Problems of Wine Industry Development
Research by the Center for Investigations of Federal and Regional Alcohol Markets (“CIFFRA”)
Beer Advertising in Retail Chains
Research by the Company “Hypercom”
Consumer Behavior in the Russian Market of Bottled Water
Research by MASMI
Review of the Russian Market of Confectionery Products
Research by the Center for Confectionery Market Research
Review of the Russian Sausage Product Market
Research by the Company “AnalyticResearchGroup”
Review of the Russian Dairy Market
Research by the Company “Petrova Five Consulting”
Review of the Russian Market of Chilled Convenience Meat Products
Research by the Expert Consulting Company “Dvornikova & Partners”
Branding in the Russian Market of Snacks
Research of the Branding Company “Labelmen”
FRUIT & VEGETABlES
Review of the Russian Market of Fruit and Vegetables
Research by the Company “I-Marketing”
Consumer Behavior in Russia
Research by the Company “GfK-Rus”
Review of the Russian Market of Polyethylene Films
Study by the Company “Abercade”
20th International Exhibition of Food Ingredients “Ingredients Russia”
15th International Exhibition “Dairy and Meat Industry”
2nd International Exhibition “Beviale Moscow”
25th International Trade Fair “Upakovka-2017”
20th International Trade Fair Plastics and Rubber “Interplastica-2017”
24th International Exhibition for Food, Beverages and Food Raw Materials “Prodexpo-2017”
Problems of Wine Industry Development
The Ministry of Agriculture of Russia has developed the ‘Concept of winegrowing and winemaking development in the Russian Federation for the period of 2016–2020 and the planning period until 2025’. The document is not bad, although it does have weak points, and today we would like to focus on the main one: even if the state finds sufficient funds for the Concept according to the maximum version, we may get a contradictory result, which might be disappointing…
The state is not planning to work with wine consumption and wine consumers. And if it fully leaves this work up to businesses, it is guaranteed that it will not be managed without considerate state and public support. We are suffering a never-ending crisis and hopeless poverty of the majority of Russia’s population, so mass alcohol gourmandize is, sadly, out of the question.
The document contains a few statements about the matter:
- ‘…insufficient attention paid by the state to the development of wine tourism and…’;
- the state’s goals and objectives include ‘increasing the share of wine in the overall alcoholic beverage consumption by reducing the share of strong alcoholic beverages (including unregistered consumption)’.
This may surely come across as grumbling, but the term ‘consumption’ appears in the Concept (which is 25 pages of text) only once, in the quote above, and the word ‘consumer’ cannot be found there at all! The Concept is there for manufacturers and is oriented exclusively at them. The Concept aims to support production, and its authors assume that for whatever reason the population will come together to aid the wine industry. The population needs to purposefully give up on other products, such as beer, vodka etc. Why though? In the past we established that social regulation of the alcohol market in Russia was carried out based on the assumption that consumers are uncivilized, ignorant fools. And now, suddenly the state is expecting such levels of social consciousness in switching to wine!
Of course, we happen to have the beer market as an example, where since 1995 the population, for a number of reasons, rushed to the beer market and increased consumption by 5.5 times over 12 years, without decreasing consumption of other products; what a miracle! This kind of miracle – switching to wine products following one’s heart, not even supported by advertisements – is what the Concept and its authors hope for.
The Concept is adopted at a point in time when massive import substitution in the wine market is already over (the share of imported wines declined from 35 to 25%). Basically, this is the limit for Russian wine production volumes and consumption. Even if expensive Russian wines manage to expand by 20 million more bottles from the current 10-12 million, no coup in volumes will take place in the market of expensive wine, even though its annual volume in Russia does not exceed 75-85 million bottles today.
The above considered, we are expecting the following within the next seven years or so: the state will support winemakers financially and administratively, as a result production of both table and wine grapes will grow and by 2023 final substitution of today’s volumes of imported wine materials (20 million decaliters) will occur; expensive Russian wines will occupy 40% of the expensive segment, and consumption of wine in Russia (and thus production thereof as a finished product with a stable production-to-imports ratio) will keep declining for the next 6 years (until 2023) at the very least with the given approach. What will the state say to that in 6 years? Intermediate production (vineyards, grapes, wine materials) is growing, but the volume of finished products is dropping!
