The educated inhabitants of Russia’s second city have embraced wine. But anyone who wants to enter this market will have to accept lower margins, as well as stringent new advertising laws. Continue reading
It was 2008 when I first uncovered the beauty of long-distance traveling. Thanks to Wine Australia, a trade promotion organization for Australian wines, I was taken first down to Perth and the regions of Margaret River and Mount Barker — and then to hot Barossa and Clare. Hunter valley and the shining Sydney were the finishing point, a beautiful third course of this “dinner”. Back then Australian wines were in the spotlight of the public interest in Russia as were the other New World wines. It was a “before crisis” time, the market was booming – in terms of Russia booming can be defined in rising imports level and the consumption reaching 6 liters of wine per capita a year. I came back inspired that Australian wines had a brilliant future lying ahead. This was partially based on the growing interest to New World wines in general, but also on perceived interest of Australians in the Russian market – and therefore the efforts to enter it. In fact, me and many wine trade people I talked to are quite sure that the potential for Australian wines is here – they are warm climate wines, mostly reds, perfectly suited for the colder Russian conditions – aromatic, dense, full-bodied and rich. Despite the fact that elegant wines are more and more appreciated, Australian wine industry is surely capable to deliver the wines of the right profile.
Lots of things have gradually changed since 2008. Russian wine market suffered several deadly “heart attacks” which lead to market shrinking and consolidation of the players – and with this in mind – disappearance of some smaller importers who just couldn’t catch up with the rising appetites of Russian officials-bureaucrats and their desire to make money out of nothing. As you probably heard, Russian “fine wine” market is not easy to deal with. The main enemies of doing business here are strict and ever-changing rules of the game and the regulations.
There are Australian wines in the portfolios of major wine importers but they are miniscule in terms of events and information flow from the official bodies whose job is to create awareness and show local wine advantages throughout the world. Unfortunately Wine Australia also undergone big European management change and the focus of efforts of its UK-based office is far from Russia. Aaron Brasher, regional director for Australia and emerging markets told me in an email: “Wine Australia’s position in Russia is a passive one. We work with Austrade to identify any opportunities and resource accordingly. Russia currently is not a priority market and there are numerous barriers to entry. It is a market that we continually monitor to assess the environment and opportunity”.Less activities and consumer education both mean less market share. Russians are curious and easily try new things. For the last several years I never saw a single event capable of attracting any wine audiences or importers. The knowledge of a general Russian consumer about Australian wines is limited to Shiraz and possibly Yellow Tail bottle, if they recall the name. As Olga Olefir, the head of corporate department of MBG wine importer says: “The Penfolds dinner with the Russian clients was an eye-opener for me. This flagship wine from Barossa is virtually unknown even among high-end wine consumers. Add to this a huge gap between low-level supermarket plonk and overpriced high-quality Australian reds which is not filled by moderately priced fine wines from stable producers – and you will see the picture”.
With importers and rare big producers having to educate consumer at their own expense the position of Australian wines is being driven to low-quality wine sales and complete oblivion of the category of nice aussies like Henschke, Charles Melton, Yalumba, Torbreck – especially in on-trade. Argentina, France, Italy and Spain are taking the minds of Russian consumers. Even Greece is doing amazing amount of events in Moscow although we all agree there’s no chance for it to gain any noticeable market share.
Veronika Denisova, now in charge of wine education in Moscow’s leading wine school Enotria comments: “Education is crucial for any country willing to be on this market. With a new emerging flock of younger bloggers and journalists it’s easier to address wider public than it has ever been. Internet changed a lot in wine business”.
Only big wine producers like Pernod Ricard who secured their market shares with fine spirits feel quite safe in Russia. Jacob’s Creek is growing due to great distribution system of the spirits’ brands of Pernod Ricard in Russia. Still, even this wine is not always perceived as Australian and it definitely does not represent the crème de la crème of the Australian wine producers.
Other wine trade professionals were quite consonant with the dominating opinion. Australian wines are out of public interest due to obvious reasons but the potential is still there. Shiraz is widely accepted by Russians as a leading “brand” of Australian winemaking and this could be an amazingly interesting marketing tool to use. But it should be rather used by regions or country bodies like Wine Australia; no one else has the financial power and desire to bear this kind of responsibility.
