GROUP ASSIGNMENT OF PRINCIPLES OF MARKETING

Australian luxury product in India: JACOBS CREEK WINE

SUBMITTED TO: Mr. Jagandeep Singh

SUBMITTED BY: Apoorv Sharma, Arvinder Pal Singh, Bushra S.P. Singh, Chandni Behal, Gaganish Mittal and Gunpreet Kaur MBA Telecommunications & IT

UNIVERSITY INSTITUTE OF APPLIED MANAGEMENT SCIENCES, PUNJAB UNIVERSITY, CHANDIGARH

ABOUT THE PRODUCT

Jacob's Creek is a wine brand that is exported to over 60 countries. It is owned and produced by Orlando Wines in the small township of Rowland Flat in the Barossa Valley. In 1847 Johann Gramp, the founder of Orlando Wines, planted some of the first grape vines in the Barossa Valley along the banks of Jacob's Creek. Over a century later, in 1976, a 1973 vintage Shiraz Cabernet Malbec became the first wine to be released under the Jacob's Creek label. Jacobs Creek offers the following range of wines to its customers in India:
Classic Chardonnay Classic Shiraz Cabernet

Classic Cabernet Sauvignon

Sparkling Chardonnay Pinot Noir

Reserve Adelaide Hills Chardonnay

Reserve Coonawarra Cabernet Sauvignon

Reserve Barossa Shiraz

The above listed wines can also be classified as follows: 1. Red Wines: Red wine is made from red grapes that contain anthocyanin and tannins in their skin. Lighter red wines can be delicate, soft and fruity and are bottled earlier for freshness. More full-bodied reds can be dark, rich and complex while showing intense integrated tannins. Reserve Barossa Shiraz, Reserve Coonawarra Cabernet Sauvignon, Classic Cabernet Sauvignon and Classic Shiraz Cabernet are Red wines. 2. White Wines: There are diverse and interesting white wines made from white

wine grapes or traditionally red wine grapes without time on skins preventing colour influence, such as Pinot Noir for sparkling. Across white wines there are significant differences across grape type, region and their climatic conditions and the winemaking process.

Classic Chardonnay, Sparkling Chardonnay Pinot Noir and Reserve Adelaide Hills Chardonnay are White wines.

THE NEED THAT THE PRODUCT ADDRESSES IN INDIA

The tastes and preferences of the Indian population err towards still wines, and more specifically, table wines. Though a market exists for champagne and sparkling wines, these varieties sell at a much lesser rate than the still wines. In general, slightly sweet wines and the varietals of Sauvignon Blanc and Chenin Blanc are fairly popular and also pair well with typical Indian dishes. Similarly, rose and blush have been projected as good fits for the Indian market; however, the majority of sales have stayed on traditional still red and white wines. In regards to presentation, wine producers have two different demographics in the Indian market upon which to focus: the upper class and the general consumer. While the upper class prefers the classic presentation, i.e. real cork, full bottle size, and dry red and white wines, the growing consumer class in India gravitates towards approachable wine packaging, i.e. screw caps, half bottle sizes, and sweet wines.

BASIS OF SEGMENTATION
Potential Market There has been much debate about the precise number of potential consumers in Indias wine market. Major factors that hinder wine consumption are poverty, age restrictions and specific state alcohol prohibition.

Market Segmentation and Evaluation Population Breakdown It is important to note that the majority of Indias population is rural. Most of Indias poor reside outside of developed areas. Large, densely populated cities; however, account for most of Indias middle and upper classes and therefore for the majority of wine consumption in India.

Age Segmentation The median age in India is about 25 years old, this demonstrates the fact that half of the Indian population is not yet old enough to drink, and one quarter of the population is under 10 years old. In the coming years, 10 percent of the current population comes of legal drinking age, bringing with them new views of wine which could influence them away from hard liquors. The strength of India is in its youth who are familiarizing themselves with the world beyond their borders.

