Meininger’s: Bordeaux looks again at Russia
After reaching record export levels in both value and quantity in 2006 and 2007, French wine exports to Russia fell in the wake of the financial crisis. But while demand has improved since then, Russian rules are still problematic, says Panos Kakaviatos.
The upscale Lotte Hotel in Moscow was packed with representatives from some 58 Bordeaux estates – all members of the Union des Grands Cru de Bordeaux (UGCB) – an elite organization representing some 120, mainly classified, growths. They were presenting the latest vintage, the popular 2009. Although only half of the UGCB’s members came to Moscow, the crowds present reflected Russia’s renewed interest in Bordeaux.
UGCB vice president Tristan Kressmann was optimistic. “To mobilize half our membership for a market that is not but the twentieth in terms of values of exports, is very promising,” he said. “Business is on an upswing and the fact that so many people are attending this tasting is an indication of Russian interest in our wines”. Normally, the UGCB travels to Russia once every two years, but the success of the 2009 tasting – and the high quality of the 2010 vintage – may result in the UGCB returning next year, Kressmann added.
Cautiously optimistic
Something that’s clear, said one Bordeaux chateau representative, is increasing seriousness from Russian tasters. “I remember a few years ago, many more Russians simply drank the wine and walked away, but now you have more serious sommeliers and merchants and journalists taking notes,” remarked Michel Perrot of the negociant Borie-Manoux, which sells Chateau Batailley, among other estates.
A cautious case for optimism is warranted, according to an Ubifrance report. After reaching record export levels in both value and quantity in 2006 and 2007, French wine exports to Russia fell precipitously in the wake of the financial crisis in 2008. But sales jumped in value in 2010, with a continued upward trend in 2011, although wine volume has remained low, not even matching what it was 10 years ago. But Russian importers at the June tasting confirmed that an improving economy, coupled with increasing demand for mid- to higher- end wines, have led to better sales. According to Ubifrance in Moscow, an increasing number of wine bars and trendy upscale restaurants reflect greater demand for more expensive wines, a fact that could explain why sales figures have jumped while volumes have remained quite flat. Furthermore, one of the most negative factors for foreign wine sales in Russia should disappear.
After the Bordeaux tasting, fellow journalist Benoit Finck of Agence France Press and I joined Jean-Emmanuel Danjoy of Chateau Clerc Milon, Anne- Frangoise Quie of Chateau Rauzan-Gassies and Corinne Conroy of Chateau Brane-Cantenac for dinner at one such new and trendy Moscow restaurant, Carre Blanc. The food and service were fine, but we ordered no wine. Perhaps because we had just done a massive tasting, but also because high taxes and other costs raise bottle prices to absurd heights, in both restaurants and in shops. The potential for wine sales is limited to the very rich, Finck remarked. Indeed, shortly afterwards, he wanted to buy a bottle of Phelan Segur, a fine cru bourgeois that would sell for about €25.00-30.00 ($30.70-$36.85) in France. The Moscow boutique he visited was selling the bottle for over €100.00. But that should change within a couple of years. When Russia recently decided to join the WTO, a move that the Russia’s parliament is expected to ratify as of this writing, it also agreed to lower its value-added tax on wine from the current 20% rate to 12.5%, a significant decrease that can only help sales, Kressmann said.
Glass half full
In spite of all the good signs, some see the glass as merely half full. Even though the VAT should decrease, other costs and the rather random manner with which Russian authorities interpret and change import laws likely will remain.
In the introduction to its Moscow branch report, Ubifrance stressed that 2011 was wracked with problems relating to the renewal of import and distribution licenses, and that it took almost the entire year for many businesses to obtain the right to sell wine. It’s a phenomenon that continues to complicate the business of importing, the report said. Sergey Afanasiev of importer L’Amour du Vin said the decision-making process to give licenses borders on the absurd, or can be contradictory. He explained that his license had been delayed, in part, because his wine pallets were not 15cm off the ground. “But the standard in Europe is lower than 15cm,” he explained. Getting a license renewal is not just a pain in the ass, it is a pain everywhere, he added. “We have to receive state registration certificates for each and every wine we import. There are just too many formalities that cost time and money.”
