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| December 7th 2006 |
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| Russian importer wanted |
by Igor Serdyuk
Although there has been steady growth in wine consumption over the past years, the modern history of the Russian market is a story of survival for those who dared to import quality wine into what was a vodka drinking country. Only a few of the strongest have survived and they are still making the wine world go round.
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Wines and spirits are brought into Russia by 126 importers, of whom just 16 control 65% of the total volume. An already visible trend in the consolidation of imports was fostered by the government, which was actually looking for a means of stricter control of the wine and spirits market; but as legislation has made it too expensive and bureaucratically complicated to be an importer, the new regulations have pushed the market towards even further consolidation. Since the new laws were enacted, several importers and wine merchants have decided to sell their businesses.
While most major importers have their own distribution systems in Moscow and St. Petersburg, they prefer to work with local distributors in other cities. Although Ekaterinburg, Krasnoyarsk, Novosibirsk, Kazan, Rostov, Krasnodar, Samara and Nizhny Novgorod are promising markets, Moscow still accounts for half of the premium wine and spirits consumption in the country. Normally, each of the regional markets is divided between 2 or 3 companies, but sometimes only a single wholesaler enjoys a de facto monopoly on his local market. This has led to a paradoxical situation where imported wines are visibly overpriced in regional markets with lesser buying power. Very few capital-based companies have tried to overcome local protectionism and build their own distribution in these regions. Rusimport is, in that sense, an exception. The firm has been aggressive in offering regional markets a complete range of brands at lower cost.
Importers can basically be divided into several categories. First, there is a group of large international companies like Diageo, Pernod Ricard or Bacardi Martini, which have offices in Moscow and work with a selection of large wholesalers, like Rotor House, AST or the like, who are themselves starting to import other brands. Moet-Hennessy has recently launched a joint venture with its former exclusive importer, Whitehall, as the latter continues to import and distribute an ever larger portfolio of wines and spirits. Secondly, there is a caste of major importers who have the lion’s share of the premium wine segment, but sometimes combine quality products with faster moving, more affordable wines and spirits. Some of them, like DP-Trade, Simple, MBG, United Distributors or Veld-21, have an elitist image; whereas others, like Vinikom, Alianta or Rusimport work with a wider range of products. Then, there are niche importers like Vintage-M, Vinoteka or Palais Royal who are quite comfortable serving a smaller number of restaurants or private clients with their boutique wines.
Importers create advertising and marketing budgets using both their own margins, which occasionally reach 100 %, and budgets coming from suppliers. A large part of these monies, though, are not spent on what would normally be called marketing or advertising. The rules of the game oblige importers and distributors to pay ever more for the so-called “entry tickets” or listing fees, offering the right to place their bottles onto |
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the supermarket shelves or to include them into the restaurant wine list. Very few retail chains have a specialist wine buyer assigned to select their products, preferring instead “special deals” with suppliers. The on-trade segment essentially works in the same way. In theory, consumers should vote with their purchases for the best value for money, whether in shops or on wine lists, but legal restrictions on wine and spirits advertising make consumer education difficult and slow.
According to law, advertising any alcoholic drink, with the exception of beer, is prohibited anywhere but in the places where those drinks are produced or sold. This law leaves the operators the opportunity to publish their ads in specialized publications that are distributed mainly in shops and restaurants; but at the same time it limits the expansion of the specialized press, which does not yet have a critical impact on mass consumer habits. Some of the glossy magazines with larger print runs nonetheless ignore these restrictions and accept advertisements from brands in one or two issues each year. When doing so, they include the expected fine into the price of an ad, but risk at the same time losing their publishing license.
Under these conditions, tasting sessions remain the main form of promotion for premium wines and spirits in Russia. Importers use them quite often, but most are reserved for a limited number of professional sommeliers, wine merchants and journalists. Although many wine merchants organize tasting events for their best private clients as well, a major wine event for consumers has not yet been held. The first Moscow Wine Open Air festival, which had planned to attract a few thousand wine lovers over two days, was scheduled for last summer, but it was postponed until next May because of the excise banderols crisis.
French wine producers have historically been the most active in promoting their wares. Although they could not legally import bottles for presentations this autumn because of the shortage of tax banderols, they used diplomatic channels and organized several events in the French Embassy in Moscow. Roussillon was followed by Burgundy, Bordeaux Grands Crus and the traditional Beaujolais Nouveau events. An increasingly dynamic Italian wine industry is also trying to promote its products here. Impressive two day presentations were organized last spring in Moscow and St. Petersburg by ICE and Veronafiere. Spain is a far younger participant on the market, but a series of Brandy de Jerez promotions across Russia as well as the Spanish Wine and Food Show in Moscow were a good start. The California Wine Institute has run an important professional tasting at ambassador’s Residence in Moscow. A similar programme was tested by the ProChile organization, but, according to importers, it did not have much relevance because the market was already oversaturated.