Gender Segmentation Indian women are beginning to prefer wine as a more socially acceptable form of drinking for females. It is seen as more feminine to consume wine as opposed to the hard liquor that men are more traditionally seen consuming. Wine has a softer tone and connotation which is seen as more acceptable to consume in view of the public. However, the wine industry must also consider the male demographic when marketing their products. Men, and not women, typically shop for liquor because restrictions prohibit the sale of alcohol in supermarkets or other convenience locations. Because males purchase the majority of alcohol products, it is prudent to focus on both men and women as the target demographic. Other Demographics Income and Education Income The gross national income (GNI) for India has risen to $800 per capita as recorded in 2006. This number, however, is greatly skewed because of the outliers in both extreme wealth and poverty. Education The education levels in India correlate with estimates for potential consumers. Those 24 million who have attained college level degrees make up the majority of potential wine consumers. The remaining 160 million or so who have finished secondary school complete the bulk of the rising middle class of India.

TARGET MARKET
Major Importers in the Indian Market: There are about 80 importers operating in the Indian wine market. Of these Brindco (New Delhi) and Sonarys (Mumbai) are the biggest. Wine Consumption (Per Capita): The wine consumption per capita stands at 9ml per head. Major Wine Consuming Markets: Indias main wine consuming market lies in the cities of Mumbai, Delhi, Bangalore and the state of Goa. Other cities like Calcutta, Pune and Hyderabad are also catching up. Nearly 2 million people in India consume wine, with about 10% of this figure opting for wine as their preferred choice. Growing urbanization, combined with India's large population, has resulted in numerous cities of a noticeable size, with 27 cities possessing a population of more than one million (USDA, 2008). The most affluent consumer segments in India, clustered in seven cities, account for over 80% of India's most affluent households (USDA, 2008). These cities are Mumbai, Delhi, Chennai, Kolkata, Hyderabad, Ahmedabad and Bangalore, and are also the locations for a large portion of India's emerging middle class (Datamonitor, 2009). Maharashtra is the largest region for wine-consumption in India, with the greatest proportion of national wine sales. The Nashik region in Maharashtra is particularly popular and a growing area for wine tourism. Numerous vineyard and winery tours, as well as wine resorts are present (Euromonitor, 2009). However, Mumbai, the capital city of Maharashtra, has the greatest wine activity in India. Delhi is the second largest region for wine activity, also experiencing significant growth in the wine market. The majority of wine consumption comes from embassies and hotels, as bottled-in-origin (BIO) wines can only be sold to hotels, bars and clubs (Seth Associates). Bangalore represents the fastest growing and third largest wine market in India, consuming approximately 31,000 cases a year, compared with 100,000 cases in Mumbai and 54,000 cases in Delhi. An increasing population of international visitors is also helping to fuel wine market growth in Bangalore (Srivatsa, 2007). The greatest wine consumption is centred in India's main cities. In 2007, four cities accounted for 80% of India's total wine consumption: Mumbai with wine consumption accounting for 39% of the country's total, Delhi (23%), Bangalore (9%), and the tourist-centred Goa (9%) (Seth, 2007). In 2005-2006, only four cities in India accounted for 90% of the sales of BIO wines and 66% of bottled-in-India (BII)/Made-in-India (MII) wines. For BIO wines, these cities are Delhi (in

part because of the large number of embassies), Mumbai, Bangalore, and Goa (Krishna, 2007). (While Goa is a state, it was likely compared to the other major cities due to its small market size and population.)

MAJOR COMPETITORS
Sula Chateau Indage Nilaya wines launched by Diageo India Pernod Zinzi White

4 Ps
Pricing Low pricing and other promotions have been significant factors in fuelling sales. Future growth may be somewhat diminished if rising costs are passed on to consumers. Consumer price inflation has also been placing upward pressure on prices, and is expected to average 6.2% in 2009; a slight decrease from 7.7% in 2008 (AAFC, 2009). Despite these possibilities, the unit price of wine is actually forecast to decrease as competition increases (Euromonitor, 2009). Product Varieties In 2008, the greatest growth occurred in both the still red and white wines. Still light grape wine continues to be the fastest growing type of wine in the Indian market and is expected to remain the growth leader. Volume sales are projected to increase 254.3% and value sales 260.9% from 2008 to 2013. The success of still light grape wine among the Indian marketplace can be partly attributed to the marketing of the product as a drink for regular, every-day consumption; resulting from food pairing promotions combined with an economyprice and easy availability. Still light grape wine is widely accessible in the marketplace and can be found at all price-points at off-trade or on-trade channels. Although sparkling wine is projected to continue growth of around 150%, it has yet to gain significant awareness among consumers, has fewer brands, and is often regarded as a "special occasion" wine. Non-champagne sparkling wines have had success in the market, as a result of the increasing presence of domestic brands that are more economically-priced. Fortified wine and vermouth are predicted to be the slowest growing category, but still with growth of over 100%, ranking close behind sparkling wine. (Euromonitor, 2009). Promotion Wine has been gaining an increasing presence in India's social culture, with considerable growth in wine bars, wine shops and wine tourism. The increasing presence of wine-related organizations will also aid in creating higher visibility of wine within the mass-consumer market, the development of higher quality wines and the integration of wine into consumer

