How Sula got it right

How Sula got it right

A market leader in the Indian wine industry, Sula Vineyards’ rise to the top has been impressive. And behind the brand’s success is its founder and CEO, Rajeev Samant, who has been instrumental in setting a vision for his company. Sula was the first to establish a winery at Nasik and today, the region has up to 35 wineries. Even as Samant strives to enhance the taste of his indigenous wines, he is thinking ahead in terms of wine tourism and setting up wine bars. It is this lateral thinking that has ensured his brand has captured the attention of India

Part city, part countryside. That’s the secret formula to a perfect life, according to Rajeev Samant. As founder and CEO of Sula Vineyards (Sula), Samant enjoys the luxury of unwinding at a vineyard that showcases the country’s first Sauvignon Blanc and Chenin Blanc grape varieties, planted in 1999. And it’s hard not to agree to Samant’s point of view as you battle past the traffic and waterlogged roads of Mumbai’s monsoon to the pristine hill tops en route to Nasik, the town of Sula.

From having sold its first wine bottle in 2000, Sula has leaped in these 12 years to become a prominent player in the winemakers’ scenario. Today, Sula’s brands enjoy better positioning when compared to more established players and Samant states that Sula holds close to 65 per cent of the available market share in India. According to Rabobank India, a leading food and agribusiness bank, Sula presently has the largest market share while other key players in the wine industry are Grover Vineyards, United Spirits’ wine division and Indage Vintners.

Currently, the company has 1,800 acres in vineyards (own and contract farms) spread across the states of Maharashtra and Karnataka, and is looking to touch sales of 7.5 million bottles (about 6,50,000 – 7,00,000 cases with each case holding 12 bottles or nine litres of wine) across its own 25-odd brands, this fiscal. Its red wine Cabernet Shiraz and white wines Chenin Blanc and Sauvignon Blanc are among its best selling brands. For FY 2013, the company is targeting revenues of Rs. 200 crore up from Rs. 140 crore in FY 2012. So, what has been the push behind Sula’s quick rise to prominence? The brand has taken its sheen, in part, from its founder who is often seen as cool, sophisticated, well networked and fairly young as the 40-something Samant. “Rajeev has understood the market well and has got his distribution right. Two of his closest competitors, Grover Vineyards and Four Seasons by UB Group together have sold fewer number of cases than Sula last year,” shares Subhash Arora, well-known wine writer, founder of the Indian Wine Academy and president of the Delhi Wine Club. Arora believes Samant has been Sula’s perfect brand ambassador.

Samant has also been astute in making some critical business decisions that helped the company see through the recessionary phase of 2008-09. In this period, the wine industry was amongst the first to be impacted. Sales of Sula’s premium brands had hit an all time low and with wines stuck in its wineries, the company was unable to service debt. It was then that Samant decided to introduce affordable wines under the brand names of Samara and Port Wine 1000 at Rs. 200 per bottle. What was meant to be a temporary business solution has now assumed significance in Sula’s portfolio as the brands contribute to 30 per cent of the company’s volumes and 15 per cent to 20 per cent of turnover value. “While it is good to be a premium winery, the Indian market has not completely developed to survive only on this model. Hence, our business model evolved to what most global wineries do now; that is to have both premium and value brands. It is necessary to be active in all ends of the market,” says Samant.


“While it is good to be a premium winery, the Indian market has not completely developed to survive only on this model. Hence, our business model evolved to what most global wineries do now; that is to have both premium and value brands. It is necessary to be active in all ends of the market.”


In the frontline

In Nasik, Samant prefers to be informal, sleeves rolled up and in floaters, spending his mornings and evenings at the vineyards. When I question him on Sula staying ahead of its competition that is struggling with issues of visibility or bankruptcy, Samant’s answer presents a contributing factor to its success. “I have always been focussed. Wine is a very personal business – you need to interact with your growers and spend time at the winery, not glued to your office,” he says.

