Weekly analytical column of Vadim Drobiz Week March, 14 – March, 20 2016

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/


Diageo expensive in Russia

The world’s largest manufacturer of alcohol British company Diageo in the second half of 2015 reduced sales in Russia by 12% in volume units. It is the most significant decline among all markets where the company operates today. But at the same time, company was able to increase net sales in Russia by 20%. These results Diageo explains the rise in prices and good sales of luxury, premium alcohol, where the increase was 24% in terms of volume.

As follows from the statements, the dynamics of sales in the Russian market was the worst among all the regions listed in the Diageo statements. For instance in Nigeria drop in sales in terms of volume was 8%. Global net sales for the half year Diageo has decreased by 5%.

According to customs statistics, the Diageo significantly reduced imports in Russia in such large categories of spirits like whiskey and rum: the volume of import decreased by 27.1% last year (up to 10.53 million liters) and 59% (up to 0,7 million liters), respectively. The total drop in imports of alcohol in the past year in the Russian market participants attributed the fall in consumer demand caused by the economic crisis and the need for importers to increase prices in a ruble devaluation significantly. In the second half of last year the pound sterling against the ruble rose by 23% to 107.49 rubles.

In Russia Diageo sells not only its imported products, but also those that are bottled under contract in the country – is whiskey drink Rowson’s Reserve and rum drink Shark Tooth. Both are shown in the lower price segment. The Diageo previously said they were satisfied with the dynamics of their sales.

Excise alcohol policy

In 2017 possible will be reduced excise rates on alcohol. Many market participants have long advocated for the introduction of a differentiated approach to excise tax alcohol producers. This should result in more stable market condition. Meanwhile, the state budget has already lost tens of billions of rubles of excise duties.

According to the Ministry of Finance of the Russian Federation, by 2017, the most significant increase in excise duties, if it count from 2008, will be on sparkling wines and beer. By next year tax increase on beer will be at least seven times for nine years. During the same period the excise tax on beverages of a strength of more than 9% ABV should grow to 523 rubles against the current rates of excise duty today – 500 rubles. (At the current rate it is $ 7.15) per 1 liter of pure alcohol. Tax on beer this year increased from 18 to 20 rubles per liter ($ 0.28). The constant increase in excise duties in recent years has led to a significant increase of the black market of counterfeit alcohol.

“In 2015 the volume of legally produced alcohol products, according to experts in Russia, decreased by 35%”, – said chairman of the Federation Council Valentina Matvienko As a consequence, the budget did not get about 200-270 billion rubles ($ 2.85- $ 3.86 billion).

Russia little hope of…

So – Prohibition in Russia not expect; “semi-prohibition” – too; vodka ban in individual regions (the regional administration has the right under the law of 2012) also we do not expect.

Alcohol and drugs in Russia

For many years, I write that the only benefit from anti-alcohol companies in different countries in the last 120 years is the drug business … Here are the figures from the last interview with the head of the Russian intelligence agencies to combat drug trafficking. Head of agency: “Drug trafficking in Russia is estimated at $60 billion a year.” This is the current rate of 4.2 trillion rubles a year. Manufacturers of alcohol in the country of such amounts cannot even dream of. In  legal retail volume of sales are 1.9 trillion rubles. Together with illegal trade – around 2 trillion rubles. At half the size of drug trafficking in terms of money! Well, who won in Russia today??

From the Russian news …

Here is another interesting event in the subject: “Vladimir Putin solved the secret of longevity of Russians”. “On March 9, President of Russia Vladimir Putin met with the Minister of Health Veronika Skvortsova, who reported to the president on the current situation”, – reports the official website of the Kremlin.

Mrs Minister reported to the chief that “… Russians’ life expectancy has increased.” Putin laughed and asked, “What, Russians began to drink less?”… Further followed by a unique response of the Minister: “Partly, yes “))))))))))))))))))) Who would translate it into plain  language. What is it like? Partly?)))

Skvortsova said that the life expectancy of Russians has increased to 71.2 years, and more so for men. The mortality rate decreased primarily for men aged 35 to 60 years The difference between life expectancy for men and women has decreased.

(I want to comment on: medicine keeps all of us in captivity myths – less live, because we drink more and vice versa … But how in the EU live on average 10 years more than Russians with a similar average per capita alcohol consumption of the population?)

