Wine and the retailer mafia

Talking to a new winemaker from Nashik, I realised why wines are still so expensive in Mumbai: the retailer mafia.

It's simple: the liquor ("wine shop"?) retailers of each area in Mumbai have formed an "Association", and all associations are loosely federated to an All-Mumbai Liquor Retail Association.

The Association dictates what a new brand has to give to its members for the privilege of entering their area ; these days, for wines it tends to be a listing fee of two bottles free case sold-in at launch, plus a "compulsory scheme" for the first two months of launching the brand.

The way it works is, both the wholesalers and the retailers demand credit for agreeing to purchase a new brand -- apart from all these charges.

In case the product has not moved off their shelves after a given time period, they will "return" the stocks -- no cost, since they haven't invested in the stocks in the first place. And they've earned a return of over 30 per cent per month on any sales they've actually made.

So, while the Maharashtra state government has removed excise duty on wines produced within the state by wineries set up since 2001 (in an effort to make wines more approachable), a new winery is basically unable to reach its products to consumers at a reasonable price because of the costs incurred in marketing and distribution.

What's the solution? Simple, really: dis-intermediation: cut out the middlemen.

Shri Sharad Pawar had it right: allow wines & beer to be sold by any retail outlet -- this will take away the monopoly power of liquor retailers, who hold vendors to ransom due to their having the sole right to sell these products to the consumer.

Expanding the number of outlets selling wines (and giving the discretion to the producers) will eliminate this monopoly power -- and reduce prices.

I would even go a step further: why cannot producers sell these products directly to the consumers if they want to? After all, trade channels are there to serve the interests of the consumer -- not the trade.

In Maharashtra there is no excise duty on wines (produced in the state) -- so why not eliminate the costs associated with the old supply chain?

The consumption of wines in India is so small because wines are so horribly expensive. The market would expand tenfold in just a few years (and not in the ten years I keep writing about) if halfway decent wines were available at, say, Rs. 200 per bottle.

The only way this will happen is if both the taxes on wines as wells the cost of marketing and distribution of wines are controlled.

I say it again: wine is a low-alcohol product that is farmer-friendly and good for health. Treat wines differently from spirits -- both in taxation and distribution -- so that prices paid by you and me are reduced. This will encourage and grow the adoption and understanding of this category.

India is one of the last great "promise" markets for wine -- given half a chance, this industry would attract investments of over $500 million over the next 20 years.

Provided we do right by the consumer and grow the market sufficiently to make it attractive internationally. And, who knows, twenty years down the line we'll all wonder why this was not done earlier?

We'll drink (another glass of fine wine) to that -- when this becomes affordable!