That same focus saw Samant spending three months at Kerry Damskey’s winery in California prior to starting operations in India. Damskey, who runs a consultation business called Terroirs Inc., is Samant’s business partner, friend and the master winemaker at Sula. At the time, Samant admits he was more of a gin and beer drinker and his knowledge on wines was limited. Though his then girlfriend introduced him to the Napa Valley scene, it was from Damskey that he learnt the ropes. “It was exciting to be on the frontline and work like a cellar worker, understanding the nuances. It gave me a good perspective of how things work,” shares Samant.

Currently, Sula has two main wineries in Nasik and Dindori, Maharashtra while it has taken over three other custom crush facilities (where grapes can be vinified) in Nasik and one in Karnataka. So far, Sula has gone through three private equity (P.E) rounds, where the funds have been used for building new winery capacity. The wineries have a total capacity of seven to eight million litres with 100 per cent capacity utilisation, but Samant is acutely aware that he needs to add a million litres a year to keep up with the market growth. He realises that owning a winery and a vineyard, and making branded wines and marketing them is not the only model to follow to remain sustainable in the long run. “We took over smaller wineries that were not doing well, which is a win-win situation for both the parties involved rather than focusing only on investing in building more wineries as they are very capital intensive. If we had continued expanding in an organic way, then we would have gotten stuck during a downturn,” he says. Samant believes the industry has matured enough to experiment with different working models. Using others’ facilities, blending of wines from different wineries and subcontracting the production of lower priced wines to wineries that could not build their own brands are some of the ways. This was not conceivable when Samant set up production in 1999 as there was no discernible wine industry then, save for one company in Pune and another in Bengaluru. A winery licence had not been given out for 15 years by the Maharashtra government when he procured it for Sula. Nasik now has about 35 wineries. It isn’t surprising considering that Nasik, recognised as a region where farmers grew table grapes, is now known as India’s wine capital making its state the biggest producer of wine in India.

The initial struggle

While Samant’s business acumen is propelling Sula’s growth in newer territories, there was a time when he was a satisfied professional. A full-paid scholarship to study economics and engineering management from Stanford University and a comfortable job at Oracle saw him leading a privileged life but he was keen on making a calling of his own. Even then, neither grapes nor wine were on top of his mind when he got back to India. He considered his father’s business of stevedoring instead. He then came across his family’s 30-acre plot in Nasik during a family wedding. In 1994, the area was virtually deserted with no houses, electricity or phone lines and just grasslands all around. Organic mangoes were Samant’s initial idea and some of the trees he planted still stand. But it was not long before he realised the region was ripe for growing grapes. “I collected the necessary soil and climate data, and headed to the University of California, Davis to consult with the professors. They were sceptical but intrigued and suggested the type of varieties I could plant,” says Samant.

It was around this time that Samant met Damskey, who was advising a number of smaller high-end wineries. Though Samant could not afford his fees, Damskey came onboard as a partner in 1997 and soon, the duo laid out the framework to build Nashik Vintners Pvt. Ltd. (parent company of Sula). He then raised an amount of Rs. 4 crore to Rs. 5 crore from Saraswat Cooperative Bank, family and friends. The biggest challenge, however, was to obtain an excise licence and that took close to two years. It took three signatures of successive excise ministers and change of governments before he chanced upon an enlightened bureaucrat, whom he convinced about the benefits of the agro industry and rural employment. Meanwhile, interim permissions to setup a winery ensured that work progressed. The first grapes to be planted were French Sauvignon Blanc and Californian Chenin Blanc.