That is correct proposals of the Federal Antimonopoly Service (FAS):

– “… all prohibition laws fail”;

– ” …world experience in combating with counterfeiting – to simplify the conditions for business”;

– “…restricting the sale of alcohol near the social facilities has not led to a decrease of alcohol abuse the population”;

– “…if young people will banned buy alcohol legally under 21, they will replace it with drugs and surrogates…”;

– “…generally supports the position of the Ministry of Economic Development of the need to reduce the excise duty rates and in favor of reducing the powers of regional authorities in the administration of their inhibitions and alcohol sales restrictions “;

– “…toughen the penalties for counterfeiting”.

Proceeds to the Russian budget from excises on hard alcohol decreased in 2015 by 14 billion rubles ($ 215 million) compared with the previous year, said deputy chairman of the Federation Council Committee on Budget and Financial Markets Vitaly Shuba. If in 2014 the budget received 142 billion rubles ($ 2.18 billion) then in 2015 it is 128 billion rubles ($ 1.97 billion). “- said the senator at a meeting on the problems of regulation of the alcohol market.

According to the study “Analysis of the market of vodka and liquors in Russia in 2010-2014 and the forecast for 2015-2019″, prepared by experts BusinesStat in 2015, during 2010-2014 demand for vodka and alcoholic beverages in the country is reduced each year. Over the past few years, hard alcohol market has undergone significant structural changes related to, first of all, with the state regulation of the industry.

Other important reasons are: the introduction in 2010 of the minimum retail price for spirits, the establishment in 2013 of the ban on the sale of alcohol at night, regular increase in excise tax rates on alcohol, reducing real incomes of population. For many consumers the rise in prices on vodka became a decisive factor in the decision when purchasing.

All these factors are reflected in the dynamics of demand on vodka and alcoholic beverages by consumers. The demand for this type of spirits for the 2010-2014 decreased by 18.3% – from 1.72 billion to 1.40 billion liters. The most significant decrease in demand has been noted in recent years: in 2013 – by 10.2% and in 2014 – by 7.2% compared to the previous years. At the end of 2015, the demand for these products will be about 1.30 billion liters, which is less than the indicator of 2014 by 7.4%.

How change the Russian market of wine production in 2004 – 2015 years according to retail sales

Year / Indicators The volume of wine soldin million liters The sum of salesin billion rubles The cost of one bottle of wine a capacity of 0.75 litersin rubles
2004 882 128.5 109.3
2005 957 151.3 118.6
2006 929 161.3 130.2
2007 1026 193.0 141.1
2008 1058 220.6 156.4
2009 1065 238.0 167.6
2010 1239 292.4 177.0
2011 1259 332.4 198.0
2012 1172 340.0 217.6
2013 1132 353.3 234.1
2014 1121 376.2 251.7
2015 1124 389.0 260.5
2015/2004 127% 303% 238%

From 1992 to 2012 all the attention in Russia at the federal level has been given only to vodka. Wine production was living own life. According to the table wine sales grew by 27% over this period, and in monetary terms, the increase was 203%. Cost of standard bottle of wine over 12 years increased by 2.4 times! This growth in relation to the population of the country purely fiscal. But all this time the state has declared a desire to change the structure of alcohol consumption in the country in favor of wine and wine products! And where some subsidies, which officials say? Something they are not visible in the prices…

It is well known that a mass-wine market in the EU – are the products of 2-3 euros for a bottle of wine and winemakers had subsidy 1 euro per 1 liter of wine. Thus European states wanted to preserve the structure of wine consumption in their own countries in a particularly noticeable amplification of strong alcohol market in Europe beginning with 2002.

We in Russia have not so much expensive wine (I think 30% of the market), but if the average price of a bottle of wine 260 rubles, while the average wage in the country is 30 000 rubles – it is 115 bottles per month.

What buyers we want to attract on the market in such a crazy high average price for the products? Again, we need an analogy – it’s like a bottle of wine in the United States or the EU for 23 dollars or the euro. It is quite expensive for the population of these countries. Wines expensive $10 or 10 euros in these countries is not more than 25% of the market.

The main obstacle in the development of normal wine market in Russia – it is not so much the alcohol policy of the state, as the socio-economic model of development of the country. Experience shows that this model does not work!

Opinion of soccer player …

Defender of the Russian soccer club “Zenith” from St. Petersburg, the Portuguese Luís Neto, spoke about the peculiarities of his life in Russia.

“I like in Russia. I extended my contract with the club for improved conditions. In Portugal such a contract I will received hardly. In Russia taxes are lower also. In Portugal people are more open. But in Russian original culture. I can say that in the “Zenith” good atmosphere… Russian drink vodka, as we water. In this business they are have more skills than the Portuguese. They start from a young age to train to drink alcohol”, – Neto said in an interview with A Bola.


