Last August, tourists who visited Abrau-Durso, a sparkling wine producer in Russia’s south, were taken by surprise. They met Vladimir Putin, with whom they found they could enjoy a leisurely stroll around the estate and even take a photograph. The Russian president spent several hours at Abrau-Durso, taking a tour around the production facilities and museum, sailing on the lake and having lunch. It looked like a casual visit, yet the message behind it was interpreted as promising for the Russian wine industry.
Just a few weeks before, the government had passed important new amendments. Wine had finally been recognised as an agricultural product, the unique exception in a wider group of alcoholic beverages. Now, the Russian president was subtly reconfirming that wine is politically acceptable. It has become less “evil” and more appealing in its new status of agricultural product – even if it still remains equivalent to beer and vodka from the point of view of government controls on the production, distribution and advertising of alcoholic beverages. Could it mean that Russian consumers will be turning more towards wine? Possibly, but only time will tell.
Less, but more expensive
Russian wine consumers bring both good and bad news. The bad news is that after years of rampant growth, the market is stagnating. It was significantly affected by the global crisis, having reached the lowest point in 2010, and has not recovered to pre-crisis levels. Retail sales are falling. It is expected that 2013 will close with around a 5% reduction in retail sales compared to 2012. The good news is that the downward trend is associated mostly with the cheapest, under-150 RUB ($4.60) segment, where one finds wines of dubious quality or counterfeit products. Consumers are trading up, willing to get better quality by paying more. In Metro Cash & Carry, one of the leading retailers in Russia, wine sales increased by 30% in the second quarter compared to the same period last year, while vodka sales dropped by the same percentage figure. “People are gradually moving from the cheap- to the middle-price range. Among other reasons, this is connected with the fact that Russians travel extensively around Europe, and as a result their wine culture steadily grows, albeit quite slowly,” says Anastasia Shikanyan, Alianta senior product manager. She also notes that new sales strategies adopted by the big retailers affect importers’ portfolios. Now many supermarket chains import directly or buy entry-level wines as own label. “Wines of South America are hardest hit.
The interest towards them has significantly dropped,” says Shikanyan.
Still and sparkling wines are approached as two separate categories, in regard to their positioning and price points. At quality retailers, like Metro Cash & Carry, for example, the split between still and sparkling wines is around 55% to 45% by value, respectively. “Most sales for still wines fall within the 200.00 RUB to 300 RUB bracket. Russian-produced, semi-sweet white sparkling wines are generating big volumes on the federal level within the 115 RUB to 199 RUB price range,” says Dimitar Nikolov, business development director of Vengerskoe Vino. In the still category, Russian consumers’ preferences have long been red, rather than white. The cheap segment is still ruled by red, but in quality wine the gap between red and white is getting narrower. The fashion trend for rosé has yet to arrive in Russia; rosé wines are seasonal, driven by summer sales, and generally have a very modest share. The Russian habit of drinking semi-sweet wines of any colour, much frowned upon by the international wine community, is gradually disappearing. “We see a rapid change in still dry and semi-sweet wine consumption, the latter losing ground. This is very good news,” notes Nikolov.
Sparkling wine often outperforms still wines. Retail sales remain strong in both value and volume, and wine is increasingly bought in the medium range. “Five years ago people were drinking entry-level Sovetskoye or Rossiyskoye Shampanskoye, which accounted for around 90% of all purchases. Today, preferences have changed towards the medium price bracket, with a new 50/50 ratio,” says Andrey Makhalov, UTA-NN commercial director, adding that medium-priced sparkling wines are typically 170RUB to 260RUB. UTS-NN is an importer and distributor based in Nizhny Novgorod, covering 64 of the 83 Russian regions. When it comes to premium sparkling wines, Russian consumers opt for foreign brands. Perhaps the only Russian producer able to position sparkling wines in the premium category is Abrau-Durso; the wines sell for plus-300 RUB. “Notably the top selling category in sparkling wines above 600 RUB is Italian Asti, with the leading brand being Martini,” says Dimitar Nikolov. It is also important to mention Champagne as a historically prestigious sparkling wine in Russia, where Moët & Chandon with their brands dominate the sub-category.
There is a small resurgence of fortified wines, Port in particular. One possible reason is the crackdown on spirits consumption, especially vodka, which may drive consumers to move to fortified wines. Yet, on the whole, this is
a niche category and is very likely to remain this way in the near future.
