EXECUTIVE SUMMARY
No privileges for alcoholic drinks producers from Belarus and Kazakhstan
Russia, Belarus and Kazakhstan are completing the formation of their Customs Union. In June 2011 the customs checkpoints between these countries’ borders ceased their activity. Nevertheless, the Russian Federal Customs Service is limiting free access to the Russian market of alcoholic drinks produced in Belarus and Kazakhstan. The law prohibits the distribution of alcohol in Russia not marked with Russian excise stamps, and does not envisage the existence of any other marking of alcohol on the territory of the country. Thus, manufacturers and distributors of alcoholic products from Belarus and Kazakhstan will not be able to take advantage of the Customs Union and will be forced to register their product just like the importers from any other countries.
New minimum retail prices and state regulation for alcoholic drinks
2011 brought new restrictions and regulations for the Russian alcoholic drinks market. The minimum retail price for vodka was set at RUB98 per 0.5 litres. Additionally, brandy and cognac had a minimum retail price of RUB193 per 0.5 litres set in 2011. Additionally, from January 2012 it will be prohibited to drink alcohol, including beer, in public places, for example in parks, doorways, and recreation areas, while a complete ban will be introduced on the retail (off-trade) sales of all types of alcohol, including beer, between 23.00hrs and 08.00hrs. From January 2013 the retail sale of beer in kiosks and pavilions, as well as at bus stops, open markets, railway stations, petrol stations and airports, will be prohibited at any time.
PET bottles are endangered
Some members of State Duma parties tried to introduce amendments to the law "On state regulation of production” that would ban the selling of beer in plastic bottles. The government, however, rejected the initiative in 2011. The amendment prohibiting the use of plastic containers was linked to the harmonisation of legislation within the Customs Union of Russia, Belarus and Kazakhstan. The total volume of beer sold in plastic bottles accounts for more than 30% of the market.
Draught beer is becoming more popular in Russia
The popularity of draught beer owes much to the marketing policy of independent small breweries that are actively exploring this niche. The promotional strategy is based on the contrast in quality with mass segment beer. "Live" beer in Russia is unfiltered, unpasteurised beer without preservatives or stabilisers. However, there are no technical regulations governing this type of beer and some manufacturers are easily improvising the production of draught beer due to the growing popularity of the segment.
Specialist retailers find ways to develop their business
All of the leading specialist retailers plan to extend their chains during the forecast period. Aroma TD ZAO will focus on retaining its lead in this channel, while its biggest rival NormaN-Vivat plans to continue extending its chain. It will be important for specialist retailers to expand their presence during the forecast period, not only in Moscow and St Petersburg, but also in other Russian cities in regional areas, in order for this channel to gain a stronger consumer base and move beyond a niche positioning. If consumer incomes decline and the economy sees a sharp downturn, specialist retailers may curtail their expansion plans or at least opt to focus expansion only on high-income neighbourhoods in urban areas.
The Custom Union countries will not have a common alcoholic drinks market
Russia, Belarus and Kazakhstan are completing the formation of their Customs Union. In June 2011 the customs checkpoints at the borders between the countries ceased their activity. Nevertheless, the Russian Federal Customs Service is limiting free access to the Russian market of alcoholic drinks produced in Belarus and Kazakhstan.
Current impact
Agreement on common customs borders for the union does not negate the federal law "On state regulation of production and turnover of alcohol" (171-FL), whereby any transportation of alcohol across the border of Russia qualifies as an export or import and requires customs clearance.
The law prohibits the distribution of alcohol in Russia not marked with Russian excise stamps, and does not envisage the existence of any other marking of alcohol on the territory of the country. Thus, manufacturers and distributors of alcoholic products from Belarus and Kazakhstan will not be able to take advantage of the Customs Union and will be forced to register their product in the same way as the importers from any other countries.
Outlook
Additionally, the Federal Customs Service eliminated loopholes for non-registered imports of alcoholic drinks into Russia from the countries of the Customs Union. It banned the import from the territory of Belarus and Kazakhstan of wines and brandies produced in Moldova and Georgia. Russia imposed a ban on Georgian wine in the spring of 2006 through a decision by Rospotrebnadzor in connection with claims concerning the quality of products. A similar embargo was placed on Moldovan wine and cognac products, but, in the autumn of 2007, this ban was cancelled.