Italian winemakers will develop the wine industry in the Crimea?

“Despite the sanctions, Crimea will cooperate with Italy in the field of viticulture and winemaking. Today in the republic is already several investors. Businessmen have expressed interest in the implementation of projects for the cultivation and processing of grapes in the country.” This statement was made by the head of the Republic of Crimea Sergey Aksenov.

Italian guests arrived in the republic without the press. Further meetings, according to Aksenov, also planned to be held not in public. Aksyonov also promised that he will appeal to the ministries of tourism and agriculture of the Crimea with a request to hold a working meeting with Italian winemakers. According to the Crimean leader, it will be held behind closed doors. In addition, he promised to find authorized for cooperation with Italian winemakers.

Aksyonov also said that in the past month, he has already met with a number of businessmen and investors who were ready to implement several investment projects on viticulture, winemaking and other industries. The meeting then took place also in secret.

Details the head of the republic does not light. At the same time, he noted that many companies from the BRIC countries are also ready to cooperate. “But in order not to create problems of partners, I do not call them” – said Aksenov.

It is worth mentioning that the EU, US, Australia, Canada and several other countries have joined the sanctions in connection with the annexation of the Crimea by Russia. They are prohibit the companies of these countries and their individual representatives to conduct any activity on the territory of Crimea. And while there is no indication that these sanctions in the near future be canceled.


Import of Georgian wine

Georgian wine returned back to the Russian market in 2013 after an eight-year embargo. The ban was introduced in the spring of 2006, initiated by the chief sanitary doctor of Russia Gennady Onishchenko. Georgian producers was accused of marketing the wine with a high content of pesticides and heavy metals. By the time of the embargo Georgian wine had a bad reputation – most of the products supplied to the Russian market, was of poor quality or was a fake.

Because of the embargo, Georgia has suffered significant losses. At the time of the embargo in Russia supplied about 80% of all wine produced in the country. In Russia, Georgian wine accounted for 10% of the market. Georgia accused Russia that the ban on wine has political objectives. The situation is exacerbated by the fact that in addition to the wine ban was imposed on the import of the popular mineral water “Borjomi”. This was followed by Georgia’s withdrawal from the CIS and the armed conflict in South Ossetia, which broke all ties between the two countries.

Only in 2013, the embargo was lifted for Georgian wines. Soon Rospotrebnadzor allow importation into Russia 17 brands of wine, and five brands of brandy. It was also stated that the list of authorized producers will be gradually expanded.

During the embargo control of production in Georgia has increased significantly throughout the supply chain from raw materials to packaging and transportation. Certification of vineyards was carried out, a unified base accounting of all wine produced in the country, intensified efforts to bind names of wines with the place of origin them. Today were registered 18 names of wine, which is clearly delineated geographical birthplace (“Hvanchkara”, “Tsinandali”, “Tvishi”, “Mukuzani”, “Kindzmarauli”, “Akhasheni” and others.). This measure Georgian authorities  actually fixed historical names of wines and protect products from counterfeiting.

However, in bilateral trade left many difficulties. One of them – this is a complex procedure of border crossing because of the visa regime, which still operates in Russia for Georgian citizens. A curious fact is that many Georgian wine makers, supplying most of the wine in Russia, have not been in it for decades.

Despite dire predictions that the lost positions Georgian wine is not back (during the absence of Georgian wine has come a lot of inexpensive wines from different parts of the world), to the beginning of June 2014 the Georgian wine became the third marketability in Russia. The Russian consumer has not forgotten Georgian wine, besides its promotion on the market a few helped ban on Moldovan wine. Russia is still considered the largest consumer of Georgian wine – the share of supply in the country exceeds 50%. And the price segment of Georgian wine has changed more expensive than before. In 2013, experts expect that the average price for a bottle of Georgian wine will be 500-800 rubles, but the price began to grow due to general inflation and a poor harvest. By the end of 2015, a bottle of the famous “Khvanchkara” good quality can be purchased for 1100-1800 rubles, the price of “Kindzmarauli” reached 1800-2000 rubles.

But here in the import of Georgian wine intervened the situation in the Russian economy. Due to the devaluation of the ruble and falling purchasing power of the population import Georgian wine declined. According to the National Agency of Georgian wines on the results of 2015, wine imports to Russia fell by 51% to $ 18.3 million bottles. For comparison, before the ban shipments stood at 50 million bottles. Despite this, Russia has maintained first place among Georgian wine exporters. The top five also includes Kazakhstan, Ukraine, China and Poland.

