March 2020. Virus & Politics. Russian wine market update. Week 1

As of the end of March 2020, the global COVID pandemic has hit Russia: most public places will remain closed for – at least – a week (and it sounds like a joke), people are advised to stay at home, bars and restaurants are suspended. Will this be the end of one era and the start of another one? It’s quite unlikely, although the market will certainly lose a bunch of players.

I am looking carefully at what’s happening in Moscow. Let’s start with some good things — you can tell, that some businesses are clearly benefiting from “stay home” situation: delivery services, supermarkets and shops, overall retail is a Christmas situation, like in many EU countries, people are stocking up basic foods — and some alcohol, too.

The good

  • wine and spirits sales have increased in retail and wine shops overall, the situation is not exactly pre-New-Year, but very close in terms of turnovers
  • online shopping for wine (although legally forbidden) is on the rise. I can’t give exact numbers, but the feeling is that it’s not less than 30% and will continue like that for some time
  • the market will be reshaping fast — to the benefit of smaller players with less debts, bank loans and whatever obligations they might have had. Gentlemen agreements fall apart immediately in these situations — moneywise everybody’s dry.

The bad

  • The economy is down, basically shut. This is global. But, unlike the EU/US situations where governments are giving the money to the businesses and citizens, in Russia the goverment prefers to rob the population even more. Some “help” to the retired is laughable. The officials don’t care about anyone and this is the time to many people to open their eyes politically. Will that happen? Unfortunately most people are blind-sighted and that’s the truth
  • HoReCa is closed down. Somms are sitting at homes
  • Importers have to rethink the strategies, prices have risen, private departments and retail are now priorities. Price battles are inevitable: companies need to sell stocks. On the other hand, they have to be careful how not to remain with any wine, since the borders are basically closed for imports and nothing is moving. Tricky.
Russian Ruble to USD dynamics Jan 2020 – Mar 2020.

The worst

  • Most wineries have already received some kind of “love letters” from their importers. One of such letters was quickly leaked and it clearly says: you, guys, have to bear with our “situation” (meaning Ruble volatility) and wait till be go back into “operation”. In some cases these letters will just be an extortion of the helpless producers (do you want to sue a Russian wine importer now?).
  • The Ruble is now trading at 78 per 1 USD, that’s 27% increase since January 2020. While the oil prices continue to remain low, the Ruble won’t be going down anytime soon. This increase is already in the price-lists of most wine importers.
  • There was also a 100% increase of excise duty on still and sparkling wine. This will increase the price pressure further.
  • On the one hand, retail is booming for now, on the other — when people stockpile enough, this will stop and the full=blown effect of sales going down be felt immediately, esp in the lower price segment. People who were drinking cheap wines, will switch to beer or simply drop wine. People who were drinking mid-level wines, will switch to cheap ones. Expensive wines will suffer less, but will suffer too, inevitably.

Mind you, those are just raw estimations. We will see where the virus and politics take us further.

Stay safe everyone and keep you posted.

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