GLOBAL LEADERSHIP CENTRE INTERNATIONAL BUSINESS

(Batch 2011-13)

ANALYSIS OF SUPPLY CHAIN OF INDIAN AND EUROPEAN WINE MARKET

Rajat Chaturvedi (33) Rohan Vaidya (62) Ritesh Naik (41) Akash Jain (49) Prateek Garg (47) Poonam (17) Swati Kumari (13)

Faculty Guide: Ankush Guha

EXECUTIVE SUMMARY
The prospects of growth for wine in India are quite high. About 600 million Indians 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 Indias high import tariffs on wine, this country was one of the worlds 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 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 partners role. their European

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.

TABLE OF CONTENTS

CONTENTS INTRODUCTION RESEARCH METHODOLOGY INDIAS OVERVIEW ROLE OF SUPPLY CHAIN IN ORGANIZED RETAIL INFRASTRUCTURE AND PORT OF ENTRY IN INDIA CHALLENGES IN INDIA LOGISTICS IN SUPPLY-CHAIN OF WINE INDUSTRY FACTORS INFLUENCING WINE SUPPLY CHAIN SWOT ANALYSIS OF INDIAN WINE INDUSTRY EUROPEAN WINE INDUSTRY LOGISTICS MODELS IN EUROPE COLD STORAGE IN EUROPE EUROPEAN INFRASTRUCTURE & PORTS OF ENTRY RECOMMENDATIONS

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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 chainwide 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

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.

INDIAS 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 Seagrams 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.

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 endto-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 WalMart/ Bharti combine begins operations - the American retailer works almost entirely on crossdocking and is likely to demand higher service levels, including potential levies for delays in shipment.

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 supplychain 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.

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 painpoints 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 todays business scenario where distribution is complex and fragmented and its 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 its necessary to have a better supply chain from the field to the vinery/vine producer. Its 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, its 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 its 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 its 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 Indians 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 Indias high import tariffs on wine, this country was one of the worlds 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 Indias 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 Indias 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 (HotelRoom 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 exdistillery 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, Kingfishers 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 dutyfree 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 its 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 worlds 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 worlds 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 companys main strength is its brand name. Ginestets Managing Director says for example, Bordeauxs 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 partners 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 chains 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 sectors 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 chains 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 Grands 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 countrys 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 markets 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 winemakers involvement in all of the chains 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 models 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 chteau, 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 wines journey from producer to consumer. Very few efforts have been made to assure that the worlds 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 worlds 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 worlds 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 30 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 25C. 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 0C.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 wines 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 30C for duration of 18 hours or more can significantly damage the wines color, clarity, aromas and taste. A decrease in free sulfur dioxide also occurs, decreasing the wines 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 Khne & 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-sulavineyards-wine-industry http://www.chillibreeze.com/articles_various/Wine-industry.asp

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