This story originally appeared at Russia Beyond the Headlines on November 13, 2012 — read original
Russian authorities have done it again: new restrictions are now applied to the alcohol advertising both in the Internet and in hard media. An already overregulated market has become even more overregulated. The 4th of July will become another “black day” for the Russian alcohol market and this time it makes no difference if you are a vodka producer, wine importer or anybody else.
Summarizing the new law “On advertising”
The official reason for this extremely strict legislation is (of course!) public health. Russia has a long history of alcohol (read — vodka) abuse and seems like State Duma naively believes that these measures will magically affect the desire of Russians lower classes to drink cheap poison. It is not only my opinion that the real motivation for that kind of legislation is far more prosaic and down-to-earth. Moreover, all the major amendments to the law were developed by the Duma in a suspicious rush – it took less than a week – with no public or even professional businesses discussion. State Duma didn’t even think of taking a moment of debate before passing the law. As was clearly stated in the letter from the magazines publishers and alcohol market professionals – “there’s a huge risk that the new legislation will leave consumers with no information on alcoholic beverages at all, which will result in an advantage for cheap and low-quality spirits». The industry experts and businessmen also pointed out that no prohibition ever have done any good to the public health (quoting the World Health Organization research). “It’s the society circumstances and cultural and social norms that should rather work”.
- It is now prohibited to advertise alcohol in ANY online resource even if this resource is your personal blog (i.e., it is not officially registered as media). If you do it, you’re guilty anyway.
- It is now prohibited to place adverts of alcohol on first and last pages of the magazines, including light alcohol
- It is now prohibited to place outdoor advertising at virtually any place including airports and railway stations
- Until the 31st of December 2012 it is still possible to advertise inside hard media. After this date it will also be prohibited
- It is now prohibited to use any reference or images of human beings or animals in the alcohol advertising
The rationale behind new alcohol legislation
After the crisis year of 2008 Russian government started seeking easy and fast ways to re-fill the federal budgets and turned its attention to the alcohol market. By saying “Russian government” I also refer to the Russian government-related immune-to-the-law oligarchs. The alcohol market reform introduced in 2009-2011 led to bankruptcy for many smaller players on the market leaving space only for the bigger ones able to finance expensive renewals of the warehouses and able to get new licenses in reasonable time (although even some medium-to-big businesses were about to die – this happened to Simple Wine and MBG Impex, a couple of old-time wine market operators (and leaders)). Finally the strongest players managed to survive while those depending on short-term loans had to disappear. Experts say that the number of distributors and wine importers shrank twice during that period. Results? Less choice of interesting wines, few independent small businesses survived, more big brands. Government needs to justify their stupid business-damaging decisions of the past.
The other reason is justifying the fiscal policy of duties increase for alcoholic beverages. Russia is already the country with the most expensive alcohol. The beer excise tax rose 3 times in 2010, resulting in 3 times higher revenues of the “government”. We await the same for the imported spirits.
The third reason is the populist rationale of various anti-alcoholism programs that are based on prohibition rather than on introduction of new cultural norms and Mediterranean diet with wine as a base instead of vodka and other spirits. Beer alcoholism is now the most damaging factor for the younger generation. “Ban everything, don’t make difference between wine and vodka”, — this must be the simplest way to keep the nation healthy, but is it really? The soviet short-minded thinking is still here and it doesn’t seem to disappear. News bans will lead to decreased information on quality alcohol (including wines).
Let the weakest die
Some Russian experts believe and I do agree that all new measures will lead to even more consolidation on the market and less opportunities for growing small and medium-sized companies. The old saying reads “Advertising is the progress’ engine”. Entrepreneurship has long been out of attention and out of fiscal interest of the “government” – I assume, because there are less bribery possibilities in these cases. The big players with established brands and huge promotion and BTL budgets (like Diageo or Pernod Ricard) will not suffer much. All the others, including wine importers and small independent companies will have much more “official” reasons to disappear forever. Western companies are more protected in every sense – starting from mostly official legal status and finishing with strong legal departments with the corresponding effect on business. I once heard the leading international spirits company CEO saying that it is not possible to operate an alcohol business in Russia without strong spendings on legal department.