In the first three years, Sula had 15 to 20 contract farmers on its roll. “We had to first plant and show to them that these varieties can grow here and also yield a good price. Once they came onboard, they were very supportive.” The company now works with 300 contract farmers in Maharashtra and Karnataka with whom Sula engages constantly through seminars and conferences, and as Samant takes pride in the fact that there have been no disputes thus far. As the farmers came onboard and the winery was being built in 1998, Sula harvested its first grapes and crushed them the next year. “I still remember tasting the first raw wine; it was yet to be filtered, but tasted fabulous. It gave us a lot of hope and courage. Even our investors were thrilled,” shares Samant. But the excessive duties that year made it impossible to make any profit. The tax alone for each bottle went up to Rs. 100 – Rs. 125. In the initial six months, only 600 cases were sold. In 2000 – 01, Sula took that number to 4,000 cases. The company also had to head back to its investors for a second round of financing of Rs. 2 crore as Samant did not anticipate the rising cost of inventory holding, working capital and marketing expenses. And that was the only year that Sula did not make a profit. The turning point came when the Maharashtra government decided to support the local wine industry by levying zero excise duty on grapes grown and sold locally. Sula’s finances changed overnight and there was no turning back.


“We are proudly Indian and while others claim to be French in nature, we were clear we wanted Sula to stand out as wine that took pride in being Indian. We were the first ones to put the region on the bottle labels and use an Indian logo – the sun signifying wine from warmer regions, and it clicked. I also think it was the right time when Indians were expressing their affinity for all things Indian.”


Initially, it was a struggle to find consumers for Sula wines. The presence of many cheap French wines and Sula’s own pricing strategy meant that very few were willing to experiment. Samant decided to price his wines at Rs. 450 per bottle, which was considered fairly steep in 2000 but he was convinced about the quality of his wines. “People would question me on my pricing strategy. I simply told them, ‘Taste it and compare it to the cheaper wines and you will realise it costs more to produce our wines’,” says Samant. But to really break past the mindset of Indian wine drinkers, Samant had timely help from Jamshed Lam, then head of purchase of food and beverage of the Taj Group. Though sceptical at first, Lam agreed to ‘audition’ the wines before a select group of wine connoisseurs at a dinner party – a night Samant refers to as the longest night of his life. Sula passed with flying colours and was included on Taj Mumbai’s wine list. That set the ball rolling. Though Samant was looking after sales and marketing by himself and Sula was confined to Maharashtra, by its second year it was available in Goa as well and then accelerated fairly quickly to other states.

Growing with the market

Samant refers to the first three years of Sula as its nascent phase. Pretty much then on, the company has been able to take confident strides, partly thanks to the strong distribution network it has set up. It has 80 distribution points across the country and 170 of its own sales executives constantly pushing the brand. According to Samant, the early start was crucial in building a significant distribution network, which is key in an alcoholic beverage market. “About 95 per cent of Indian alcoholic beverages, apart from a few exceptions, are consumed by the middle class and not necessarily by the upper classes, which prefer foreign brands. I believe we got it right with a unique and a sophisticated Indian wine that appealed to wealthy Indians as well. And once we were placed in hotels like the Taj Group and popular restaurants like Indigo in Mumbai, the distributors were also keen on pushing a brand that would allow them entry into such places,” says Samant.

This strong network also prompted Samant to import foreign wines and push them through Sula’s distribution channels. Early on, when Sula was making white wines and sparkling wines, it found making a good red wine quite difficult. Samant and Damskey had the idea of bringing in a good, cheap Chilean wine, available in bulk. In 2002, they launched Sartori – a Chilean Merlot that was successful. Three years later, once Samant was confident about a strong sales and distribution team, he decided to import more wines and launched Sula Selections. Under this umbrella, Sula now has a portfolio of about 30 wine brands such as Hardys and Remy Cointreau from countries like Australia, France, Italy and Argentina, selling half a million bottles.

Though only five per cent of Sula’s own wine brands are exported, the company has slowly been gaining an international presence. While present in 15 countries, Samant is not expecting overseas markets to contribute much to revenues since they are very competitive. And it is just as hard to make the constant trips abroad to be seen in the right circles, at the right events and venues. “It is tough to turn profitable overseas but it is very important to be seen as a global brand. When Indians travel abroad and see Sula on a wine list, it gives them a sense of validation,” says Samant. He is happy that his wines have been well received and appreciated abroad. “People first saw it as something niche but now they consider it as good wine from a different region,” he adds.