Failing to overcome numerous technical and logistical difficulties, the Moscow Wine Fair was cancelled this year, but |
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two of the remaining wine and spirits trade shows scheduled for this autumn, were still held. Interdrink took place on November 7th to 9th at the Expocenter, and was followed by Drinks Industry on November 21st to 24th at Crocus Expo centre. The more consumer-oriented Food Show, which is to take place on December 1st to 3rd in Gostinny Dvor, also counts on the participation of wine and spirits companies.
With the exception of certain niche players, most importers divide their assortment into the on-trade and off-trade parts. Although the off-trade sells over 70% of wines and spirits in Russia, bars and restaurants are steadily increasing their share, especially in premium and super-premium categories. Logically, at least in Russia, the higher the price of the product, the better it sells in restaurants. Some importers try to reserve their best brands for on-trade only, but very few of them can resist the temptation to move volumes off-trade. For that reason, even Sassicaia is often seen on supermarket shelves.
However, the truth is that supermarkets differ widely in Russia. Even in a single chain like Perekrestok, or 7th Continent, there are better located, more expensive stores with margins of up to 70 to 80 per cent and inexpensive stores with more affordable 30 to 50 per cent margins and the corresponding range of goods. Other supermarkets, like Azbuka Vkusa, Megacenter Italia or Stockman are targeting wealthy, more sophisticated consumer, whereas still others, like Kopeika, are discounters. A newer, fashionable category of retailers – luxury grocery stores – is represented by Globus Gourmet chain, which sells brands like Hediard, Fauchon, Fortnum & Mason as well as some local specialities. One of the most remarkable phenomena in the on-trade sector is the success of the first Moscow wine bars, which are positioned in a booming middle price segment. However, more expensive restaurants and fashionable lounge bars remain dynamic and continue to be an attractive point of sale with a nice showcase for fine wines.
The major chains of wine boutiques are often affiliated to the importers, such as Whitehall (Kauffman Collection), DP-Trade (Magnum, Vinum et cetera), Veld 21 (Vinoteca Paradis), Simple (Grand Cru), MBG (Intendant). Interestingly, some independent wine retailers such as Kollektsiya Vin (Wine Collection) or Aromatny Mir (Aromatic World) have also started to import some products, considering exclusivity as their best possible marketing advantage.
Despite very high rents, launching a wine boutique has long been a good investment. Well-managed, it begins to pay back in about a year. Importers, however, who own such shops, consider them not only as business units, but also as promotional space for marketing actions. As a wine boutique attracts consumers’ attention and thus brings value to the image of the wine importer or merchant, several have started thinking about the branding of their companies, realizing that their old names did not carry any message |
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to the final consumer. Whitehall company owner Mark Kauffman was the first who created a new brand, Kauffman Private Collection, putting this logo on his wine boutiques and on the selection of fine wine and spirits from the company’s portfolio.
Wine and spirits importers are rethinking not only their marketing messages, but also their portfolios, trying to replace banned Moldovan and Georgian wines with affordable values from southern Russia or other countries. Most Russian wineries, however, have yet to recover from a series of dramatic collisions, from Gorbachev’s prohibition of mid-eighties to the hyperinflation of the early nineties. They await not only new equipment, but also a new generation of winemakers with quality-driven mentalities. When all is said and done, though, it is the Russian wine consumer who decides. While local wine production at the low end of the segment decreased by 18% in 2005, imports in the middle range and high end grew by 25%. In addition, the cold winter of 2005 to 2006 ruined some of the vineyards, so the decrease in Russian wine production may continue in 2006.
According to official statistics, the local production of wine in Russia is about 320 million litres – but a significant part of that is made from imported bulk wine. Official imports are 380 million litres, but are likely to be underestimated. The value of imported wine and spirits grew more than 35% and reached $1.3 billion in 2005. Imported wine accounted for about 41% of this volume. Before 2006 more than 50% of that volume was imported to Russia from Moldova. The Georgian accounted for 8-10%, similar to the French market share.
That Eastern Europe’s once flourishing wine culture is again on the rise, is clear to anyone who has spent time in Moscow or Warsaw; but it is not only there that change is taking place. A fresh wind is blowing through the Ukraine, the Baltic States and the Czech Republic as well. As in the markets of their larger neighbours, the populations of these countries are seeing their disposable incomes growing, too. Those countries and producers who neglect these markets today may well pay the price a few years down the road. Similarly, the wine industries of Hungary, Romania, Bulgaria, Slovenia and Croatia have begun to bottle wines worthy of their peers further west. Until today, most attention has been focused on value for money, but already numerous estates are able to compete in the first league. It will take time for them to corner market share beyond their domestic sales, but their significance should not be underrated. In coming issues follow articles on the Ukraine from by Evgeniya Rodionova, on Lithuania by Algirdas Pateckas, on Hungary by Mario Scheuermann and Norbert Bordokos, on Slovenia by Robert Gorjak, on Croatia by Zeljko Suhadolnik and Bulgaria by Elissaveta Velianova, to name but a few. With highly experienced, well-respected eyes and ears based locally across Eastern Europe, we shall continue to keep you abreast of the important developments and trends in their markets.
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