Can the new Grover Zampa unseat Sula?

STARTING A BUSINESS CONVERSATION conversation on a golf course is in keeping with tradition. But here’s a business association that began with an accident. Some three years ago, on the greens at Mumbai’s Willingdon Sports Club, Raju Panjwani, a Wall Street veteran who had set up investment advisory firm Omega Capital, accidentally drove a golf ball into Kapil Grover’s leg. Several months later, when the two met again, Grover, managing director of India’s second-oldest winery, Grover Vineyards, joked that his leg still hurt. Jokes aside, the golf ball introduction worked in Grover’s favour. Grover Vineyards was in deep financial trouble, and Panjwani helped structure a merger with Nashik-based winery Vallée de Vin (VDV) in 2012. The merged entity, Grover Zampa Vineyards, could see the return of Kapil Grover’s glory days as one of India’s top vintners.

For close to 25 years, Grover Vineyards was a strong second in the Indian market. Its flagship shiraz-cabernet blend La Réserve won the best ‘New World Wine’ from British magazine Decanter in 2005. The same year, British wine critic Jancis Robinson chose GV’s rosé as one of the five best rosés in the world. So, when cash-flow difficulties led to market leader Chateau Indage losing its position in 2008, Grover should have taken top spot. Except that it had troubles of its own, leaving the field to 10-year-old Sula, a winery set up by Rajeev Samant and Californian winemaker Kerry Damskey in 1999 in Nashik.

The problem at Grover Vineyards was scientific: A mistake at the wine-making stage led to calcium sedimentation after bottling. The wine was unpalatable, and Grover Vineyards was forced to recall thousands of bottles. Between June 2008 and January 2009, not one bottle was shipped, with losses amounting to Rs 20 crore over the next three years. In 2009, Grover Vineyards lost its No. 2 spot to UB Spirits.

It’s cold comfort for Grover, but his winery was not the only one in trouble. The big picture for wines in India has been discouraging after 2008. With poor demand after the recession and a production glut in Maharashtra, close to 25 million litres of wine are unsold, according to market research firm Euromonitor. Wine is mainly produced in Maharashtra and Karnataka, but more than half the Maharashtrian wineries have closed because of poor demand. According to a 2012 report by the U.S. Department of Agriculture’s Global Agriculture Information Network, there are 72 wineries in India, more than a third of which produce below capacity or have stopped production. A few have discontinued their own brands, and are grape suppliers for the top brands.

EVEN BEFORE THE wine-making went wrong, Grover Vineyards had been facing trouble. In 2006, the company lost its vice president Abhay Kewadkar to UB Group’s Four Seasons wine project. The next year, Grover’s father went into semi-retirement due to ill health. At this point, Grover decided to outsource sales and distribution to Brindco, India’s largest alcoholic beverages importer. It was a gamble that no big wine producer had taken. Brindco had a 20% stake in Grover Vineyards, and Grover figured this would propel the partnership. Initial sales were promising but went tepid, ending in the quality crisis of 2008.

Through all this, Grover’s own reputation as a vintner has never been in question. As Panjwani says, all Grover Vineyards needed was “growth capital and the right partner”. And he gave Grover access to both. Propelled by Panjwani, the merger with VDV was announced after Reliance Capital, Singapore-based investor Ravi Viswanathan, and two individual investors from Dubai pumped in Rs 50 crore, half of which was used to buy out old investors Brindco, IT entrepreneur Jerry Rao, and LVMH (Moët Hennessy Louis Vuitton). Grover now holds 30% of Grover Zampa, while the VDV promoters hold 20% collectively. The rest is divided among the outside investors.

The merger gives Grover fresh capital and access to VDV’s 3.5 lakh litre capacity in Maharashtra, a state that is difficult for non-Maharashtrian wineries to enter because of a discriminatory tax structure. More important, VDV has close to 100 acres under cultivation, and its portfolio includes all the main wine varieties, except port and dessert wines. Panjwani says Grover Zampa could be a strong contender for the top spot in the market, or at the least, a close second. According to a 2011 report by Euromonitor, Sula had 25% of the market, Four Seasons 13%, and Grover Vineyards 11%. Once Grover Zampa was created, its market share was greater than that of Grover Vineyards, although the report doesn’t say if it has overtaken Four Seasons.

One of Grover Zampa’s strengths is the varied experience of the people heading it. Kapil Grover is managing director and one of the most respected vintners in the country. Neeraj Deorah, one of the founders of VDV and a wine expert, heads production. Another VDV founder, Ravi Jain, comes with decades of experience in the beer and spirits industry. He’s Grover Zampa’s CEO. Jain and the third VDV founder Deepak Roy, have known Grover for years and were keen on some sort of joint venture with him ever since they set up VDV. Despite a close friendship with the two, Grover was reluctant, saying they didn’t talk “the language of wine”.

Jain is eager to dispel the notion that he’s only a beer and spirits man despite 38 years in that industry, building some of the UB Group’s strongest brands, including McDowell’s. “Jain was known as jadoo [magic] because he could do anything,” says Alok Chandra, founder-CEO of Bangalore-based wine consultancy Gryphon Brands and colleague of Jain at the UB Group. “He worked harder and smarter than anybody else.” It was a similar story with beer, where Jain ran a joint venture between himself and Vijay Mallya called Millennium AlcoBev. European beermaker Scottish & Newcastle took a stake in 2002. Jain sold his near-20% stake in 2006, then joined his old colleague Roy in 2009 to promote VDV.

