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Wine, A Lucrative Business to Invest

Introduction to Wine Industry in Indonesia

 

Global wine trend shifting to Asia
Remarkably ever since a decade ago, the popularity of wine has been increasing in Asian countries like China, Singapore, and Japan among others. The presence and popularity of wine in these countries are visibly growing in retail channels and media marketing. The global trend for wine has shifted from USA to China since China abolished alcohol tax in February 2008. Within 2003-2008, imported wines to China has experienced a 300% growth on average showing a wine boom effect. Now Hong Kong has become the premier trading hub in the world where the largest wine auctions were sold. Sothesby wine auction recorded that sales made in Hong Kong auction in 2012 was 42% and in 2011 was 52% beating London and New York auctions.

Global wine problems and challenges
Global wine demand has continued to drop in Europe and it is slowing down in USA. The global market has shifted toward Asia. As a whole, global wine investment has decreased by 25% in 2012. The global wine industry had its Madoff moments in 2012 when the FBI arrested Rudy Kurniawan in March for what considered the biggest wine fraud in history. With investigations dating back to 2007, it is suspected that Rudy sold fake wines through big wine auction houses like Acker Merrall & Condit, Sothesby, as well as private wine sales. High-end wine frauds are a global problem and especially in countries like China and other Asian countries where there is less inspection.

Continued growth prospects for wine in Asia
Dealing with wine frauds, Chinese investors have started buying vineyards and wineries in France and USA. That way they can control production and distribute to their own consumers back in China. There were no significant resistance from French wine producers or that from the American, they do not see China as a foreign invader buying their lands, instead they see them as saviors of the declining wine industry in Europe and USA. Wine investors continue to see opportunities for high growth both as a commodity and as a consumer good in Asia.

India’s latest wine industry development is promising
We look toward India for another wine boom opportunities with developments from India’s negotiations with EU countries (BTIA Broad-based Trade & Investment Agreement) that proposed wine tax be slashed from 150% to just 30%. But many wine analysts have doubts in terms of effective tax rate (which is now at 200%) that the wine industry can enjoy after the agreement takes place due to government politics issues. Domestic wine production in India has continued to decrease in the past decade, issues with high tax for domestic sales and distribution problems ever since the 2008 Mumbai terror incident have left Indian wine producers struggling to stay in business. The wine import in 2011 was at 4.4 million litre while local wine production was at 11.5 million litre. The annual average growth for wine volume in India was at 25-30% despite the challenges.

Indonesia’s wine industry landscape
We have seen the same appetite for wine in Indonesia. Even with an extremely high effective tax rate of 400% per regulations in 2010, sales volume continue to increase by about 20% every year as noted by the hotel and restaurant industry. Distribution is highly controlled by the government and only one company is given the license to import alcoholic drinks before 2010. Ever since the regulation changes were made in 2010, more companies were given license to import and distribute alcoholic drinks. Today there are 12 distributors of which some were distributors owned by the importers themselves, of which some also build retail shops. 

Indonesia with more than 240 million people remains as the 4th most populous countries in the world, 3rd in Asia. Whilst on paper, Indonesia has more than 90% of Moslem paper whom are believed to have prohibition in consuming alcohol including wine. Heavy import tariff has been imposed of 150% to discourage the use of alcohol, luxury tax as many as 40% and 2% of excise was still added.

Comparisons between domestic growth market in India and Indonesia
The most popular alcoholic drinks in India and Indonesia is beer. The growth of beer industry in Indonesia is around 20%. Beer is popular for Indian and Indonesian consumers because they are cheaper and readily available for the masses. Wine is more expensive and most people in India and Indonesia like a slightly sweeter taste than the imported wines. Local wine producers in India try to create wine that are cheaper and more suitable to the palates of their local consumers. Some of the latest new wine producers in Indonesia use different fruits such as strawberry, salak, sirsak, ginger, and different local grapes to make wines. The price is cheaper than the imported ones but they are not sold in mass production, the scale is very small and it is a novelty drink for tourists that come to Indonesia.

Wine taxes in Indonesia
There are three tax classifications for alcoholic drinks in Indonesia, class A is for beer and the likes, IDR 11,000 per litre and entry fee IDR 14,000. Class B is for wine and the likes, IDR 40,000 per litre and entry fee of IDR 55,000. Class C is for spirits and the likes with fees IDR 130,000 per litre and entry fee of IDR 125,000. On top of that PPH 2.5% and PPN% 10% and certification for imported drinks from BPOM which is IDR 3,000,000 per brand. And a label of distribution permission on each bottle which is IDR 750 for class A, IDR 1,000 and 1,500 for class B and C.

 

Challenges for wine industry in Indonesia
Every year the Indonesian government will issue a license to distributors of alcoholic drinks and set a quota for imported wines and alcoholic drinks. Issues of high tax and yearly quota are the main challenges for the wine industry in Indonesia. Wine is put in the Negative Investment List (DNI) by the Indonesian government. Change in the near future is highly unlikely because alcoholic drinks industry is considered a sensitive sociopolitical issue. We have seen similar challenges in Malaysia who also has an extremely high effective tax rate of 500%.

Wine demographic with local presence as minority
Consumers of wine continued to be predominantly expatriates and tourists in Indonesia. Local Indonesian consumers have started to increase since a decade ago, significantly young male professionals between the age of 25-45. But the numbers is still low and locals is still the minority of wine consumers in Indonesia. Considering that the legal age of drinking is 21 in Indonesia compared to 25 in India, Indonesia has a large potential to be looked at. Consistent yearly economic growth of 6-7% and a large demographic of a growing educated, young, middle class segment, Indonesia offers promising prospects.

Similarities between the wine market in China and Indonesia
In China, the distribution is focused on first-tier cities and this is the same with Indonesia. Similarities between China and Indonesia are both have large geographical areas with largely fragmented distributions, sometimes each area have very different cultures and languages of their own. Besides first tier cities, Indonesia also have unique locations where tourists like to visit, and this is also a focus target area for distributors. Majority of wines sold are also similar, which is the red wine for male consumers. French wines continues to be considered the best and they are more expensive. Australian wines are considered a favorite as they are less expensive with a reliable supply.

Import Statistics of Wine into Indonesia
Until last 2008, market size of wine was predicted around 1 million liters on annual basis and Indonesia is pretty much enjoying growth rate of wine as much as 10-15%. The fact that Indonesia is the most populous Moslem countries in the world, yet Indonesia has high tolerance to alcohol drink, including wine. Before, there was only PT. Sarinah who gained license from government to import wine and alcohol drink from overseas, yet to date, Indonesian government has granted total 11 - 15 importers of alcohol drinks to Indonesia. Wine remains as the largest contributor of alcohol based drink imported to Indonesia, followed by beer and spirit.

Invisindo has completed details report of wine business in Indonesia, for pricing please contact us

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