Vadim Drobiz – Head of the Center for Federal and Regional Alcohol Market Research (CFRAMR)
The most quoted in the Russian media expert on the alcohol market of Russia, former Soviet republics and Eastern Europe. The latest news, detailed analysis, commentary, statistical databases on the alcohol market since 2002.
Full versions of the materials published in Russian on the website Vadim Drobiz http://cifrra.info/
Week March, 28 – April, 03 2016
Russian alcohol market
Since the beginning of the year in Russia dramatically increased production of cheap alcohol. At the same time, significantly reduced the release of high-quality alcoholic beverages.
So, the production of low quality wines, the so-called wine beverages, increased by 51%. I explain this trend a sharp rise in demand for cheaper products due to falling incomes in the majority of Russians. Such alcohol is easier to produce, it is much cheaper in the retail trade, which is very important currently. But it should be noted that the total volume of wine beverages production is not as large – 180 million liters, and the volume of production of regular wine is 2.2 times more – 400 million liters.
At the same time, since the beginning of the year significantly reduced the release of high-quality alcoholic beverages: vodka production fell by 15%, champagne (sparkling wine) – by 23%, wine – by 12%, cognac (brandy) – by 4%.
In my opinion such a marked decline was due to the fact that from January 1st, 2016 Russia launched the Unified State Automated Information System Registry volume of production and turnover of ethyl alcohol, alcohol and alcohol-containing products (Russian abbreviation EGAIS). Under this system, the manufacturer must register every single bottle of alcohol, otherwise it will be considered as illegal products. From January 1, all retail was supposed to be in EGAIS, but even by the end of January, the number of outlets, connected to the system, were small, so in January was stagnation, disrupting the distribution chain. At the end of March it was connected for about 80% of retail outlets. I think that in the next two months, most likely, the market will recover.
I also want to note that from January of this year significantly reduced the import of foreign alcoholic beverages: 30% less import of foreign whiskey, fell by 15% import of cognac, 12% less sparkling wines, 6% of the wine. At the same time in the last three months imports of wine materials has doubled.
It proved that …
Analysts have long paid attention to the fact that level of wine consumption depends on the level of prosperity in the state. The growth of the welfare of citizens is always accompanied by a rise of wine consumption in the total consumption of alcohol in the country.
The question arises: “What wine is better than any other alcoholic beverage?” Firstly, about the therapeutic benefits of wine written many scientific articles. Secondly, this drink consumption model differs from the model of hard liquor and beer consumption. Wine belongs to the type of beverages that drink not so much to achieve the end result – drunkenness, but primarily from dietary, culinary and even aesthetic reasons. In other words, wine is drinking to enjoy its taste. And so, as a rule, wine is drinking as much as the required accompanying its food, the desire to have fun, not the pursuit of intoxication.
Family spending …
The average Russian family spends on alcohol and tobacco 8.3% of their income. This is unacceptable much! Why? Because it is expensive! For example, resident of Western Europe spends in total on alcohol and food is not more than 15% of his/her income. And we have 65% of Russia’s population that spends more than 50% on food and beverages …
Whiskеy in Russia
In my column of March 21-27 were presented data Research I-Marketing Company on consumption and imports of whiskey in Russia in January-October 2014 and 2015. I have my own figures for the full year. It follows from them that the official (no gray imports) import whiskey in 2014 rose (+ 0.5%) to 4.13 million decaliters, and fell (-23%) to 3.36 million decaliters in 2015. This is 230 ml per Russians a year. For comparison, recorded by official statistics (with paid excise duty) consumption of vodka is an average of 5.9 liters per person a year in Russia. More than 25 times!
According to the Federal State Statistics Service in retail sales has been realized in Russia whiskey over the years, thousands decalitres:
|Name / Year||2010||2011||2012||2013||2014||2015|
On the new productions of whiskey in Russia is not heard except the newly signed deal between Bacardi company and alcoholic holding “Synergy” (here).