But wines and spirits are worlds apart. Sridhar Pongur, joint MD and COO, John Distilleries, producer of Original Choice whisky and Big Banyan wines, says, “Ravi and Deepak are wizards in spirits, but not in wines. We need to wait and see what the merger produces.” Also, India has an estimated 200 million regular drinkers of spirits and beer, consuming an equivalent number of cases each year. In comparison, wine consumption has only just begun, with the number of wine drinkers estimated at 2 million, consuming about 1.78 million cases.

Unlike spirits, local wine consumers experiment with brands. Women form a large percentage of wine drinkers. “Although women are about 22% of our members, we suspect that more drink at home using their husband’s membership,” says Myles Mayall, head of wines, Wine Society of India, which raises wine awareness through events and sells wine to its members.

All this means that marketing wine is totally different from marketing beer or whisky, and Grover Zampa is learning from Sula’s marketing success. Apart from offering wine at almost every price point, Sula opens its winery for visits and wine tastings. Sulafest, the annual art and music festival at the vineyard in February, had around 8,000 visitors this year. Vinoteca by Sula, a wine bar recently launched in Mumbai, is already very popular. “It is important to put yourself in front of customers as Sula has done,” says Mayall. Today, Grover concedes that Grover Vineyards fell victim to Sula’s marketing blitzkrieg. “We handed the market on a platter to Sula.”

NOW GROVER ZAMPA is pushing the boundaries to take back that market from Sula. Money is not the key issue today; Panjwani says he has spoken to over 30 strategic investors who are keen on India. “China may be ahead now, but India is a long-term destination and definitely among the top three investment destinations for wine,” he adds.

The Grover Zampa team knows that it needs to fix distribution and brand issues if the company is to have a fighting chance. Grover focusses on quality compliance, while Jain is rebuilding the brand and growing distribution. If the segment is to reach its tipping point, quality must improve, while prices stay below Rs 300. “The low-price range is expanding, and Sula’s low-end wines sell more than all of Grover,” says Subhash Arora, president, Delhi Wine Club.

To increase volumes, Grover Zampa will have to do the same, and target smaller towns and cities, which are incredibly price sensitive. More than 80% of wine consumed in India is in Bangalore, Mumbai, Delhi, and Chandigarh, but the market is expected to expand to growing cities. While Grover Zampa does have brands around Rs 300 such as Raya and Santé, these are not available countrywide. Jain plans to boost distribution and introduce a port priced between Rs 120 and Rs 200. “We hope that the low-end will contribute 25% of sales in the next two to three years,” he says.

JAIN HAS A three-pronged plan to break even by FY15. First, he plans to invest Rs 10 crore in about 120 acres of land to be developed as vineyards. This is in addition to the 400 acres that the company already owns or leases for growing grapes. Direct control over vineyards will allow Grover Zampa to maintain high quality as they grow volumes. Additional land will be acquired in the near future to be sold as plots to high net worth individuals interested in developing private wine labels. “If we get the right piece of land, we will do wine estates: People will own the vineyards and we will look after their grapes and help them launch their private labels,” says Jain. Grover Zampa will manufacture the wine and focus on quality, marketing, and branding the collection.

Jain also wants to beat, or at least match, Sula at its own game: Grover Zampa will open a restaurant at the Bangalore winery, built by Grover’s architect brother Karan Grover, by end-2013. The company will host tastings, launch wine cafés in the metros, sell wine through speciality wine stores, and promote wine tourism through a spa in Nashik. He’s also planning to create an imported wines programme, similar to the ‘Sula Selections’. Jain plans for exports to contribute 20% of Grover Zampa’s revenues.
He wants to achieve 60% to 80% growth in FY13, though such speed is risky in a market that has yet to shake free of the recession with a projected CAGR of 6.2% till 2016. Also, after Chateau Indage offered heavy discounts on inventory—one case free for every two sold—retailers expect bigger margins for every case sold. “Seventy per cent of our sales budget goes into discounts and schemes,” says Grover. Grover Vineyards used to spend Rs 50 per bottle in retailer’s incentives; now Grover Zampa spends close to Rs 120.

For a fresh infusion of marketing and energy, Jain has hired Sumedh Singh Mandla, the former CEO of Aspri Spirits’ wine division. For now, Mandla will function as COO and be groomed for the CEO position. “We are looking to Sumedh to be innovative and close the distance between Sula to mount a serious challenge for the No. 1 position,” says Jain.

The next two years are make-or-break for Grover Zampa. Sula isn’t going anywhere, and the latest numbers are not out yet on whether Grover Zampa has overtaken UB Spirits. Younger players are eyeing its market share. Four Seasons’s Kewadkar has already sounded the war cry: “Whether they do 90,000 cases or 100,000-plus cases, we will be No. 2 in 2012-13.” Jain will need to uncork some of his trademark magic if he is to catch up with Sula, fend off Four Seasons, and keep newcomers at bay.