Sula Vineyards - When opportunity overcomes challenge
IMD explores the Indian wine revolution
June 20, 2011
Rajeev Samant is the first to admit he knew nothing about winemaking when he first took over 15 acres of unused farmland outside Nasik, near Mumbai. The Stanford-educated engineer simply wanted to see the good land put to productive use. He tried all sorts of crops – from mangos and peanuts to roses – before settling on grapes. Now, just over a decade later, he runs Sula Vineyards, the biggest winery in India. “We have about 400 employees, 70 distributors, and will produce more than 5 million bottles of wine this year,” Samant said.
One of the biggest challenges that he faced in building his business was that, when he started out, India’s winemaking industry was almost non-existent. Sula faced bureaucratic and administrative hurdles at every stage of its growth - from getting permits and authorization through to finding distributors and buyers for his wine. Yet, some challenges were also prosperous opportunities for change, as Samant plans to show in bringing his personal insight to IMD’s Orchestrating Winning Performance (OWP) program on July 1st, where a new case study on Sula will be presented.
“The IMD case study on Sula Vineyards reveals how entrepreneurs create value – not just financial, but social and cultural as well. As the pioneer of a new industry in India, Samant has single-handedly helped realize a set of possibilities that could not have been imagined twenty years ago,” said IMD Professor Anand Narasimhan.
“There has been a sea change now,” Samant said. “In the beginning I was at loggerheads with almost every bureaucrat I met, but now it is smooth sailing and respect for what we have achieved.”
Part of this is related to the difference that Sula has made to the lives of farmers and other rural people. At Sula Vineyards, the grapes are grown by local farmers, who are switching from less economically viable cash crops. The winery’s success has influenced regulators to re-think wine-making as an agri-business that supports farmers.
“A rupee of income earned rurally in India has a far greater multiplier effect than a rupee of income earned in the cities,” Samant said. “Over the last 15 years the growth in India’s economy has been driven by services, which tend to be based in big urban centers such as Bangalore and Mumbai. This in turn means that wealth is increasingly concentrated in these areas. What we have done with Sula is create an industry from scratch that is 100 percent rural.”
But even after succeeding in changing Indian regulations toward wine-making, Samant was still met with the challenge of changing habits. Samant needed to convince a culture with negative notions of the role of wine to raise their glasses.
“Samant has had a key role in persuading Indian consumers to look at wine in a different way – not as an intoxicant, but as a social glue for good times. Most surprising of all are the women consumers that have been empowered to buy wine. This “soft” shift in attitude is nothing short of miraculous,” Narasimhan said. “As a result, many financial institutions are now looking at Indian wine as growth industry and as an item that will feature in middle- and upper-class consumer baskets in a decade’s time.”
Hoteliers, too, have come to appreciate what Sula has to offer, realizing that foreign visitors to India want to try the very best local wine, not a French or Californian wine that they could just as easily order at home. “We use the same classic grape varieties as other winemakers but, like every region, we have our own distinctive terroir,” Samant said.
The company’s international expansion may mean that French and Californian visitors may one day be able to buy Sula in their local supermarket alongside Argentinean, Chilean, and Australian vintages. “One day, but not soon,” Samant said.
“It will take time. What we need for that to happen is for a few more wineries making good quality wine to come up in India. There needs to be at least five serious vineyards before buyers start to think ‘right, we need an Indian section’.”
“Samant is a very unusual entrepreneur in that he thinks about developing the whole industry rather than just his firm. On the input side, he has worked hard to improve the quality of viticulture in India and has made available root stocks of the major grape varietals cultivated around the world. This helps competitors get access to the same raw materials used by Sula. On the market side, Sula has created a distribution network for wine that is distinctive from the one used by the beer and spirits industry in India. This network is now in place for other wine distributors,” Narasimhan said.
For the moment, most of Sula’s international export market – about 10 percent of its total sales – is Indian restaurants. It has also become something of a cult favorite in Japan. And in the UK, with Indian food as number one in the ready-prepared meals category, Samant sees growth potential.
Yet, as Samant looks ahead, he realizes that business growth doesn’t come easily or without obstacles. Just as Sula was taking off, Samant’s local market was badly affected by the global economic downturn of recent years, especially because India is not yet a wine-drinking nation. “It’s still an aspirational purchase, a discretionary purchase. It’s not ingrained in the culture that you have a glass of wine with your meal. As a result when the downturn hit people just stopped buying it.”
During the downturn, Sula profits were hit badly and the young company found itself struggling to manage its cash flow. However, rather than cutting costs by reducing staff, Samant and his senior management team decided to freeze salaries across the board, and put a hold on company expenses and benefits such as new laptops or cars.
“I think employees really appreciated this. When things started to pick up again they have remained very loyal to us. Even though we have grown much bigger and more complex since the business was founded, there is still a family feel to it. I think that is important.”
As Sula continues to grow, Samant also places a high value on operating the business sustainably. “I’d like to think that we are setting the standard as far as green winemaking goes. Not just the standard for India, but for the whole winemaking industry. For example, we minimize our carbon footprint, our water usage, our power usage, and we try to reuse or recycle everything that comes out of the winery. Every day we ask ourselves ‘how can we be greener’ and we are doing a lot of cool stuff as a result.”
In coming to IMD, Samant will share his story – a real life model with lessons for business leaders on negotiation, strategy, entrepreneurship, and sustainability.
“Rajeev Samant exemplifies how to leave behind a great legacy. His unique and single-minded vision has helped create a distinctive place for wine not only in the Indian marketplace but also among farmers and regulators. He will always be remembered as a pioneer who created a great brand in Sula, an excellent organization making some of the best wine in the world, and as the visionary who brought wine into the Indian shopping basket,” Narasimhan said.
Rajeev Samant, the CEO of Sula Vineyards will be speaking at IMD on July 1st as part of the Orchestrating Winning Performance (OWP) program. His presentation will be followed by an informal tasting of some of Sula’s wines. IMD Professor Anand Narasimhan will conduct the OWP stream Building and Sustaining 21st Century Organizations.