Future impact
Significant changes on the Russian alcoholic drinks market are not expected to be seen. Companies can import alcoholic drinks into the Russian market if they are in receipt of special licences. They will have to rely on Russian intermediaries that have such a licence in the local market.
Despite the possible growth in illegal imports of alcoholic drinks from Belarus, as the unit price of the economy segment vodka are currently 30% lower in Belarus, it will have little effect on the alcoholic drinks market across Russia as a whole. The absence of customs clearance would have resulted in the potential arrival of a significant amount of competitive products. Belarus is producing good-quality vodka and also bottles good Moldovan and Georgian wines. A Kazakhstani vodka could compete with Russia products on price.
New minimum retail prices and state regulation for alcoholic drinks
Actions have been taken to reduce alcohol consumption among the Russian population. According to the state policy concept aiming to reduce alcohol abuse and stimulate alcoholism prevention by 2020, alcohol consumption in Russia is slated to fall from the current 18 litres of pure alcohol annually to 5-8 litres per person per year.
The Russian president and the Russian government expressed concern about alcoholic drinks consumption in Russia. According to them, this is a scourge on the Russian population, and one that has to be dealt with. A prohibitionist wave of tax hikes, more stringent licensing procedures and tightening advertising legislation started to appear in 2010. However, these methods of fighting alcoholism may be unsuccessful and cause even greater harm to the domestic alcoholic drinks industry. Historical precedent has repeatedly proved the futility of such sweeping initiatives as well as the – temporarily – catastrophic effects for both legal sales and public health in the country.
Current impact
The first steps were taken in 2010. In January 2010 a minimum retail price of RUB89 per half litre of vodka was set, while staggered tax increases will be used to raise that figure to RUB200 by 2013. As if this was not enough to drive the point home, from 1 September it became illegal for all off-trade outlets like kiosks and supermarkets to sell vodka between 22.00hrs and 10.00hrs in most regions, including Moscow. While vodka's high ABV and perceived binge fuelling status underscored the dubious measures and even assisted the government in scoring political points, it was the trebling of taxation on beer that caught everyone by surprise. Beer, having ridden nascent westernisation trends in the country for the best part of the last decade and being well positioned as a healthier alternative to spirits, saw its newfound place in the Russian sun come to an abrupt end.
Outlook
2011 brought new restrictions and regulations for the Russian alcoholic drinks market. The minimum retail price for vodka was set at RUB98 per 0.5 litres. Additionally, the brandy and cognac minimum retail price was set at RUB193 per 0.5 litres from 2011.
2011 was also difficult for the brewers of Russia. State Duma members proposed to recognise beer as an alcoholic drink. The discussion of the bill was carried out over a period of around six months. During that period brewers were defending their interests actively, convincing others of the inexpediency of various proposals in the bill. Moreover, expecting the new restriction on the promotion of their products in the nearest future, the Russian beer producers dramatically increased their advertising budgets in 2011. In July 2011 president Dmitry Medvedev signed the law "On state regulation of production and turnover of ethyl alcohol and alcohol products." The final signed version of the law equated all drinks with alcohol content above 0.5% with being alcohol. From January 2012 it will be prohibited to drink alcohol, including beer, in public places, eg parks, doorways and recreation areas. There will also be a complete ban on the retail (off-trade) sales of all types of alcohol, including beer, from 23.00hrs to 08.00hrs. From January 2013 the retail sale of beer in kiosks and pavilions, as well as at bus stops, open markets, railway stations, petrol stations and airports, will be prohibited at any time.
Moreover, changes were made to the advertising law; seeing beer lose its promotion privilege over other alcoholic drinks.
Future impact
Vodka is expected to post a volume CAGR of -4% over 2011-2016, with no sign of a sales resurgence in sight. While beer will struggle in the immediate future, it will still ultimately see stagnation in volume CAGR terms as the latter part of the forecast period will usher in a rebound for beer sales.