Indian at heart

One of Sula’s open secrets has been its clever approach to marketing. At the core of any of its marketing exercises is the pride in being known as an Indian wine. “We are proudly Indian and while others claim to be French in nature, we were clear we wanted Sula to stand out as wine that took pride in being Indian. We were the first ones to put the region on the bottle labels and use an Indian logo – the sun signifying wine from warmer regions, and it clicked. I also think it was the right time when Indians were expressing their affinity for all things Indian,” says Samant. Even the name Sula came from home as it is short for his mother’s name, Sulabha.

Samant also built a good buzz around Sula. During the dotcom boom in 2000, Samant was keen to associate Sula with that euphoria. So, he arranged for a monthly Sula e-Tuesday club that got professionals, investors, bankers and media tied to the software industry to congregate at a club in Mumbai. His Stanford education and network ensured that the guest list comprised all the right people. Everyone in attendance had a chance to taste Sula’s wines and the word spread about the ‘cool’ new wine. As the event saw fantastic response, big names such as Merrill Lynch and Yahoo turned sponsors. The concept ended with the dotcom lull but as Samant says, the work was done.

Another regular feature by Sula has been its tasting sessions. It gets new groups together in hotels or restaurants and serves them its wines, a practice that is useful when new wines are being launched. Initially, Samant relied on his network to arrange such tastings but he has now tied up with Crazeal (erstwhile Groupon India) that signs up people for these. This year, Sula plans to do 1,600 tastings in various cities with 10 trained sommeliers who guide the tastings.

Wine tourism is another concept that Samant thinks will grow in India in the coming years. Sula’s 2,000 sq.ft. tasting room at the winery is expected to get 1,60,000 visitors this year. “The rest of the world is doing it and it was in the offing in India. When I visited a tasting room in Napa Valley, I wanted to build one for Sula too,” shares Samant. In 2005, he turned that dream to reality with the help of architects Andy Roth and Laurel Roth. The other touch points for Sula have been its quaint vineyard resort, Beyond and of course, its very own SulaFest – an annual two-day music, wine and food festival in its fifth year running that attracted 8,000 visitors this year. All these efforts stem from Samant’s belief that a quality product needs to be branded and more importantly, marketed smartly.

Raise your glass

According to Nitin Kalani, vice president of food and agribusiness research and advisory, Rabobank, wine in India is enjoyed only by a small population. “The Indian wine industry is at a nascent stage and mass consumers are yet to develop a taste for it. It may take several years before wine gets popular in India. But it is expected to grow substantially in the range of 15 per cent – 20 per cent in the near term as more and more consumers take to it and given that, at present, the industry has a low volume base,” says Kalani. But winemakers such as Samant see a lot of potential in the region when compared to mature markets. Samant believes India will be the fastest growing wine market for the next two decades. While wine consumption is reducing in most European markets, India’s wine industry is yet to fully mature. India’s per capita consumption of wine is miniscule at 12ml – 15ml while China is at 800ml and U.S. and U.K. stand at 15 litres. India’s total sale of wine has been 15 million bottles, which is small compared to other spirits and beer. “I don’t see any reason why India cannot reach 100ml in the coming decade which is nearly 10 times the market size now. Besides urbanisation, the main driver for this has been the quantum shift of women seen enjoying alcohol in just one generation. They will be a huge demographic in the future. And wines are healthy too,” explains Samant.

However, with every opportunity that comes knocking, a challenge is not far behind. For Samant and Sula, one of the biggest challenges to surmount is the rising prices of grapes and farming them, which constitute a significant percentage of its expenditure. For this, he openly criticises the government’s NREGS (National Rural Employment Guarantee Scheme) plan. “Though it was a good concept, it was deeply flawed in execution. It has ended up increasing farm labour cost and reducing labour availability making it unviable for growers. We have to increase our prices a minimum of 10 per cent – 15 per cent every year else farmers refuse to plant the crops,” shares Samant. Climate irregularities are another cause for worry. For instance, Sula’s harvest in 2010 – 11 was 50 per cent less than the usual but the 2009 recession ensured that the reduced production was not a major cause for worry. Now, more sophisticated yield prediction and management, and diversifying its supply away from Nasik to southern Maharashtra and Karnataka will insulate it to an extent.