The Russians have not to risk of building at home distilleries since already at least 10 years promise to take away all distilleries in favor of the state. Some foreigners, apparently, it is not yet know about it. So in the Far East the company of Sutech Engineering from Thailand plans to launch a line for production of ethyl alcohol for medical purposes in the existing sugar factory. In the production the investor is ready to invest 50 to 70 million dollars.
There is much talk about the possibility of transmission to RAR (Federal Service for Alcohol Market Regulation) rights licensing production of medical alcohol. If this happens then the dozens of distilleries are automatically placed in the program of possible the state monopoly on alcohol … In general, it seems that the Thais could lose business!
In 2015, according to official statistics in Russia from 63.73 million decaliters of vodka excise duty has been paid. Factories reported on the production of 78.45 million decaliters of vodka. And retail sales showed 106.4 million decaliters of vodka. It turns out that of the total volume sold vodka 40% – this is an illegal product, from which were not paid applicable taxes. It is prohibitively much!
What do we drink?
I do not stop to wonder how wise enough to just 30 years by 1984 in the Soviet Union formed the structure of the consumption of wine, low alcohol and hard alcohol products: about 10-11 liters of hard alcohol, about 27 liters of wine production and about 24-25 liters of beer production per year on average per capita. From my point of view this is the ideal structure of the consumption of all types of alcohol to which are now spontaneously moves all European and North American culture. And we in Russia today, if taking into account illegal and the surrogate products, such ratio: about 8 liters of wine production, about 62 liters of beer and low alcoholic beverages and about 15-16 liters of strong alcohol per capita per year. Russia very much fell down for last 30 years in all major indicators.
Incidents of statistics
I drew a long time attention to the fact that in the US, the EU, in other countries of the world, as well as the World Health Organization and other organizations define the average per capita alcohol consumption of the population of a country from 15 years of age. Even in the United States taking as a basis for statistics that age, although officially it is possible to consume alcohol from 21 years. I think that it tacitly admit that in any society young people start drinking alcohol from 15 years. I think that should determine the average consumption of alcohol from 18 years. And if you take 15 years, it means thereby recognize the right of young people to drink alcohol from this age. No wonder that in several European countries wine can officially use from 16 years …
Moldova: results of the year
The volume of Moldovan alcohol exports fell by almost 18% in 2015 compared with the previous year and amounted to $153.7 million (2014 – $186.7 million). Exports drop occurs for the third year in a row. Supply reduction was primarily in the CIS countries (-30%). In the rest of the world, without the EU (-28%). This negative trend somewhat compensated growth supply in the EU (+ 12%).
Last year continued redistribution of the segments in the Moldovan export portfolio. The CIS share in the results of 2015 accounted for 46.6% (last year – 60%), the EU – 25.4%, and other countries – 28% (in the previous year for these two direction was 20%).
The Top 5 major markets included the same countries that a year ago, but there was some permutation. The first five in 2014 looked like: Belarus, Ukraine, Kazakhstan, the United States and Russia. In 2015, the leadership still retained Belarus with supply on $36.6 million followed by Ukraine – $13 million, next US – $12.7 million, Kazakhstan – $11.2 million, and closes the top five Russia – $9.5 million. It should be noted that the US market for the first time one of the three main export countries for Moldovan alcoholic beverages. However, all of them were earned less money than a year ago.
Major markets for Moldovan alcoholic beverages in the European Union – Poland ($9.3 million), the Czech Republic ($8.2 million) and Romania ($6.2 million). In the rest of the world countries – Georgia ($7.3 million) and China ($6 million). There are new markets – in Spain, South Africa, Bosnia and Herzegovina (wine), Panama, Hungary and Armenia (spirits). After a few years break, resumed shipments to Australia, France and Thailand (wine).
Traditionally, the primary trade accounted for grape wines, their share in total exports of alcoholic beverages from Moldova was about 64% in the past year. If you look at volume indicators, they even rose slightly from 10.2 thousand decalitres to 11.4 thousand dal, and the money we have received for these wines less (in 2014 – $111.8 million, in 2015 – $97.7 million). That is, prices fell, and in all directions. The reasons are known – after the embargo was imposed in Russia on Moldovan wines on the markets of neighboring countries immediately lowered their prices, plus added regional crisis – in the CIS countries greatly devalued the local currency.
