Weekly analytical column of Vadim Drobiz
Week April, 18 2016 – April, 24 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/
Email: alko-pr59@yandex.ru
Russian alcohol market on the results of the 1st quarter of 2016
In my opinion, all processes of import substitution in the sector of spirits and wine products on the Russian market ended at the end of 2015. All that could did – have already substituted – so we see a drop of wine production in Russia in Q1 2016: wine – (-8%), sparkling wine – (-17%). Only brandy remained at level of 2015 year. And even the Crimea in large quantities supplying products to Russia from imported raw wine materials. Serious wine consumption growth in the country should not wait: the economic crisis, the sheer demographic crisis on the wine market, the impact on youth craft beer industry.
In Russia continues to drop in sales of imported spirits (whiskey, rum, gin, tequila, etc.). Last year, on average, this group fell by (-30%), in the 1st quarter of this year the total fall in the group of alcohol even 20%. Well, maybe not this category fall by 50% for 2 years! It’s too much even with the onset on the premium market of imported alcohol Russian surrogate alcohol products.
In the 1st quarter of 2016 fell imports to the Russia of vermouth (-25%), cognac (-30%). On the other hand, went up quiet wine import growth (+ 4%) and sparkling (+ 2%) after a sharp drop in 2015. Rather, it affects on the situation of uncertainty importers – whether to import a lot, if still not very clear how it will work retail since July 1, with the conduct of EGAIS system.
Results of the largest manufacturer of alcoholic beverages in Latvia Latvijas Balzams in 2015
The turnover of the company Latvijas Balzams in 2015 amounted to 73.791 million euro – 1% more than in 2014. Profit decreased by 11.3% – up to 7.065 million euros. This is evidenced by the financial report submitted by the exchange Nasdaq Riga.
The increase in turnover of Latvijas Balzams last year contributed mainly to the increase of 4.85% of orders from Stoli Group. While sales of enterprise products in Russia and Ukraine last year fell significantly. Profit fell under the influence of the sales drop on the most profitable for the company markets and investments in advertising of brand Latvijas Balzams.
In 2016, the chances of profit growth in Latvijas Balzams estimates with caution, given the drop in oil prices impacts on the Russian economy, slowing growth in China and uncertainty in the EU economy. For comparison, in 2014 Latvijas Balzams turnover amounted to 73.052 million euros, profit – 7.962 million euros.
Founded in 1900, the company Latvijas balzams is the largest producer of alcoholic beverages in the Baltic States. Since 2014 Latvijas Balzams is in a holding company Amber Beverage Group.
Whisky in Russia
Now the major players in the whiskey market in Russia – a multinational spirits companies. The first place is occupied by Diageo (brands Johnnie Walker, White Horse) with a supply capacity of 10.5 million liters in Russia in 2015, the second – Bacardi (William Lawson`s, Dewar`s) – 6,1 million liters, the third – Pernod Ricard (Jameson, Chivas Regal) – 5 million liters.
Whiskey market in Russia grew until 2012, being one of the fastest growing categories among alcoholic beverages. In 2012-2014, there was a stagnation – the volume of imports fluctuated at the level of 40-42 million liters per year, but in the crisis in 2015 was projected drop of whiskey supply to Russia: devalued the ruble and imported alcohol prices rose sharply. According to the Federal Customs Service imports of whiskey fell by 22.3% last year, to 33.59 million liters.
About craft beer in Russia
For a start it is worth recalling that, according to the Brewers Association of the United States. craft may be considered the one brewery, which produces no more than 70 million decaliters of beer per year, is an independent (outside investors and shareholders may not have more than 25% in the capital) and manufactures products with a large proportion of malt in accordance with the traditions of brewing.
The reason for appearance of the crafting brewing in the world in the early 1970s – consumers tired of the domination of beer of industrial standard, which resulted from the consolidation of the beer market in the world. As for the Russian beer market, is now crafting brewery accounts for about 1% of it. However, multinational companies are already seeking to take a seat in the front row. Against the background of a stable reducing their own sales international giants will fight for the youth audience in Russia, which crafting beer is gaining popularity.
In Russia there are no official statistics that would reflect the exact amount of crafting beer segment. As there is no industry associations crafting producers who could carry such statistics. But some calculations to do it is still possible.
According to beer сompany “Baltika” (owned by Danish group Carlsberg), in 2015 the volume of all Russian beer market amounted to 698 million dal. Nielsen Company estimates that in volume terms on the four international brewing companies in 2015 accounted for 73.5% of all beer in the Russian market: Carlsberg – 34,7%, Heineken – 12,9%, Anheuser-Busch InBev – 12,8% , Efes – 13%. The remaining 26.5% of the market consists of relatively large producers of beer, for example, the Moscow Brewing Company and “Ochakovo” (for two accounts for about 6-7% of the market, and about 2% in Trechsosensky brewery and 1% in the “Buket Chuvaschji”). On imported beer from the CIS and other countries together accounted for about 2.5% last year, another 1.5% – on private brand of retailers. The rest, about 13%, accounted for the smallest local producers, the number of which, according to various estimates of market participants, ranging from 250 to 350. They are today the fastest growing group.
Proper assessment of market participants about crafting beer volumes in Russia vary widely. For example, the Heineken evaluates them in a little more than 1 million dal in a year, that is significantly less than 1% of the total beer market in the country. The “Baltic”, however, believe that the real producers of craft has a share of about 2% today, and it is already almost 14 million decaliters.
Since 2010 the number of crafting breweries in Russia increased 7.5 times – from 13 to 98 in 2015. (For comparison: in the past year crafting US breweries produced 287.4 million decaliters of beer (13% more than in 2014) to $ 22.3 billion – a 12% of the US beer market by volume and 21% in value terms).
The difficulty in assessing this segment of the Russian beer market is largely due to the fact that there is no conventional definition of crafting brewing in Russia. In most cases, a beer crafting involve experimental author’s beers produced in small batches, which use the original ingredients and innovative recipes. But at the same time, many local manufacturers use a fashionable and beautiful the term “craft”, replacing them before another popular term “living beer”.
I believe that in the future may take crafting beer in Russia of 10% -12% of the market, but it will happen no earlier than in ten years. Then beer giants will not be limited only to the delivery on the Russian market of their own crafting brands, but they will buy Russian breweries, that have achieved the greatest success in this segment. This is already happening in other Western markets. I also believe that to win the Russian segment of crafting beer large breweries will be use retail chains, where products of breweries, specializing in the production only craft, now virtually non-exist. Today, the traditional sales channel of crafting beer are dedicated bars, pubs and shops.
The appearance in Russia crafting breweries and bars with their products is characterized mainly for megacities, where the standard of living of the population is traditionally higher. In the bars the price of crafting beer domestic production varies from about 150 rubles (US $2.3) up to 350 rubles (US $5.4) for a half-liter mug, taking from the price point of view the intermediate space between the premium bottled beer from the shop and draft imported beer from bar.
Email: alko-pr59@yandex.ru