First victims: Russian search engines and… Google & Facebook
On the day the new law was brought into force the major question in the offices of the biggest players on the market such as Bacardi-Martini, Pernod Ricard, Diageo was – what should we do with our online activities and presence? Suspend the Facebook fan pages? What are the possible actions against us that could be taken by Federal authorities if we continue? The main problem which I will also describe below is the wide interpretation and blurry laws that can lead to any consequences depending on the judge interpretation and, let’s say, “mood”. Look at any public court trial in Russia and see for yourself.
As a matter of fact and oddly enough the first possible victims of the new anti-Internet law are the search engines and Facebook. Russian Anti-monopole Service Bureau has already issued some warnings to Google, Facebook and the major search engine Mail.ru to stop showing context advertising of alcohol near their search results. Possible penalties for such “violation” of new laws – from 100 000 up to 500 000 rubles (2500-12000 EUR). Mail.ru already commented that the alcohol advertising didn’t reach the level of 5% of all the advertising shown. Google and Facebook are silent but obviously will obey new legislation sooner than later.
Media market to shrink even more
It was May 2009 when I wrote a note about wine magazines seizing. After that I was thinking to write an even bigger research on the wine press in Russia. But then I suddenly realized that by the end of my writing I have pretty much chances that there will be no wine media left. It was partially true. Most wine media in Russia today exists in the form of personal blogs, important wine columns in online newspapers and a couple of glossy magazines and newspapers survived, one of them being quite a quality edition belonging to a wine importing company. With no advertising these editions are 120% doomed or have to stay a PR-instrument below any profits for wine importers. The new legislation makes even thinking about starting a wine magazine an idiotic idea. No Wine Spectator is going to appear in Russia, although there had been some rumors a couple of years ago. Again, all this is resulting in lack of quality info on fine wines and spirits, simplification of the market, no-choice, big brands domination, etc.
The estimated loss of the general glossy magazines advertising revenues is from 5 to 30% depending on the edition.
Lost in interpretation
What is happening now with the Russian alcohol legislation should be considered as a small part of the rotten Putin / Medvedev system where “the actual law” doesn’t exist and the only thing that matters is the law interpretation by the courts who hardly can tell their right from their left. Look at the Pussy Riot case, look at the new slander law, look at the new gatherings law — all of them violate the most basic principles of the Constitution – the right to express opinions, the right to gather freely to express these opinions, the right for the fair court, the presumption of innocence, the antimonopole laws, consumer rights, etc, etc.
The last stroke for this ugly painting: when the western companies that have strong presence and usage of Facebook promotional fan pages inquired the Feds on what they should do with these fan pages (these pages usually bear the names of the corresponding brands like Hennesy or Johnnie Walker), the precise answer was (I am quoting): “Yes, we also paid attention to this advertising and we would think if we should interpret the invitation to join such a page on Facebook as the violation of law. We are also not sure how we should treat the advertising banners on these Facebook pages. It is my opinion there’s no violation in this case”. Lovely, isn’t it?
One of the key annual events on the Russian wine market – Vinitaly – took place in the heart of Moscow on the 25-26th of May 2009. Almost half a year moscovites were depraved of fairs of such a scale, not surprisingly this exhibition of 60 Italian producers of food and wine was such a success.
The Russian Vinitaly can be hardly compared to the 4000-exhibitors event in Verona that took place more than a month earlier. Nevertheless Vittorio Claudio Surdo, the Italian ambassador in Russia, pointed out the importance of the event and the meaning of Moscow to be the earliest city to host of the exhibition outside Italy.
A group of three presented the fair to some 50 people in the conference hall the first day: the abovementioned Claudio Surdo, Giovanni Mantovani, the CEO of the Veronafiere, Roberto Pelo (director for ICE Mosca). It was surprising to hear the optimistic expectations of Segnor Surdo who mentioned that wine consumption will increase twofold by the end of 2010 – up to 14 liters per person a year. Seems like Italian forecast was especially created to impress the public or the Italians themselves. Mantovani told me in a small interview that Moscow is not ready to host a large-scale wine fair like the one in Verona. He pointed out that the number of wine professionals is still very low in Russia and cannot be compared even to Japan.
All the major Russian importers of Italian wines couldn’t miss the show – it was a good chance for companies like Simple Wine / Vinopolis, Dp-Trade and MBG to show off. Some smaller companies were also here – OKB, Amour du Vin and others.
Meanwhile ICE Mosca reports that the fair attracted 20% more visitors compared to last year results.