From the CIS countries the largest suppliers of wine were in Belarus, the volume of which the last three years is about the same level – about 4.3 million decaliters, and in monetary terms – is reduced. If in 2013, Moldova has received for this amount $40.4 million, in 2015 – $25.4. How to recognize the producers themselves, they spoiled the Belarusian market after 11 September 2013 (the last Russian embargo), excitedly offering their products Belarusians cheaper than peers. In Russia sent 1.1 million dal wines (in 2014 – 1 million dal). In third place – Ukraine, which last year was still in force customs duties on imports. However, despite these unfavorable factors for trade, our wine exports in volume terms to the country even increased by 57%, which can not be said about its value, which, on the contrary, decreased by 32%.
In the EU, the largest volumes of wine were shipped to Romania, Czech Republic and Poland. The main market for Moldovan wines from the rest of the world – Georgia (1.2 million dal), to be exact – to Abkhazia, as well as China (growth – twice, however, the cost – only +23%) and the United States. The US market was perhaps the most interesting in the past year for Moldovan winemakers: for the last year delivery in liters increased 2.2 times, in dollars – in 2 times. That is carried out for two consecutive years to promote activities in this market are beginning to bear fruit. Interestingly, more than half of the wine exports to the US account for sparkling wines.
For the brandy (in Moldova, they were given the name of the divines) main market was Ukraine (269 thousand dal), though, compared to the previous year, there was a decline by almost half, and before that – about as much. The second of the major markets – Belarus (107 thousand dal), to the rest of countries the supplied insignificant amount of divines.
A year ago, the National Vine and Wine Office planned to undertake activities to promote the Moldovan wine production in Poland and the Czech Republic. Unfortunately, due to the fact that the State failed to comply with their obligations and not transferred its share in the established fund, the plans had to be abandoned. For example, the Polish market has clearly seen that Moldova has reached a limit on the volume in the segment of cheap semi-sweet wines. Supply it does not grow past few years. Moldovan wines need to go to the segment of dry quality wines, which extends, in contrast to the segment of semi-sweet wines. Related negotiation were with partners from the Czech Republic, to take similar measures on the Czech market in the next year as it is the second largest export of Moldovan alcoholic products in the EU. In both these countries developing the middle class and changing consumer preferences. They want to have more quality dry wines.
In 2016 in Russia it will be laid less them 5 000 ha of vineyards – it is already clear that the planting program, adopted by the Ministry of Agriculture for 2012 – 2020, will fail… This further pushes the dream of the Russian government about the maximum providing themselves with their own grapes and wine to the 2025 – 2030 years. So, gentlemen, importers, boldly bring in imported wine material not 17- 20 million dal in a year as it is now, and at least 50 million dal. You will have someone to sell it!
Carlsberg Problems in Russia
To describe the situation of the beer giant Carlsberg in Russia its CEO, Cees’ t Hart, used the image of glass that “half empty,” what he said in an interview with Financial Times. “Our company has business including some of the most difficult parts of the world, such as Russia. The last five or six years, we can not wake up the enthusiasm of investors in the country. We are behind some of our competitors in terms of profitability and return on invested capital. In 2010, the Russian market has provided about half of net profit Carlsberg, and in 2015 – only 16% … ”
I would for my part say it this way – as already taken all from Russia. Even “beer generation” did not save Russian market from a strong decline in production and consumption of the drink. At the same time I want to note an important point that this is happening without the explicit substitution of beer other alcoholic beverages: beer consumption in 8 years has fallen by 20 liters per person, and other alcoholic beverages is not increased. For this reason I write off a drop in beer consumption only on the demographic problems of Russia. Beer boom in 1995- 2007 is ideally matched with exit on Russian market Western beer companies when on this market exit children massively born in the Soviet period from 1978 to 1990.