The reduction of the VAT tax will help, but excise and customs taxes will remain, including certification and administrative costs. “We have to earn something, too,” Afanasiev said. Finally, Russian importers also pay restaurants to hold promotions for their wines and such costs are often factored into final bottle prices.
Importer Anton Moiseenko was very candid about the problems companies face when it comes to importing foreign wines.
“It’s not merely the requirements, but also how they are applied to wine importers,” he said. “Usually they are sudden, they are badly prepared by the government, and they are horribly managed. And, of course, they are designed to collect ‘fees’ – both official, and unofficial corruption and bribery.” In short: “Russian licensing laws combine stereotypical Russian stupidity with an intentional desire to make money out of nothing, without moving a finger,” Moiseenko said. “The system is intended to make life harder and thus push the importers to use illegal ways and bribe the officials.”
Bordeaux wine representatives agree that licensing and certification can cause headaches. “From one day to the next, administrative changes could be decreed that would prevent a company with which we would do business from being able to purchase wine,” said Borie-Manoux’s Michel Perrot. “I heard that one Russian company found itself unable to import any wines for three months – and was not even able to sell wines it had obtained already in stock, because it had to wait for the renewal of its license.”
The 58 Bordeaux producers at the Lotte Hotel represent “both a small and a large number,” Perrot said. “It depends on how you look at it.” There were notable ‘no shows’, from Chateau La Conseillante in Pomerol and Chateau Pichon Longueville Baron in Pauillac, to Chateau Angelus in St Emilion and Chateau Branaire Ducru of St Julien.
In a telephone interview, Patrick Maroteaux of Chateau Branaire Ducru, a former UGCB president, said the Russian market remains “secondary” for his interests.
The distribution system is overcomplicated and reduces the incentive to make too great an effort, he explained. Like others in the UGCB, Maroteaux chose to stay in China for other appointments, rather than follow the group to Moscow.
Advice for Bordeaux producers
Compared to the Chinese market, ultra high-end wines are not selling as well. Importers say that mid-range wines, and those estates that have established good relationships with distributors to the Russian Federation have the best outlook. Brands like Chateau Giscours, Chateau Loudenne and Chateau Talbot have done well, for example. According to Alexander Van Beek of Chateau Giscours, promotional tours were already occurring in the wake of Glasnost – long before other Bordeaux estates began to explore the Russian market. Any Russian importer will tell you that Giscours is a well-known brand in Russia. Some consider the name’s easy pronunciation is also a factor.
Regular visits and promotional dinners prove useful, too, said Perrot. More time should be devoted to St. Petersburg, he added, because it is Russia’s second-largest city and is officially a twin of Bordeaux. “Even though all the top distributors and retailers are in Moscow, they all have offices and stores in St. Petersburg, and we should go be there more often.” After many years of travel to the Russian Federation, Perrot believes that vodka and beer still dominate the drinks market, but wine is gaining in interest following certain criteria: Bordeaux is becoming a synonym for high quality red wine (white wine lags behind) and that appeal dovetails with an increasing taste for luxury goods from affluent young professionals in Moscow.
Importers urge Bordeaux producers to increase their marketing efforts, noting the greater success of Italian wines. “Italian wines have earned a reputation for being more understandable and they do not require as much ageing,” Afanasiev explained. “I see more Italian producers holding promotional events, too.”
In an e-mail, Moiseenko criticized Bordeaux for its lack of promotion sense: “The communication from Bordelais producers is non-existing. They don’t have good Russian sources of correct and official information, their web-sites are ridiculous and seem like an excuse to waste EU promotion budgets. In my opinion, there is no global strategy for the Russian market. So, this strategy and a clever media campaign must be developed by and with local professionals and not with foreign-based agencies and people who have no real sense of the market. They should come here and study the market carefully. Talk to the potential customers. Use modern technologies and language. And stop throwing money away.”
Published in Meininger’s Wine Business International, September 2012 || Read original