palates and lifestyles (Euromonitor, 2009). With regards to other types of liquor, wine consumption is still low, comprising only 0.14% of total liquor consumption compared to beer which represents 52.6% of consumption and distilled spirits 47.3% (The Hindu Business Line, 2009). However, evolving attitudes regarding the distinctiveness of wine compared to other types of liquor is creating unique perceptions among consumers. Place India's already immense and evolving consumer population presents a number of opportunities for a burgeoning wine market. Although 80% of India's more than 1.1 billion population follows Hinduism, with alcohol strictly forbidden in Orthodox Hindu society, the western culture has begun to influence and alter the perception of alcohol consumption to varying degrees (Johnsen, 2002). These cultural factors have shaped demographic trends, as the average wine consumer in India is typically a young, urban professional who has an international orientation (Guinand and Marti, 2007). Growing consumer demand has helped fuel huge growth in this nascent wine industry in the last few years.

MARKETING ENVIRONMENT & ITS IMPACT ON THE PRODUCT

Demographics Emerging from a population of more than 1.1 billion, India's expanding middle class is one of the fastest growing in the world and predicted to reach 583 million in 2025. This evolution presents a promising consumer market for wine (IFE India, 2007). Combine this with the fact that India's demographically "young" population, ranging from the 20-49 age segment, continues to grow, is resulting in an increasingly large proportion of the population being of the eligible drinking age. From 2005 to 2015, the number of people added to the alcohol drinking age population will be 95 million, providing for a larger consumer market for adult beverages (Datamonitor, 2006 and Krishna, 2007). Along with this, rising disposable income and consumerism in India have aided consumer wine growth in the country (Reuters, 2008). The food and drink market is one of the fastest growing segments of India's retail industry. With the increasing disposable incomes, this bodes well for consumer splurges on food and beverage delicacies, such as wine. As consumer affluence grows and a higher quality of life is sought, more consumer emphasis is expected to be placed on the sensory experience of food and drink, particularly for products such as wine. Consumers are thus expected to be more willing to pay premium prices for quality goods and products (USDA, 2008). Consumption India is one of the fastest growing markets for alcoholic drinks in the world, with a CAGR of more than 9% during 2009-2013, and wine is the fastest growing within the alcoholic drinks segment. However, similarly to the growth of the wine market, part of what makes for this substantial growth is a low per capita consumption rate (IFDE INDIA, 2009). While current wine consumption is relatively low (estimates range from 4.6 ml to 9.0 ml per capita), and there are only approximately 1.5 million wine consumers, this is significant growth from what consumption in India was a decade ago (Reuters, 2008 and Tiwari, 2009). When compared to per capita wine consumption in countries such as France (60-70 litres)