Unless the Concept itself (rather than some by-law at a later point) has a separate chapter on the development of wine consumption included in it, in plain text instead of vague hints, growth in production and consumption will not be achieved. It will not happen without a strong state information and agitation policy aimed to increase wine consumption, which, of course, would deprive the state of a significant part of excise taxes from strong alcohol. Then one could only brag about growth in wine material production, which would substitute 30-35 million decaliters of imported and falsified wine materials. And domestic table grapes, of course: according to reports by the Ministry of Agriculture, its share has already reached 30% in the market (about 5 years ago it was no higher than 15%), even though according to publications in Crimea, for example, table grapes sold there are almost exclusively imported. No new storages have been built in Russia over the past 5 years as a preparation for 2023 – where does the increase in the share of domestic grapes come from? Apparently, its consumption simply decreased, and so did consumption of juices.
An annual increase in wine production is necessary while the Concept is working, even if very slight, by a couple percent per year. This, in turn, requires ‘recruitment’ of new consumers, given the ongoing demographic wine crisis (until 2023), which is impossible without state measures.
While the retail market of wine (both domestic and imported) is declining, per capita consumption of wine is declining, too. Only the market of wine drinks is growing, slightly surpassing 2014 with a 16% growth in 2016 to 2015. Official wine consumption according to Rosstat fell from 4.5 liters per capita in 2013 to 3.7 liters in 2016. We will keep losing at least 2% per year during the next 6 years, even though it may seem like there is nothing left to lose. Growth in wine drinks in 2016 (by 3.7 million decaliters to 2015) against a decline in sparkling wines by 1.6 million decaliters and in still wines by 1.7 million decaliters resulted an overall growth in volume by 0.43%, basically at the level of a statistical error. In total, however, the volume of wine products in 2016 dropped by 9 million decaliters to 2014!
Of course, the state actively and effectively develops and regulates the wine industry as much as it possibly could, except there is one thing that happens to interfere with it – today federal authorities have zero financial interest in such programs. Not only does money from wine products (as well as beer) go to local budgets, there is so little. Below is the most recent data by the Federal Treasury for 2016:
- from Russian strong alcoholic beverages, fiscal authorities collected 164.75 billion rubles in 2016 (+28% to 2015);
- beer yielded 148.3 billion rubles (+14%) – and the state could not care less that the beer market decreased in volume by 30% over the past 8 years, as in 2009 excise taxes on beer amounted to only 30 billion rubles per year!
- 10.22 billion rubles were collected from wine products (+20% to the previous year, or +1.5 billion), whereas the physical volume of the wine industry is extremely close to the physical volume of the legal strong alcohol market, which means that excise taxes collected per unit of wine products were 16.5 times lower than those per unit of strong alcohol.
Let us talk honestly and openly: this is one of the reasons why federal authorities do not need an increase in wine consumption or changes in the culture and structure of consumption. Moreover, God forbid that actual substitution of strong alcohol with wine products suddenly begins – federal authorities will be losing 15 times more in their federal excise plan for every unit replaced!
The culture of wine consumption (and wine is a culture), the benefits of wine and its advantages over strong alcoholic drinks trigger anti-alcohol public figures and idealists in various branches of the government, ‘There is no culture in alcohol, period!’ We educated and reasonable people understand that wine is no ‘alcohol’. (For example, Moldova, recognized wine as a regular beverage and excluded it from the list of alcoholic beverages.)
The state chose the best option from their point of view in terms of wine policy – it comes forward with various reforms with the current consumption levels while doing nothing in order to actually improve and increase wine consumption (and thus not losing excise taxes from strong alcohol and beer).
Let us look at the volumes of production, imports and exports: in 2016 they amounted to 55 million decaliters of still wines, 18 million decaliters of sparkling wines, and 35 million dcaliters of wine drinks, resulting in around 110 million decaliters total per year. The state is quite content with said volume, as it provides it with an optimal ratio in excise taxes. The state is lucky in the sense that in 2015 Russia had enough imports to substitute in finished products, and growth in wine production by 25% in 2015 to 2014 did not prevent a decrease in wine consumption in 2015. The state is lucky because Russia can still substitute 20 million decaliters of imported wine materials while continuing to decrease domestic wine production and further losing consumption… And finally, the state is ‘lucky’ to have a market with at least 15-20 million decaliters of statistical counterfeit, which gives it the same opportunity to develop production of grapes and wine materials while maintaining the amount of excise taxes collected from strong alcohol and not having to increase production of bottled wine and bother with consumption.
All today’s reforms are reforms in the closed volume of 110 million decaliters in a wine market lacking serious prospects for overall growth, aimed to prevent a decline in expensive excise hard liquors due to consumption of cheaper excise products.