Hope of deliverance for Georgia

Thirty six wine producers from Georgia will enter the Russian wine market – once again. This is the result of a recent inspection of the Russian alcohol regulating body – RosPotrebNadzor – to 41 Georgian wine estates. Among the approved ones – the biggest Georgian players like Tbilvino, Telavi Wine Cellar, Tiflis Wine Cellar, Badagoni and Teliany Valley. Continue reading

Major Russian wine / food fair at risk

MOSCOW, 23/01/2013. Another step in continuing debate over the allowance of wine tastings at pubic fairs was made in Moscow these days. The government Federal Antimonopoly Service confirmed once again that they might treat wine tastings at the major wine/food fair ProdExpo as alcohol advertising. The start of the fair is scheduled on the 11th of February and some wine producers have already received the ProdExpo organizers’ proposals to move their tastings to restaurants and other facilities that possess retail or on-premise sales licenses which are required by the new federal law “On advertising” to promote wine products in any way – especially if this concerns wine tastings. Continue reading

Bordeaux château bulldozed flat “by mistake”

An 18th century château in Bordeaux has been completely destroyed by its Russian owner, apparently in error.The 200-year-old Château de Bellevue in the commune of Yvrac east of Bordeaux was considered something of a local landmark. Nestled among vines although not a wine property itself, the 140,000 square foot building was known for its twin outside staircase and enormous entrance hall. Continue reading

Cognac revival: a new approach

MOSCOW, 6-7 Oct 2012. For a couple of days extremely rainy and windy Moscow weather was overrun by fine food and spirits intake. Major cognac brands are doing their best to reinvent themselves in Russia during the Taste of Moscow gastronomic festival that took place last weekend 6-7 of October in the Clumba restaurant situated in Moscow’s central location. Cognac has long been considered a “dead” category used mostly for New Year gifting for your dentist (VSOP, not higher) or an official-to-bribe (XO or higher, depending on the rank and the effect needed). With spirits market growing rapidly cognac producers realize they need to address the trend-setters and opinion leaders and bring the new taste of cognac to younger audiences.

Martell cognac was the central activator during this two-day competition of the star chefs from Moscow restaurants with 16 chefs taking part in the event plus the Chateau de Chanteloup’s (historic and beautiful Martell family Bretagne-style guesthouse) chef Pascal Nebou playing with the Martell Pure Gourmet platform in front of the fancy Moscow public. Pairing fine food and cognac was the leitmotif of the whole festival, no other alcohol was served during the competition. Even wine options were eliminated making cognac the only pairing choice.

Russians tend to perceive cognac in a very stereotypical way – fireplace, own house outside Moscow, bourgeois-style atmosphere, warming up the glass with your hand – all of these are bad companions for promoting the brand – demanding special surroundings and occasion to drink the French spirit. Digestive drink perception was the main obstacle Martell wanted to break during the event. While trendy public is already used to fine dining, cognac is still not a part of it. The leading Cognac houses are doing their best to include their drinks into the fine food concept, Hennessy pouring the most budgets on advertising. Considering the approaching advertising ban, this might be the first swift (meaning the “martinet” bird from Martell’s logo) in the new wave of gastronomic promotional activities connected with cognac.

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Banned dreams: public health vs deep pockets

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

Magnum magazine was closed about 4 years ago

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?

 

Additional links:

BBC News

Russian sanitary regulator eases the pain. A bit.

Russian certification and regulating body – Mr. Onischenko’s RosPotrebNadzor  (in plain English – the Federal Bureau Supervising Customers’ Rights and Human Well-Being) – has just issued a document that partially eases the burden on the wine importers in Russia and on their partners abroad. The document dated 13.12.2010 reads among the other things that there’s no need to apostil and legalize the copies of the documents certifying the safety of the product and the documents can be signed by any certified translator or an attorney.

Should we be happy with this small favour? I don’t think so. This is a mere drop in the ocean of what has to be done to civilize the wine market.

Luding co-owner shot to death

Shocking news stroke Russian wine business several days ago – Ara Khachatrayan, the director of the Saint-Petersburg office of one of the major high volume — low level wines importer and distributor of Armenian cognacs – Luding – was shot in the center of Moscow on the 10th of December 2010. His body was found in his Infinity car. This is not the first time Luding is involved into criminal chronicles – in 2009 a daughter of another Luding CEO was almost kidnapped. Luding was founded in 1993 by two partners – Artur Varzhapenyan and Ara Khachatryan.

There’s no secret for those acting in emerging markets like the Russian one that most businesses are involved in bribery and corruption, there’s no other way to deal with the government bodies and rivals. Everybody does it. You can say that about huge multinational corporations (remember the recent scandal with Hewlett-Packard purchasing contracts and bribes) and of course about the Russian companies. Alcohol market is not less criminal than any other one. Wines and spirits are a good asset to make good money on, especially when people don’t really realize the real price for the product they buy. This gives the seller an advantage of putting any price he likes and still have the wines sold. Of course, the price will hugely depend on the ethical level of the seller – if this is an importing company, one might expect more fair prices. Still, we know lots of cases of unfair competition with the use of Russian tax police and inspectors, semi-legal raids to the rivals’ warehouses and offices of the Russian Administration for Economical FellonyResistance (УБЭП) and so on.

Still, there’s a strong competition between the major players of the market. Some companies specialize on the HoReCa segment with more quality portfolio, others would be more efficient in low-level cheap wines for supermarkets. There’s no doubt every CEO needs a couple of  bodyguards nowadays to protect his life and business. Just during the last days of November two attempts of murder of two owners of automobile sales centers took place. In most cases the criminal dramas are connected with businessmen from the south of Russia or the bordering south CIS countries – Armenia and Azerbaijan.