Briefing
VODKA SALES HIT THE ROCKS IN RUSSIA
By: Henry Martin R
ussians determined to show off their surging affluence have helped make imported whisky the fastest-growing spirit in Russia.
The spurt in whisky consumption comes amid a wave of alcohol tax hikes, more stringent li- censing procedures and tightening advertising legislation. Big spending drinkers with a fond- ness for Western culture and money to burn are bringing about this sales boost for imported whisky in Russia, which is the fourth-hardest- drinking nation in the world per capita. (Moldova, Czech Republic and Hungary – if you must know!)
When the world started becoming saturated
with Scotch in the late 19th century, Imperial Russia was largely out of bounds for exporters due to a state monopoly on alcohol. That state of affairs was maintained after the 1917 revolution. For the next 70 years, the Soviet public had two options in terms of legal spirits: vodka and French-style cognacs made mostly in Armenia. Whisky wasn't exactly unknown in the Soviet Union, however the party elite, of course, could get their privileged hands on it. The average Russian really only discovered whisky after the state monopoly on alcohol was eliminated in 1992. In the era post-Soviet con- sumerism, people started looked West for role models. Watch a Hollywood production and every stressed out character is reaching for a bottle of whisky. Every single private detective worth his salt in Western literature has a serious whisky habit. In the past five years, sales of im- ported whisky have increased by 200% in Rus- sia, driven by rising incomes and the growth of the middle class. Whisky doesn’t even account for one single
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tiny little percentage point. Russia is the world's largest spirits market, and only about 4% of it is imported foreign spirits. However, vodka is on the rocks due to new minimum retail price reg- ulations. Sales dropped by 2% in 2011. That might not sound like a huge amount, but the market is so big that 2% makes up more roubles than you could shake an empty bottle of Stolichnaya at.
The Russian government believes that alco- hol consumption is a scourge on the Russian population that has to be dealt with. It is partic- ularly concerned about excessive consumption of vodka, which creates huge social and health problems. It has stepped up its consumer edu- cation campaigns to encourage more responsible drinking. Further effects on sales will come as more legislation is passed in terms of higher tax- ation and restricted sales hours. Whisky has been the fastest-growing spirits category over the last few years. Growth has been encouraged by the luxury brands that ap- peal to the wealthy but also by brands in the economy and standard price segments, includ- ing White Horse and Bell’s. Cheaper whisky is starting to appeal to consumers on standard earnings, indicating that the tipple is appealing to a target audience that was previously buying vodka. Today, the Russian whisky market resembles that of the rest of the world. As elsewhere, the market is dominated by Scottish distillers, and the most popular brands are blends, largely be- cause they're cheaper than single malts. White Horse, Famous Grouse and William Lawson lead the market in the lower-range segment, and the most popular premium blends include Johnny Walker Black Label, Chivas Regal and
Dewar’s. The best-selling single malts are Glenfiddich and Glenlivet, respectively the largest and second-largest producers of malt whisky in the world. There are, however, oddities in the market. Irish whiskeys have a disproportionately strong presence because Jameson was one of the first brands to enter the market in the early 1990s. Apart from the ubiquitous Jack Daniel’s, North America is very much under-represented. How- ever, one American whisky company that is try- ing to change this is Beam. Beam is hoping to double sales in Russia by 2015, and so far its plan is progressing swimmingly. That’s mostly because Beam targets affluent drinkers whose tastes are starting to favour whisky over vodka. Beam boosted its share of the U.S.-made whisky market in Russia to 25% in 2011. It’s now targeting market leader Jack Daniel’s and its 72% share. With the recent of- ficial ban on alcohol advertising, Beam has turned to more unconventional marketing meth- ods. Crews of attractive young women are sent into bars to seek out Jack Daniel’s drinkers and offer them free blind taste tests. Beam also hosts golf events and tastings at yacht clubs. It can, however, be difficult to do business in Russia. Companies face trade barriers, from onerous licensing and import rules to weak in- tellectual property protection. However, Russia joined the WTO in August 2012. That Russia has taken its place in this global trading system matters to whisky distillers. A 30% reduction of the whisky tariff should be in place by 2015. WTO membership also brings with it obliga- tions to treat imports fairly and increases manu- facturers’ ability to scrutinise potential trade barriers.
New European Economy
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