There’s a storm brewing in the wineglasses of India’s jet-setting drinking hubs. And it’s the hotel industry which is facing flak from the government over taking advantage of duty-free benefits while continuing to price wines at unreasonably high ends. However, in a recent meeting between hoteliers and DGFT, the government has threatened that if the industry continues to charge such rates, they will lose zero import duty SFIS benefit. A report.

The government is looking for action on a commitment by the industry to roll down prices and there’s talk of a threat to withdraw the duty-free benefits. All this does not augur well-especially in light of the Commonwealth Games coming up in two years from now.

The wine industry itself feels the move will boost demand. The Federation of Hotel and Restaurant Associations of India (FHRAI) has apparently given a `strong suggestion’ to hotels and restaurants to cap the gross margins on wines to 250% of the cost-and liquor margins to four times the total costs. If this line is towed, it could bring down prices to 30-40%.

Wine price spillover
The issue has gone right up to the Commerce Ministry, with the Director General of Foreign Trade asking hotels to present a reduced price list. Apparently, the Taj and ITC Welcomgroup have already fallen into line with wine prices slashed by up to 35%. Tarapaca Chardonnay 2005 was available at Rs 1000 and St. Emilion Philippe Rothschild’03 at Rs 2,500.

The delaying tactics by other establishments has been due to a careful watch on excise policies, which will ultimately affect the margins. They are caught, so to speak, between the economics of the central and state governments-and their own motivations.

The duty-free import of wines was first ushered in after the hotel industry convinced the government that this would boost tourism. But now the government is seeing red over the big killing being made on account of these benefits which it says are not being passed onto the consumer. But that’s just one half of the picture and the FHRAI makes it clear that the perception of hotels ‘cashing in’ on benefits unduly is misrepresented. There is, however reticence to presently discuss the issue openly, since the matter is being thrashed out by all parties concerned-including the Hotels Association of India.

Sources say that what’s really underlying the sentiments is that the pricing formula is the prerogative of the hotel lobby-and they don’t want to be dictated to beyond a point. Firstly, the hotels say they are passing on the duty-free benefit to the consumer and the assumption that this is not being done is incorrect. Sources in Delhi say the excise duties, local taxes, cost of licenses (at Rs 5 lakhs), overheads of freebies thrown in, internal economics etc add up to the costs in any case. However, hotels opine that if there is a case for reduction-they are willing to reduce - but maintain that the reduction can’t be dictated.

Lobbying for profit?
However, some experts in the field have a different take on the issue. In fact, they mince no word in saying that there is a lobby within the hotel industry which has been taking advantage of the benefits in order ‘to line their own pockets’.

Of the total wine imports about 85 per cent is consumed by hotels and about 15 per cent by niche restaurants. After 2002 when the quota regime was in force, the industry began making noises with the government that they be allowed to avail of duty-free benefits on imported wines and liquor. The plea that time was based on making the products available at reasonable prices and in 2003 based on these representations, the government agreed to give duty free licenses. These licenses were granted on a duty-free entitlement provision to those establishments which could show significant revenues of foreign exchange. No demand for a ceiling on prices was at that time made. Some time down the line, the industry got back to the government saying they be allowed to enjoy the credit through these benefits in order to recover from the post 9/11 syndrome which had hit the hospitality sector hard.

However, years onward, the prices remained unchecked despite the recovery made by the industry. It is this which has given rise to the contention that the consumer is not getting what should be an assured benefit in the end cost. In fact, such are the variations, that the cost of a bottle of champagne can vary as much as three-fold within Delhi itself.

A taxing complex Reports suggest that further confounding matters in Delhi, the excise department may ask licensees to declare MRP on the wines. And that seems to be the crux of the issue. Stringent laws and duties and fees such as excise duty, licence fee, sales tax, brand/label registration fee, import/export fee, vend fee, gallonage fee, turnover tax etc. are only complicating the playing field overall.

Since alcoholic beverages are a State subject, differing policies and varying tax structures are adding to the lack of clarity. In India, the annual consumption of grape-based wine was estimated at 66,000 hectolitres in 2006, equivalent to 8 million bottles. It is expected to triple again by 2011. The rapid growth trend of around 30% per year corresponds to the strong growth observed in the economy and  tourism sector. The biggest wine consumption of up to 80% is confined to major cities like Mumbai, Delhi, Bangalore and the tourist destination of Goa. The rest of India has only 20% consumption, despite the growing awareness of the health benefits of wine. There are at least 15 main importers who sell about 450 imported wine labels in India.

Thirst for success
Upper crust Indians are taking to wine drinking like never before – with brands like Turning Leaf, Cabernet Sauvignon, Sangre de Toro and Rosemount Estate Cabernet Sauvignon doing the rounds.

Ritu Dalmia, owner of Delhi-based Italian restaurant Diva, has gone on record to say: “Since we opened, wine sales have grown three times. Earlier, people used to ask for red or white wine. Now customers ask for specific labels. We are currently averaging sales of 320 bottles a month”.

And wine tasting has become a big affair-with 50 wine tasting sessions held in Delhi, Mumbai and Bangalore over a year. And yet, India’s consumption is comparatively still quite low. While it has the second largest population in the world and will soon catch up with China in terms of demographic density, India is only the 77th greatest consumer of wine in the world, despite improved growth in consumption over the past five years. Almost a quarter of still light wines drunk are imported. Having supplied 41.7% of all wines imported into India in 2006, France remains the leading supplier of still light wines to the sub-continent. Australia and the US are the other main suppliers. With such potential and with an industry still fledgling in its days, it would not augur well for the great imported wine brands to get lost in the foot-stomping presently going on over pricing between the government and five-star hotels.

Amitabh Joshi

Courtesy:  http://www.ambrosiaindia.com