Weekly analytical column of Vadim Drobiz
Week May, 02 2016 – May, 08 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
Recent data on the status of the Russian alcohol market in early 2016 and for the entire 2015
Sales
During the year, the share of vodka in the alcohol market of Russia has decreased from 41% to 40.6%, based on pure alcohol. This was reported by Rosstat (Russian Statistics Agency), comparing data on sales of alcohol in the 1st quarter of 2016 with information on the same period last year. The reason for reducing the share of vodka was the fall of its sales, recorded statistics. So, for the period from January to March this year, it has fallen by 4%.
Besides vodka sales for the year fell in the segment of sparkling wines (by 5.7%), as well as in the segment of brandy, and brandy products (by 4.6%).
At the same time, the increased popularity of still wines, as well as apple and pear cider, mead (an alcoholic drink based on honey) and similar beverages. In the first quarter of 2016 the share of these drinks has risen by 50.9%, as a whole amounted to 0.1% of the Russian alcohol market. (The increase is significant, but from a very low initial base).
The share of still wines has increased over the year from 9.9% to 10.5% (sales, respectively, increased by 0.6%).
As a result, according to the first quarter of this year, the country’s alcohol market is unable to demonstrate positive dynamics. According to Rosstat, in the first quarter of 2016 the sale of all alcoholic beverages decreased by 3% in terms of absolute alcohol.
Production
Enterprises of the Russian Federation in the first quarter of 2016 compared to the same period last year reduced the production of vodka and sparkling wines, but increased the release of cognac (brandy) and beer, from the data of Rosstat. In March 2016, based on year vodka production, it grew by 5.5% – to 4.5 million decaliters, while compared to February 2016 – increased by 41.8%. The production of vodka in the first quarter of this year decreased by 8.3% compared to the same period last year.
Release of sparkling wines and champagne declined in March by 4.9% compared with March 2015 – to 887 thousand decalitres, as compared to February of this year increased by 19.2%. In general, in the first quarter drop in production amounted to 16.7% on an annualized basis.
Release of cognac in March on an annualized basis increased by 7.7% – to 578 thousand decalitres, as compared to March of last year + 38.6%.
Beer production in March on an annualized basis increased by 11.2% – to 72.5 million decaliters, compared with February + 34.2%, while in the first quarter + 5.5%.
Export
Export of Russian vodka in February increased to 117 thousand dal, against 107.2 thousand in January. This was reported by the Federal Customs Service. In January-February of vodka exports totaled 224.3 thousand dal. (This is in terms of pure alcohol). Of these, 72.2 thousand decalitres were exported to the CIS countries and 152 thousand to foreign countries. In December last year, Russia exported 267.1 thousand dal of vodka.
According to the Union of Winegrowers and Winemakers of Russia in growing grapes in the country it is engaged in around 280 specialized farms, of which 61 have the capacity for the primary processing of grapes. Total not less than 86 thousand people are employed in industry. According to forecasts of the Union this year, domestic manufacturers will provide up to 80% (750-800 million liters) of the domestic market in a quiet and sparkling wines. Although only half of the wines will be made from grapes of the Russian. It will save the lovers of these drinks money, because domestic wines rise in price at a slower pace than imported products tied to the rate of dollar and euro to ruble.
The new name – drop in sales?
Example of how to change the name of the alcohol product can affect the level of sales. In connection with the plans of accession of Moldova in the EU there was a need to change the familiar names of Moldovan alcohol products, as required by EU rules. This list includes wine Cagor (Kagor), which has received a new name Pastoral.
Head of Sales and Marketing of Moldovan company Alianta-vin, Wanda Festishina, explains that “… in 2018 the sale of wine Cagor this company are subject to risk, because at that time forbidden to use the word Cagor (Kagor). The company has developed a strategy that would allow gradually accustom consumers to the new name. Currently, on the labels used the two words at the same time: “Cagor (Kagor)” and “Pastoral”. Gradually increase the height of the letters the word “Pastoral”. It began to use one kind of font for both titles. Over time, the frequency of use of the word “Cagor” in the title will be reduced gradually to disappear completely. But we feel that as soon as something is changing – sales are down. We understand that this is inevitable, but necessary step…”
With a similar problem will sooner or later encounter many manufacturers of alcohol in the post-Soviet space, which is massively used names such as Champagne, cognac, sherry, port, madeira, etc.