But what binds companies like Sula are the arcane state regulations and taxation on interstate wine movement. According to Kalani, regulatory or political hurdles and taxation uncertainties could be one of the biggest risks against the growth of the wine industry. Taxation on interstate movement of alcohol is also a dampener. “The compounding effect of multiple layers of taxation is an important reason for such a poor per capita consumption level in India. The ongoing talks on cutting customs duties on wine imported into India as a part of Free Trade Agreement with the European Union is a key thing to watch. A reduction in duty is expected to help many international firms in importing their popular wine brands, which is positive from the consumers’ point of view,” adds Kalani.

Samant refuses to be bogged down by these challenges and is confident that he can sustain Sula’s double digit growth in the coming decade. He finds the market growing so fast that he does not set targets beyond a year. As the leading player, Sula is seeing 35 per cent sales growth annually (except during the recession), including in its first quarter this year. Samant, whose family group owns 50 per cent of Sula while the balance is held by the three P.E investors, does not plan to raise more funds at present as further capital expenditure would be funded with internal accruals and bank debt. And he is not looking to increase his portfolio any time soon but only improve on the quality of wine every year. However, he is branching out into other avenues that could take the company forward. In April this year, Samant launched Vinoteca, a wine bar to showcase affordable wines, in Mumbai. This is again to enhance Sula’s brand experience, much like the SulaFest. It is now easier and cheaper to get a wine bar licence than a complete alcohol bar licence. The wine bar, of which Samant hopes to open more across the country, will also ensure that newer wines get promoted. “Winemakers are often at the mercy of retailers, who push wines with better margins in their restaurants and not necessarily the best wine,” he says.

In the near future, Samant hopes for Sula to be known as one of Asia’s greatest wine producers. “I would like to see double the size of Sula now and take acreage up to 3,000 acres. We would also like to open another facility in Karnataka. I want to make Sula sustainable and as close to organic as possible. It is the way to go forward,” he says. For a guy who believes he has been there at the right time and at the right place with the right connections, Samant has understood the curious blend of art and science that goes into winemaking and is unwilling to compromise on either.


The Many Faces Of Rajeev Samant

Before Rajeev Samant delved into wine business, he backpacked around the world to experience different cultures. He visited countries such as Thailand and Mexico but it was India that he really explored – from Himalayas to the regions down south, he saw the other side of India by living in guest houses and travelling on state transport buses. Even today, Samant is still quite stricken by wanderlust. He loves Europe and the U.S. during summers and Goa in winters where he has another abode. As a certified diver, he frequents Andaman and Lakshadweep, Maldives and Indonesia. But while he is in Mumbai, Samant is very particular about his workouts at the gym, yoga or a quick swim. And he’s equally particular about his 20-minute power nap in the afternoon that helps him recharge.

Music is another passion of Samant’s, having learnt to play the piano as a child. The music at Sula’s tasting room, Beyond and Vinoteca are compiled from his favourites like classical, deep house and rock. He is not a movie buff but likes to catch shows such as Mad Men and Game of Thrones. Sponsoring cultural events through Sula is another favourite of his and Samant can be spotted at the annual Jaipur Literature Festival. While in Nasik, he likes to grow the food he eats. From goat cheese and milk to beehives and fresh vegetables, he is particular about organic food. Balancing the buzz of the city with the quiet of the countryside is what he considers a luxury.