The imposed ban on selling beer from 23.00hrs to 08.00hrs will not have a significant impact on the sales volume, as consumers will buy more of this drink in advance. Besides, beer will be still available in the on-trade at any time. The ban on consumption of beer in public places together with the ban on selling beer in non-stationary retail outlets (kiosks) will eliminate the on-the-go beer consumption culture, which is extremely popular in Russia. Additionally, it will reduce beer consumption in regions with underdeveloped retail (consumers may switch to other alcoholic drinks) and cut down on the number of kiosks in large cities (as beer makes up the key share of their turnover). On the other hand, the new restrictions on beer promotion will not have a negative impact on Russian beer sales, as promotion does not increase the beer consumption in Russia but shapes consumer loyalty to the various brands.
The government fights alcohol consumption in Russia
According to the World Health Organisation (WHO), alcohol is the direct or indirect cause of death of every fifth Russian. Russia is fourth in the world in terms of pure alcohol consumption. The Russian government has been working to actively combat alcohol abuse in Russia. The Ministry of Health announced that the pure alcohol consumption was 18 litres per capita in 2009. In 2010, that figure dropped to 15 litres. However, the improvement in statistics is occurring only among urban residents. The situation is not improving in the rural areas.
Current impact
To achieve these goals, the State Duma passed a bill tightening state control over the production and retail of alcoholic drinks. The initiators of the law plan to reduce the size of the illicit market in the industry, reducing alcohol abuse by the population at large at the same time.
Another major initiative was the authorities’ decision to equate beer with all other alcoholic drinks. From 1 January 2013 beer will no longer be available from stalls and other non-stationary points of sale. The Economic Development Ministry has also made its contribution to the anti-alcohol campaign, offering Russians the opportunity to discuss the new draft law "Safety Technical Regulations of Alcoholic Drinks", according to which bottle labels must carry inscriptions about the dangers of alcohol, similar to a cigarette pack.
The ban on drinking alcohol before driving is also reducing the amount of alcohol consumption in the country. The number of road accidents that have occurred due to the fault of drunk drivers in Russia is being cut. In the first half of 2011 there were 9% fewer accidents than during the same period of 2010. After strengthening of the penalties for driving while intoxicated, the number of such accidents have declined dramatically, because most drivers do not want to lose their driver's licence for a couple of years.
Outlook
However, anti-alcohol campaigns in Russia may not achieve all their goals. The ban on night-time sales of alcoholic drinks can be avoided with the help of illegal vendors in many regions of Russia. The internet service "vodka delivery" is also becoming more and more popular. Recently, manufacturers of illegal drinks increased their production volumes. These spirits costs less than legal vodka, because, since 2011, the legal minimum price of a 0.5-litre bottle of vodka has been RUB98. Illegal products sell for around RUB30.
Future impact
So far, Russia's anti-alcohol campaign has implemented prohibitive and restrictive measures, such as banning sales at night, checking the documents of young people, the prohibition of sales during holidays etc. At the same time, illegal products are showing market volume growth. Each year, the illegal market is substituting more products in legal retail channels.
Changes in alcoholic drinks packaging
The types of legal packaging of alcoholic drinks have been actively discussed lately. During 2011 there was a proposal to ban the sale of alcoholic drinks in PET bottles, as well as prohibit the reuse of glass bottles for alcoholic drinks.
Current impact
Some members of State Duma parties tried to introduce amendments to the law "On state regulation of production” that would ban selling beer in plastic bottles. The government, however, rejected the initiative in 2011. The amendment prohibiting the use of plastic containers was linked to the harmonisation of legislation within the Customs Union of Russia, Belarus and Kazakhstan. The total volume of beer sold in plastic accounts for more than 30% of the market.
Another innovation of 2011 was the new technical regulations "The security of packaging", which will take effect from July 2012, prohibiting the reuse of glass containers for alcoholic drinks. Technical regulations of the Customs Union stipulate glass packaging of alcoholic drinks and baby food must not be reused.
Outlook
This is not going to have a negative effect on the manufacturers of spirits, as they do not reuse glass bottles. Each company has uniquely designed bottles. However, glass bottles are extremely important to brewers, as this packaging accounts for 30% of beer sales. For example, Baltika PK OAO reused 38% of glass bottles in 2010.
The reusable packaging can be used 3-5 times and is more economical than disposable packaging. In addition, the major brewing companies have programmes to increase the share of reused packaging because of environmental reasons.
Future impact
It is not entirely clear what the goal of the ban on the reuse of glass containers for alcoholic drinks is, as many Western European countries are moving in the completely opposite direction. Between 1999 and 2009 the volume of recycled glass was growing constantly in Europe. However, it is already obvious that this new technical requirement, initiated by glass bottle producers, will increase their annual sales volumes.