Krušovice will sponsor the World Hockey Championship in Russia
In Russia, from 6 to 22 May 2016 in Moscow and St. Petersburg will host the next World Hockey Championship. One of the official sponsors of the tournament will be the Krušovice beer (HEINEKEN group). The brand has also been an official partner of this tournament last year, and before the World Cup in the Russian sides extended the agreement until 2019, inclusive.
The status of official sponsor in the “beer” category allows Krušovice place their ads on the sides of the hockey arenas, which will host 64 matches. Krušovice logo will display on all press conferences and screened during the official program. In addition, Krušovice will be the official sponsor of the World Cup matches broadcast on the First Channel of Russian television.
The tournament should be a real media event in Russia, considers the director of marketing for HEINEKEN Russia Jonny Cahill. Broadcast of the last World Cup – 2015 in the Czech Republic have been very popular in Russia: total views exceeded 300 million, and a home tournament will break all records on the size of the audience, he said.
According to Cahill, sponsorship Home World Hockey Championship – a great opportunity to support the brand, which has become one of the fastest growing in the Russian market. Now Russia – the largest market for Krušovice. “Hockey for Russia historically – sport №1. Despite the fact that the attendance and the audience it concedes to soccer, it is in hockey it was won the greatest victory of Russian sport. We are proud that the Royal Krušovice beer has been able to maintain a royal tournament, “- said John Cahill.
Czech hops sold until 2020
Сrops of Czech producers of hops sold for several years, and most of it is exported – mostly to Asia, Africa and South America. Knowing the current area under crops and the average volume of harvest, experts suggest that the entire Czech hops are already sold out till the years 2019-2020. So hop growers will expand crops, because the raw material needed and the Czech breweries. This summer, it is planned to lay 350 hectares of new areas, and a whole planting area reached 4800 hectares. Varieties planted mostly Žatecký Poloraný Červeňák, Sládek, Saaz Late, Kazbek, Agnus and Premiant.
Overall abroad are exported 80% of the Czech hops. Most of all purchases Japan, where many brewed lagers Pilsner type. In addition, the biggest customers are China, Germany, Russia, Italy, Belgium, United Kingdom, Vietnam, the United States and South Africa. In Africa, the Czech hops also buy Zimbabwe, Lesotho, Uganda, Swaziland and Botswana. In South America – Peru, Colombia and Brazil.
Among Czech companies buy most Pilsen Gambrinus.
Recently, consumers prefer a strong beer, and therefore need more hops.
The harvest in 2015 due to the intense heat was unsuccessful – only 4843 tons of raw materials. In addition, the weather affected the quality of the crop. Unfortunately, in the Czech Republic only a quarter of the fields for the cultivation of hops installed irrigation system.
Poisoned, poisoning and will be poisoned?..
How much is said and written in Russian about the poisoning of surrogate alcohol? However, our consumer does not scare any mass poisoning. But whereas this was only marginalized part of population, but now poisoned counterfeit drinks are not afraid and more affluent segments of the population. Every year, Russia’s population drinks more than a dozen million of such bottles surrogate whiskey, rum, gin, tequila, French cognac and etc. Over the last 5-6 years, in Russia has formed a large and stable market production (often in his own garage), sales (mainly in illegal retail) and consumption (normal citizens of the middle and lower-middle income) surrogate Western and Russian premium alcohol. A poisoning while isolated. Even if such products poisoned to death by 5 years of 20-30 people, then we drank during that time at least 50 million bottles a surrogate.
Try to convince the person in danger of the surrogate product, minimally familiar with the basics of mathematics. He will say that the probability of poisoning is negligible and it is certainly not going to happen with him. That’s from such “education” we suffer!
