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.

The St Petersburg wine market is still considered by the majority of market operators to be promising and worth entering. However, its weaker performance is beginning to upset local distributors and force them to expand their activities to the richer and more dynamic Moscow.

“Ten years ago, St Petersburg was an inspiring market with the retail chains developing fast, and creative restaurateurs showing impressive growth of their businesses. But now this market is stagnating,” says Alexey Semyonov, commercial director for the Moscow-based Arsenal wine and spirits import company. He used to work for a number of St Petersburg wine and spirits importers and wholesalers, including Svarog, but recently decided to relocate to Moscow, saying that it moves faster.

Saturation point

With its 4% to 5% share, St Petersburg represents Russia’s second-biggest market after Moscow as far as volume of sales of wine is concerned. According to Rosstat, the official Russian statistics institution, retail sales of still wines in St Petersburg reached almost 25m L in 2010. According to the same source, the market grew by 5.6% in 2011, by volume. Rosstat estimates the average growth of the wine market in the Russian Federation at 4.6%. In the sparkling wine category, this growth was even more significant – more than 17% in St Petersburg in 2011, versus an average of 4% in the Russian Federation.

“We can see that St Petersburg is a steadily developing as Russia’s market number two,” says Vadim Drobiz, head of the Research Center for Federal and Regional Alcohol Markets (RCFRAM). “It shows, more or less, the same trends as the other key regional markets of Russia.”

St Petersburg is famous as the intellectual capital of Russia, which may be the reason why grape wine does so well there, being a ‘cultural’ drink. “Our consumers love wine and always look for something special. That makes our job interesting,” says Igor Sharbatov, director of St Petersburg’s Sommelier wine school and import consultant for the V-Wine import company.

Sommeliers play an important role: St Petersburg’s sommeliers have not only managed to build a professional wine community, but have also succeeded in the all-Russia sommelier competitions in Moscow. Leonid Sternik, Yegor Oleshkov, Julia Khaibulina, Vladimir Yasnogorodakiy and some other St Petersburg sommeliers have become famous and won medals in Moscow.

“In St Petersburg, there is less money than in Moscow, so the restaurateurs have weaker appetite for margin,” says Irina Belyayeva from the Mosel wine and spirits company, which began as a St Petersburg importer and wholesaler, but which later began distribution in Moscow. “So the sommeliers can provide their clients with a better price/quality ratio, and sell bigger volumes.” She says that in St Petersburg, many restaurants, even in the central part of the city, are quite happy with a 100% to 200% mark up on wine prices. “In Moscow, it is difficult for a restaurant to survive without a 300% markup on wine or spirits, and many of the most prestigious ones raise it up to 400% or even 500%,” she says.

Alexey Semyonov is more skeptical about wines served in the St Petersburg restaurants. “They often include less expensive supermarket wines in the restaurant wine lists,” he says. “They only do it to have lower prices.”

The passion of St Petersburg’s population for wine is limited by its lower buying power. According to Rosstat, the local wine market dropped by 17% in 2009, which may have been a consequence of the first wave of the global economic crisis. Yet, surprisingly enough, Russia showed a 1.2% growth in retail wine sales in the same period. “Within the limits of existing buying power, we can call this market almost saturated,” says a former manager of a Moscow import company, with distribution in St Petersburg. “Importers are shuffling and reshuffling brand names and wineries, but nothing new is happening.”

Igor Sharbatov says that, unfortunately, he has to agree. “In our sommelier school, we can feel that the wine market is saturated with the professionals too”.

A tough market

Today’s key operators in the St Petersburg wine market have different origins. The local Big Three wine and spirits companies are Mosel, Marine Express, and Centrobalt. They have the biggest volumes, advertising budgets and marketing influence. These companies started their businesses as local distributors, then they began to import, and then decided to work in both Russian capitals, opening sales offices in Moscow.

The Big Three are followed by several smaller, yet very active importers, such as Nordex, EWS, V-Wine, Toral and big wine and spirit wholesalers like Rotonda. Nordex has collected a nice portfolio of niche wines in the high demand value category; EWS has exclusive contracts with several premium wine and spirits brands both in Europe and New World, having opened a sales office in Moscow; V-Wine is building a retail chain of specialist liquor stores.