cities. “This has helped us in expanding the pie and [also] in paving the way for a higher market share in a bigger pie,” he says. In a bid to further expand his reach, Kewadkar has also partnered with outlets like casual dining restaurant chain Pizza Hut and coffee chains Cuppa Café and Café Oz to serve Four Seasons wines in their outlets.

During the announcement of Four Seasons’ partnership with Pizza Hut, Sidhartha Mallya, heir to the UB Group and general manager of marketing at the UB Group’s United Spirits Limited, presented numbers from the company’s market research: “The current alcoholic beverage penetration in India is around 42.5%, while beer and whiskey penetration is at 26% and 23% respectively. Wine is only at 0.6%. However, four times as many people have expressed their willingness to taste wine, but haven’t done so for lack of the necessary casual fine-dining experience and opportunity.” Pointing out that drinking wine in cafes and restaurants is common in many countries, Mallya added: “Through this partnership with Pizza Hut, we are introducing a wine trend that is globally accepted.”

According to Bijoor, easy access to wine, especially through the fast-growing coffee café market, could be a game changer. “Wine may be the new coffee. By that I mean that coffee itself took a while to gain [a foothold] in India. In the beginning, people knew coffee to be just plain old filter coffee. Today, there is a wide acceptance of cappuccino, lattes and frappes of every variety.”

Sula’s Samant is thinking of expanding along similar lines. “There is no doubt that wines being served across coffee chains and at affordable casual dining restaurants will attract a lot of people. This is common globally and I see it as a positive trend in India.” For now though, Samant is focusing on setting up company-owned wine bars across the country. The first one is up and running in Mumbai. Apart from the metros and the big cities, Samant is looking to expand in smaller cities and towns also.

Meanwhile, Grover Vineyards is on the verge of bringing in fresh investments through a private equity player to avail of the growth opportunities. A few years ago, Grover Vineyards had outsourced its marketing to Brindco, a New Delhi-based wine importer. Brindco had also taken an equity stake in the company. The thinking then at Grover was that Brindco’s strengths in marketing and distribution would help it to expand. Grover says that the move did not work out as anticipated, and the marketing is now back with the company. But unlike Samant and Kewadkar, Grover predicts that wine drinking in India will largely be confined to the metros, at least for some years to come.

Another debate in Indian wine circles is around the export potential of Indian wines. Some observers say that Indian wines have yet to achieve the maturity to appeal to the global palate. More importantly, they add, as a country India doesn’t have the necessary brand persona to make it big as a wine exporter. Others, however, suggest that with Indian food gaining popularity across the world, Indian wines could well be part of the overall Indian food experience. “There are over 50,000 Indian restaurants worldwide. Indian wines need not necessarily pair well with Indian cuisine; just by being ‘Indian,’ they can complete the entire package,” Chandra of Gryphon Brands notes. “And as the India story becomes bigger, Indian wines could ride the wave.”

Bijoor suggests that if India can make the world’s third-best single malt — a distinction the country earned in 2010 when whiskey expert Jim Murray awarded that title to Amrut Fusion single malt whiskey from Bangalore-based Amrut Distilleries — “Why not a wine that is truly world-class? Our grape-growing belts hold a lot of promise. The next big wine of the world might just about come either from Nashik [in Maharashtra] or Bangalore, for all we know.”

While that’s something that India vintners would raise a toast to, Dikshit of PwC adds a dash of reality: “We [need to] develop the domestic market prior to making moves overseas.”