and the U.S. (20-30 litres), the low consumption but also the growth possibilities of the Indian market are further evident (The Hindu Business Line, 2009). India's consumption is also low compared with China's 400 ml per capita consumption. Estimates of the number of wine buyers in the Indian marketplace were 700,000 in 2007, with the possibility of increasing to 20 or 30 million buyers in upcoming years (Guinand and Marti, 2007). In 2008, India ranked 77th worldwide for wine consumption. India is also part of Asia's wine market which is expected to account for a growing share of the world's wine consumption: 4.8% by 2011 (Menon, 2008). Preferences and Perceptions In India, religion plays a large role in consumer eating habits, with wine being no exception. The history of wine in India has had a dichotomous relationship culturally. While it has long been present; used for past religious festivals, it was also considered to be a forbidden, taboo drink for the greater society. However, with wide availability of affordable wines, wine consumption is beginning to spread across the mass-population, leading to new wine consumers in the marketplace (Euromonitor, 2009). Increasing the perception of wine as a separate type of drink from other spirits is also aiding in making it a more socially accepted beverage, particularly for the segment of young professional women looking for something different from the fortified liquors consumed by previous generations (Seth, 2007, and Guinand and Marti, 2007). This separate perception from other spirits such as beer, whiskey and gin, which are thought of as representing the traditional British Empire, has gained wine the status of being a fashionable and modern drink among younger consumers (Guinand and Marti, 2007). While there has been increasing growth in consumption, India is still seen as an untapped' market where the majority of consumers do not consume wine regularly, and thus there is the potential of a growing market. The majority of wine consumption currently remains with corporate executives and international travelers; however consumption is increasing throughout the domestic consumer market (Ceretto, 2009). National versus State Regulations The Constitution of India gives the Central Government the power to collect excise duties on a number of products. However, the liquor industry (specifically, alcohol liquor for human consumption, which includes wine) is regulated on a state-level by the State Governments, with each state maintaining their own separate system for taxation. The states are each responsible for the rules and regulations regarding the manufacturing, possession, transporting, purchase and sale of intoxicating liquor. Thus, it is the state governments that levy excise duties and determine the rates on wine and spirits (Dubey, 2008). As a result, the regulations for intoxicating liquor in India vary throughout the 28 states and seven union territories in the country. Regulatory Environment Generally, the Indian market is becoming increasingly accessible to imports, with food and drink imports rising 25% annually (IFDE India, 2009). However, with regards to wine, the market remains somewhat guarded. Wine in India falls under the category of alcoholic beverages; however, the Food and Safety Standards Act of 2006 also includes alcoholic beverages under the definition of "food". This categorization shows a significant shift in the government's approach to the wine sector, and could help to simplify the industry (Dubey,

2008). This could greatly ease market access for both the domestic industry and foreign wine in the country. Import Policies Currently, imported wines to India face assessment charges and basic customs duties. While assessment charges are only 1% for imported wines, basic customs duties are a significant 150% (Gryphon Brands Inc.). In the past, there have been complaints regarding wine import policies. The European Union formally complained to the World Trade Organization (WTO) regarding taxes and restrictions placed on European wine and spirits by the states Maharashtra, Goa, and Tamil Nadu (Sommelier India, 2009). Complaints to the WTO have also arisen from America. Due to the Government of India's commitment to the WTO, there has been a gradual reduction in wine duties and taxes in the past few years, including a discontinuation of an Additional Customs Duty (ACD). This discontinuation appears to be a positive step for the import market; as the duty had been adding more than 150% to the original customs duty for import. However, with the discontinuation of the ACD, the original/basics customs duty was increased from 100% to 150%, which is the WTO bound rate (Arora, 2008). It was estimated that these changes would result in a 30% decrease in the pricing of inexpensive imported wines, but no noticeable decrease in the pricing for more premium/expensive imported wines (USDA, 2007). Despite such changes, current import duties, taxes, and value added tax (VAT) for wine continue to result in imported wine costing nearly four to six times more than their actual value. However, this cost does represent a decrease from what used to be eight to ten times more than the product value before the reduction in taxes.

Challenges
Variable regulation and infrastructure systems continue to pose significant market access challenges for Australian exporters. These include: high tariffs, an unclear tax system, breach of contracts, incomplete infrastructure and distribution, and state variation.

Local Wine Importers & Distributors In the past, the growth of the import market for wine has been hindered by strict and complex laws limiting the number of importers. In recent years, these laws have evolved and the number of importers has grown from approximately 30 importers several years ago, to approximately 90 importers; the majority of whom are based in either Delhi or Mumbai. Although new importers continue to enter the market, high bonded warehouse costs can prove challenging for smaller importers. In a move to open the Indian market to liquor, Indian wine and spirits importers recently formed an association, currently named the L1F1 Licensees Association (Indian Wine Academy, 2009).