These trends are most clear in the mass retail segment – supermarkets, hypermarkets and discounters – where consumers do most of their food shopping, including for wine. There are 120 large retail chains in Russia. Together they have over 20,000 outlets, and their expansion continues. Last year in Moscow alone, large retailers opened 257 shops – five times more than expected.
There haven’t been significant changes in premium consumption in the past 12 months, but it is worth noting that people are increasingly looking for better value at any given price point and are becoming more adventurous. “People, in a way, are now bored with the classics. They are no longer excited by Bordeaux or SuperTuscan wines, but they react positively to countries and appellations which are new for them,” says Anastasia Shikanyan, saying there is particular interest in the wines of Austria and Portugal, and in less well-known areas of France and Italy. “In general, people are asking less for the big brands and are becoming more curious about small-scale, boutique wineries.”
She adds that icon and super fine wines enjoy the same demand as before.
Moscow and, to a lesser extent, St. Petersburg are the most powerful wine markets in Russia. Their influence will not diminish in the near future, but both are now saturated, highly competitive and have limited potential for growth.
Regional Russia, on the other hand, has not followed the crazy pace of development, lacking wealth and consumers with high disposable incomes. But while development in Russia’s regions has been slower, it is happening. “We see growth in the regions, not necessarily in the entry level only. Although Moscow and St. Petersburg are major wine-consuming cities, their markets are fairly stable and have long been divided between large wine operators,” says Shikanyan.
As far as the wine market is concerned, regional Russia normally means population clusters gathered around a key city. There are 13 cities with populations exceeding 1m, excluding Moscow and St. Petersburg. The total number of people living in these cities is about the same as in Moscow and St. Petersburg. Until recently, there was a wide disparity between these consumers: they bought either very cheap or very expensive wines. As incomes steadily grow, regional consumers are increasingly buying in medium and premium segments. Moreover, these consumers appear to be receptive to the values of cultured wine drinking. “The most popular price segment with restaurant goers is 1,500 RUB to 3,000 RUB. Italy and France have the highest demand, but our guests also show interest towards trendy new wines, such as New World sparkling or wines from Israel and India,” says Olga Tsigulskaya, business development director at 16th Line restaurant in Rostov-na-Donu.
Wine events grow
Compared to established European wine markets, Russian consumers have had little time to acquaint themselves well with the intricacies of the world of wine. There are connoisseurs and wine collectors with private cellars, and there are ‘advanced’ wine consumers who are familiar with various wine regions, grapes and styles, but their number is limited. It doesn’t help that a new law on advertising, in force from the beginning of this year, severely cut advertising and restricted other, broader channels of communication. It is no longer possible to read about wine in national papers and magazines, and the circulation of the specialised wine press is very limited. The Internet has become the most important source of wine knowledge for consumers, although restrictions apply there also.
Consumer wine events, from private tastings to courses and fairs, have become an important forum for learning about wine. Wine clubs, with themed tastings on particular grapes, styles or regions, are perhaps the most popular of these. Wine dinners with producers, normally organised by importers or restaurants, are well attended. “There are excellent perspectives for events which position wine as a part of gastronomic culture and feature food and wine pairings, as the gastronomic market in Moscow and other cities is developing fast. Thanks to such events, wine becomes part of a good and tasty lifestyle and follows European patterns of consumption,” says Elena Porman, managing director of the Moscow International Wine Expo. Wine tourism is also on the rise, with wine tours organised not only by travel agencies and importers, but also bloggers and consultants. Savvy wine consumers prefer to make their own itineraries and travel privately.
Large-format wine consumer events in Russia are still rare. Most are organised by importers who invite their private and corporate clients. Among independent events, the Moscow International Wine Expo (MIWE) is the most established. It is an annual fine wine salon held in a prestigious venue each autumn, offering an open tasting, masterclasses from leading wine experts - Russian and international - as well as other wine experiences. “Consumers can attend MIWE only by personal invitations or by purchasing tickets. A ticket costs 1,000 RUB, which is quite expensive for Russia,” says Porman. “This allows us to attract consumers who are genuinely interested in good wines. Very often our visitors then buy wines directly from importers. Thus the fair is also interesting as a platform where consumers can taste new wines and talk to professional sellers.”