Key new product launches
Health and wellness trends were influencing the Russia alcoholic drinks market in 2011. Wine produced using organic grapes and organic vodka appeared on the market, but the greatest popularity was enjoyed by draught beer. It is considered to be a healthier product and is called “live” beer in Russia.
Current impact
The popularity of draught beer owes much to the marketing policy of independent small breweries that are actively exploring this niche. The promotional strategy is based on the contrast with the quality of mass segment beer. "Live" beer in Russia is unfiltered, unpasteurised beer without preservatives and stabilisers. However, there are no technical regulations for this type of beer and some manufacturers are easily improvising the production of draught beer due to the growing popularity of the segment.
According to the draught beer players, there are three main channels of distribution – supermarkets and specialist drinks stores in the off-trade and the on-trade. The disadvantage of supermarkets is the large entrance fees charged for brewers and problems with accounts receivable. Restaurants and bars are willing to widen their product range, but prefer working with well-known brands and companies that provide them with equipment. The format with the most potential for small brewers is specialist drinks stores. They attract a large number of resellers and start-up entrepreneurs, which saw an opportunity for small investments to build a profitable business.
Outlook
Despite the growing popularity of draught beer its volume is only equivalent to around 1% of total Russian beer sales. The main factor holding back the faster development of this category is limited distribution. Retailers and restaurateurs often do not pay enough attention to the specifics of the product. They are interested in products with a long shelf life from private breweries, while the “live” beer may be only storable for up to five days without special equipment. In addition, medium-sized businesses cannot afford to pay for getting on the chained retail shelves as much as the giants like Baltika PK ZAO.
Equally problematic for small brewers are the restaurants. Despite the fact that successful bar businesses need a broad product line, sales of “live” beer require replacement of kegs every three days. If the beer is not sold within 72 hours, it must be destroyed. So, the bars and restaurants refuse to work with producers of such draught beer after the initial failures with such products.
Future impact
The product range in the key beer category is increasing with companies positioning more brands in the draught beer category. For example, Baltika PK ZAO released the subbrand Nevskoe Zhivoe and Ochakovo MPBK ZAO the Uzhny Gorod brand. However, regional manufacturers do not believe that their territory is threatened by the expansion of federal companies. Large companies, of course, can attract a broad consumer base using advertising campaigns, but many people have already formed an opinion that draught beer should be produced by small breweries.
Specialist Retailers
Aroma TD ZAO, with its Aromatniy Mir chain, was the leading player and one of the most dynamic companies in alcoholic drinks distribution in 2011. Aroma TD ZAO extended its chain to more than 180 shops by the end of the review period, with these situated in different Russian regions. The company was founded in 1996 and quickly earned a reputation as a provider of quality alcoholic drinks to the Russian market, sourcing its products from France, Germany, Scotland and Spain, among many other countries. Since 2004, the company has focussed on developing products under its own trademark. 2002 saw its acquisition of Vismos, which offers sparkling vintage wines, and in 2007 it acquired the French cognac house, Fussigny. The company has diversified its offering from the initial concentration on cognac and brandy to whiskies, tequila, sparking and still wines and liqueurs and its products are sold in more than 250 cities across Russia through various networks of distributors.
Norman is another major specialist retailer chain. This chain is owned by NormaN-Vivat and successfully operates in Permskiy krai and St Petersburg. It differs from its main rival Aromatniy Mir due to its focus on the growing number of middle-income consumers. In addition, most of its shops are situated in the suburbs of cities.
Alcoholic drinks specialist retailers are mainly developed by major alcohol distributors and importers. These companies typically enter retailing in order to diversify their business. In addition, distributors can use their strong experience in alcoholic drinks to shape their retail range, while also benefiting from closer direct relationships with consumers.
Current Impact
Wine accounts for the biggest share of products on offer in specialist retailers in Russia. As consumers became more educated about wine in light of rising incomes, increasing sophistication and more curiosity about trends in other parts of the world, specialist retailers correspondingly increased in popularity among consumers.