Ban plastic beer packaging – for whose benefit?
Finally, it became clear to whom in reality working those people and organizations in Russia that urge to abandon the plastic packaging in the beer industry. I called even 5 years ago, the most concerned – are producers of glass and metal packaging. At the same time I had not heard about the glass oligarchs in the country. But the oligarchs for the production of aluminum are known to all! One of the largest of them, Oleg Deripaska, offered at a government meeting Prime Minister of the country, Dmitry Medvedev, have the courage to remove the plastic packaging from the beer industry for the support of strategic sectors of the country – aluminum and glass manufacturers. However, even Rospotrebnadzor (Federal Service for Supervision of Consumer Rights Protection) is unable to obtain the appropriate expert opinion about the dangers of plastic packaging.
The Union of Russian Brewers appealed to Deripaska a return letter, which stated that its proposal would destroy the beer industry. I think it will not destroy industry, and not too affects the consumption of beer in the country. Demand for beer for this reason if dropped, is not more than 5%. At present, in Russian in aluminum packaging is done in no more than 20% of the beer – it gave 140 million dal a year.
From polyethylene prohibition metal packaging market will receive an additional about 10% of the beer market in the country – it is about 70 million dal. This increased production of aluminum cans is 1.5 times. This is serious business, for which real capitalist will sell his own mother! (Russian proverb.)
So beer or wine?
For all the novelty and appeal of crafting beer the Russian state and society will have to decide – that today is more necessary in the youth sector of consumption: craft beer or wine?
I personally think that crafting beer takes no more than 10% of the beer market in Russia, and not earlier than in 10 years. That’s about 75 million dal of products which will drink mainly young people under 30 years old. I have no doubt that the brewers will find money on advertising of crafting beer, especially if to that will join Western beer monsters. And the Russian winemakers money on advertising, comparable to beer, was not, don’t and never will be! And we in the coming 10 years will lose another generation of young people. It will also be a beer-generation – and them so in 2 times less in number due to the Russian demographic specifics!
At the same time, once again, I want to emphasize that I do not consider myself an enemy of beer – I’m all for it as a consumer. But for this is such a thing as alcohol policy – reasonable, with specific goals and realistic objectives. And many Russian officials have turned this in anti-alcohol policy. And in the anti-alcohol policy it is prohibited to use brains!!
Sparkling wines and champagne are in Russia more and more unaffordable product, so the Russians are switching to cheaper drinks.
Last year, Russians consumed 230 million of champagne and sparkling wine, which is 15 million liters less than in 2014. Of this amount, the share of Russian products 165 million liters (or 72%). These missing liters Russian consumers replaced with wine fizzy drinks in which no added alcohol. Due to this, they are 30% -40% cheaper than the usual sparkling wines. I believe that in 2016 a further fall of consumption of sparkling wines in Russia will not be.
The price of the bottle of wine: what happened with it in Russia?
I set a goal to compare the average factory selling price per conditional bottle of wine (0.75 l) during the period 2012 – 2015 years, and the 1st quarter of 2016, taken from the report of the Russian statistical agency. The results are tabulated.
| Products in rubles | 2012 | 2013 | 2014 | 2015 | First quarter2016 | 2016 to2015 | 2016 to2012 |
| Average conditionalprice of 1 bottle of still wine | 45,0 | 50,0 | 55,0 | 72,0 | 85,0 | +18% | +89% |
| Average conditionalprice of 1 bottle of sparkling wine | 94,0 | 102,0 | 110,0 | 120,5 | 138,0 | +14,5% | +47% |
For still wines: the growth of the average bottle price of 1Q 2016 to the average price 2015 – (+ 18%), and to 2012 – (+89%). For sparkling wines price rose (+ 14.5%) compared to 2015 and (+ 47%) to 2012.
In fact, wine production in Russia has risen dramatically in just a few years. The increase in the excise duty rate was low during this period. But have become more expensive all other components of the price.
(Price changes over the same period in the US dollar or the euro is much more difficult to trace, because at different times was a different exchange rate of these currencies to the Russian ruble.)