Executive Summary

From having sold its first wine bottle in 2000, Sula Vineyards has leapt in these 12 years to become a prominent player in the winemakers’ scenario. According to Rajeev Samant, the company holds an enviable 65 per cent market share. With 1,800 acres of vineyards (own and contract farms) spread out in Maharashtra and Karnataka, Sula is looking to sell 7.5 million bottles of its 25-odd wine brands this year. Samant is bullish about the market scenario and is expecting to see continued double digit growth in the coming decade. Having gotten the market pulse right so far, in the near future, Samant hopes to be known as one of Asia’s greatest wine producers.

Realising there is substantial growth in the lower priced wine segment, Samant came out with affordable wines during the 2008 – 09 recession that now constitutes up to 20 per cent of Sula’s turnover.

Sula has taken over four custom crush facilities in Maharashtra and Karnataka besides its two main wineries. This inorganic expansion ensures that it does not get weighed down during a slump.

Proud of its Indian heritage, Sula wines names the region on its bottles and uses an Indian logo – the sun signifying wine from warmer regions. Samant has also built a good buzz around Sula through fresh marketing techniques such as e-Tuesday Club for the dotcom industry and promoting wine tourism through its tasting room, vineyard resort and SulaFest.

With 80 distribution points across the country and 170 of its own sales executives constantly pushing the brand, Sula’s efficient distribution has held the key. 


Kerry Damskey On Indian Wines

Kerry Damskey has been associated with Nasik much before Rajeev Samant came along, importing and growing the first premium wine grapes in India. “When I met Rajeev, I was convinced that he had the vision and character to make a difference, and lead what has become the first premium winery and vineyards in a continent that really had not discovered wine,” says Damskey. As the master winemaker at Sula, Damskey is central to its quality wines and is training others in the process, including Ajoy R. Shaw, the chief winemaker at Sula. Damskey has been exposed to wine and the emerging wine industry in California since 1976. He pursued his passion at the University of California – Davis with a degree in fermentation sciences. Considered one of Sonoma County’s best winemakers, he has 35 harvests under his belt as a California winemaker and in 1998, started Terroirs Inc., through which he consults for wineries in California, Costa Rica, Israel and Canada.

Some of Damskey’s favourite Sula wines include the Rasa, Dindori Shiraz, Chenin Blanc, Sauvignon Blanc and Riesling. “Our first vintage of Chenin Blanc and Sauvignon Blanc were evidence enough that great wines can and would come from India. Wine growing in India is quite different from other wine growing regions of the world. The vines never go dormant. We grow them in the Indian winter, which simulates summer growing conditions (to an extent) in the wine growing regions of the world,” he shares. Though similar to their counterparts in other parts of the world, Indian wines have their own taste of terroir – that being how soil, climate and variety are matched.

Damskey visits Nasik three times a year to ensure production is on track. He foresees a huge potential for the Indian wine industry. “I love my role as one of the founders of the Indian wine industry.  I take it very seriously. We constantly make improvements to our viticulture techniques and wine making methods, resulting in some amazing wines.” He is also equally excited about Sula’s role in the Indian wine industry. “Sula will continue to be the leading force and innovator in Indian winegrowing and winemaking. Our wines are now being internationally recognised for their merits and excellent taste,” he concludes.


Number of glance

No. of bottles to sell this year – 8 million of both own and imported brands

Acreage – 1,800 acres

Total capacity of wineries – 7 million – 8 million litres

Target for FY 2013 – Rs. 200 crore

No. of visitors to SulaFest this year – 8,000

Strengths:

  • Sula’s founder – well-networked with a knack of reading the market pulse spot on
  • Grown through inorganic expansion of building production capacity
  • Clever branding of Sula through wine tourism, SulaFest and its wine bar, Vinoteca
  • Efficient distribution network
  • Urbanisation and changing demographics, especially with more women seen enjoying alcohol

Challenges:

  • Dealing with arcane state regulations and taxation on interstate wine movement
  • Rising prices of grapes and the cost to farm them
  • Climate irregularities
  • Increased competition with entry of newer domestic and foreign players
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