Today specialist retailers face strong competition from supermarkets/hypermarkets, with this channel also expanding in Russia. The wide range of alcoholic drinks on offer in supermarkets/hypermarkets and the channel’s frequent use of price promotions constrained growth for specialists. By 2010, supermarkets/hypermarkets accounted for 29% of off-trade volume sales in alcoholic drinks. In order to better compete, specialists focused on offering a premium retail environment and strong customer guidance in the form of well-trained sales assistants.
Outlook
All of the leading specialist retailers plan to extend their chains during the forecast period. Russia Aroma TD ZAO will focus on retaining its lead in this channel, while its biggest rival NormaN-Vivat plans to continue extending its chain. It will be important for specialist retailers to expand their presence not only in Moscow and St Petersburg during the forecast period but also in other Russian cities in regional areas in order for this channel to gain a stronger consumer base and move beyond a niche positioning. However, expansion plans may be hindered by the economic downturn expected in Russia during the forecast period. If consumers’ incomes decline and the economy sees a sharp downturn, specialist retailers may curtail their expansion plans or at least opt to focus expansion only on high-income neighbourhoods in urban areas.
Future Impact
Specialist retailers are expected to have good growth opportunities over the forecast period as the economy stabilises, especially in large cities, with consumers in these cities typically being wealthier and better educated. Specialist retailers may also expand rapidly to smaller Russian towns and regional areas, with Russian consumers in general becoming more interested in quality alcoholic drinks, although a lot of development is expected to still be focussed on Moscow and St Petersburg.
Specialist retailers will, however, continue to face strong competition from the aggressive expansion of supermarkets/hypermarkets, which offer competitive prices and increasingly try to replicate the convivial atmosphere of specialist retailers. Special zones are increasingly used for alcoholic drinks in supermarkets/hypermarkets, offering consumers a wide range of quality alcoholic drinks that specialists are unable to compete with in terms of volume; however, as palates continue to become more sophisticated more affluent and knowledgeable consumers are likely to turn to these specialist outlets for the more exciting wines on offer compared to mainstream channels.
Market merger and acquisition activity
Russia's largest producer of other sparkling wine Igristye Vina ZAO (brands: Rossiiskoe, Lev Golitsyn) has bought 55% of Rosinka company shares (brands: Russkoe Zoloto, Tainy Sovetnik). The consumption of sparkling wine is growing in Russia, especially in the standard price segment of RUB150-250 per bottle. This type of sparkling wine was produced by both enterprises.
Current impact
Igristye Vina ZAO runs a factory producing sparkling wine, still wines and brandy in St Petersburg. Annual production capacity at the factory is 60 million bottles of sparkling wine, 29 million bottles of still wine and five million bottles of brandy per year. Igristye Vina ZAO wants to increase its share in the Russian market and is looking to find ways to increase its production capacity.
Outlook
The possible acquisition of Rosinka by Igristye Vina ZAO became known in autumn 2010. In 2011, the company bought 55% of Rosinka, another 20% moved to a foreign investor (a supplier of wine from Spain). A blocking minority of 25% of shares remained with the previous owner, the CEO of the plant.
Future impact
The company Rosinka reduced production of sparkling wine by 55% to three million litres in 2010. The production capacity of Rosinka is able to produce 12 million bottles of sparkling wine a year, or about nine million litres. The new shareholder plans to increase capacity to 18 million bottles. Igristye Vina ZAO is going to invest RUB180 million in the development of production and expansion of sales. The deal will be significant as it also improves the company’s logistics. Igristye Vina ZAO now has access to the Urals and Siberian regions.
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Overview
Discover the latest market trends and uncover sources of future market growth for the Alcoholic Drinks industry in Russia with research from Euromonitor's team of in-country analysts.
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The Alcoholic Drinks in Russia market research report includes:
- Analysis of key supply-side and demand trends
- Detailed segmentation of international and local products
- Historic volumes and values, company and brand market shares
- Five year forecasts of market trends and market growth
- Production, imports by origin, exports by destination
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Alcoholic Drinks in Russia?
- What are the major brands in Russia?
- Have there been any alcoholic drinks legislative changes over the past 12 months?
- How is the alcoholic drinks industry affected by the recession?
- What is consumed more; beer, wine or spirits?
- What have been the key trends seen in new product developments?
- Do alcoholic drinks consumers want value for money or added value?
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This industry report originates from Passport, our Alcoholic Drinks market research database.