Export of Georgian wine in 2015 in the five leading import countries into standard 0.75 liter bottles

Russia – 18,308,177 bottles (50.8%)

Kazakhstan – 5,195,949 (14.4%)

Ukraine – 3,412,453 (9.5%)

China – 2,672,154 (7.4%)

Poland – 1,600,302 (4.4%)

Others – 4,882,364 (13.5%)

According to the expectations of the Georgian wine-makers in the coming years, the export structure will not change seriously. The most popular Georgian wine will be in the closest neighbors of the former Soviet Union. Overall, Georgia exports wine to 46 countries. In general, in 2015 the export of Georgian wine was reduced by 39%.


“According to the World Health Organization (WHO), Lithuania is ranked third in the list of countries that consume the most alcohol, but the latest research has shown that per capita Lithuanians older than 15 years in 2015 consumed only 13.14 liters of pure alcohol. It’s 2.26 liters less than shown by recent WHO data”,- said on March 9 in the Lithuanian association of hotels and restaurants.

The study took into account the impact which have more than 200 thousand of Lithuanian immigrants living and working in the states with the largest excise tax in Europe -. UK, Ireland, Norway and Sweden. This encourages immigrants, traders and tourists to bring in these countries cheaper Lithuanian goods, including alcohol. It can be assumed also that a lot of alcohol are taken out of the country organized large parties. For example, at the end of 2015 the Lithuanian riding on a truck to Sweden tried to smuggle 11 thousand liters of vodka, saying in association”…


The volume of production of famous Latvian enterprise of alcoholic beverages «Latvijas balzams» last year amounted to 73.41 million euro, profit – 7.06 million euros (9.62% of turnover). This is evidenced by the data submitted to the stock exchange «Nasdaq Riga».

The company’s turnover last year was 0.5% more than in 2014. The growth of this largely contributed to the increase of 4.85% of orders from «Stoli Group». However, significantly  decreased sales volumes in Russia and Ukraine, said the leadership of «Latvijas balzams».

During the reporting period profit decreased by 11% compared to 2014 year. Profit decrease was due to a reduction in sales in the most profitable markets, as well as the cost of advertising and marketing products. In the state budget the company «Latvijas balzams» last year donated 53 million euros (or 72.6% of turnover), including 40.1 million euros of the excise tax.

Czech Republic

During the last five years, imports of Czech beer has grown steadily, and its volume reached $270 million in 2015. The main importer of Czech beer became the neighboring Slovakia, in second place – Germany, on the third – Poland. Czech beer is also in demand in Sweden, UK, USA and South Korea.

Despite the drop in domestic demand, many Czech breweries have reported a 10% increase in production due to the interest to local beer abroad. For example, the Budvar brewery in Ceske Budejovice produces beer for foreign users 1.3 times higher than for locals. The main importers of the bruwery – Germany and Slovakia. Total Budvar exports its products to 75 countries around the world. However, in the Czech Republic remains the highest beer consumption per capita in the world – 147 liters per person per year. This is about 40 liters more than in the neighboring countries – Germany and Austria.


Poland has become one of the leading brewing and beer consumption country in the world

According to Ukrainian news agency Poles transferred from strong spirits to beer, from a strong beer to light one. In addition, more rarely consumes alcohol Polish youth. This writes the “Gazeta Wyborcza”. Union of beer producers “Polish brewery” (Browary Polskie) has published data on this topic for 2014-2015. As noted, polish brewing industry is not threatened, because the Poles drink beer constantly. Poland is one of the leaders of the consumption of this popular intoxicating drink.

The average beer lover in Poland drinks 98 liters a year. It is fourth place in the world. In the beer ranking leading the Czechs – 144 liters. Poland also brews a lot of beer – 40 million hectoliters a year. This is the third result in Europe. Most beers produced in Germany – 95 million and the United Kingdom – 41 million hectoliters. Brewing industry in 2014 brought the Polish budget of about 10 billion zlotys (2.3 billion euros).

“Poland has been and is a country of beer culture. But the ways of consumption are changing. The Poles prefer less strong spirits. On the market a lot of competition, because very often there are new kinds of beer “- say in the Association” Polish brewery “. However, the problem is the consumption of beer by youth. “Teenagers drink less and less with each year, but this is because they go to drugs and smoking blends. It is a big problem.” – added to the “Polish breweries.” Over the past 12 years, the interest of young people to beer halved, but  tovodka – has not changed.

Email: alko-pr59@yandex.ru

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