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Russian wine tastes are changing

Talk to a Moscow-based hip sommelier or a high-end wine trader and they will use words like “pét-nat”, “orange”, “Spätburgunder”, “Pinot Blanc” and so on. Soldera and Gravner sound like they’re the go-to names for the whole of Italy. Then, take a look at what people are actually drinking – and it can be quite different.

With the Russian economy in crisis, belt-tightening can be felt across the country. Surprisingly, that doesn’t mean wine sales are down: in some instances, things have become even better. Professionals across the market indicate that wine knowledge remains poor among the general public. But the ruble’s reduced buying power, and retailers’ desire to make better margins, have combined to expose Russians to more new wines than in the past. Russians are experimenting, whether it’s with wine from Spain’s La Mancha or Portugal’s Vinho Verde, New Zealand’s Sauvignon Blanc, Spanish Cava and Prosecco or affordable German Rieslings.

Dramatic changes in taste

It’s not easy to obtain hard statistics from Russian retailers, and commercial information is rarely offered to media voluntarily. What is certain is that Russian import statistics have shown dramatic changes in the past three or four years. Among the losers are Old World leaders Italy, France and Germany, which have all lost a significant share of the market compared to runners-up Spain, Portugal and Georgia. The New World is stagnating, with Australia, South Africa and Chile losing market share; the US and Argentina have been particularly hard hit. On the other hand, wine-producing countries of the former USSR, which share a cultural tie with Russia, have seen impressive growth.

Although Russia as a whole remains a consumer of sweetness-driven wines, market players sense a slight drift to drier wines. Although the effect isn’t big, it’s there, probably because there is such a great variety of dry wines, some of which can readily compete with off-dry and semi-sweet wines. The developing gastronomy scene has been another factor in the move towards dry and brut styles. While the trend is largely limited to wealthier consumers, it influences other groups too.

Russians buy their wines from several categories of retailers. The biggest combine food and wine offerings, such as X5 Retail Group’s chain of Pyaterochka supermarkets, which has more than 12,000 shops across the country and which is, by far, the biggest mover of volume wine in Russia. On the cheaper side is the Diksy chain, while Auchan is a big volume mover as well. Metro Cash & Carry, on the other hand, is a far more sophisticated wine trader dealing both with volume and quality producers. With its combined wine shops/on-trade concept, Otdokhni (“Take a Break” in Russian) is another fast-growing retailer combining food, wine and HoReCa under one roof and defining what the future of affordable wine sales might look like. Mid-level supermarket chains like Lenta and Perekryostok are showing fewer signs of a creative approach while upscale supermarkets like Tvoy Dom (“Your House”), which have an impeccable wine portfolio, don’t seem to be making it an important part of their business. The top-end Azbuka Vkusa (“The ABC of Taste”) retail chain, which has its own wine portfolio, is a powerful player catering for higher-income consumers.

The development of affordable chains shows that the general consumer likes shopping close to home at Krasnoye & Beloye (“Red & White”, about 5,000 retail outlets); Bristol (2500 outlets); Aromatny Mir (“Aromatic World”, 500 outlets) and the abovementioned Otdokhni (200 outlets). Such chains, some of which have thousands of outlets situated in uptown Russian cities, are capable of moving serious volumes. Spirits producers are also involved in the distribution of wines. Beluga Group, the producer of the eponymous Russian vodka, has importing wine for several years now, having already added about 300 specialised shops in Moscow under the brand WineLab.

Another reason for wine producers to be optimistic about Russia is the recent trend towards retailers importing on their own behalf. While the rich and stable 2000s were about the development of fine wines, and importers and distributors were able to maintain a healthy margin and still be successful, from 2010 prices were pushed downwards and they had to fight for every cent. Now, observers on three sides – retailers, importers and journalists – agree on the diminishing role of classic wine importers, as retailers invest in their own importing departments. Several national wine promotional bodies have reported an increase in value per bottle sold in Russia, despite volumes being down. Wines of Portugal have returned and German wines are expected to follow suit.

What’s hot, what’s not

Production of local wines has grown since 2010 as more wineries in the south of Russia develop a clear vision for better quality. Thirst for the national product increased dramatically after the population was cut away from the EU by sanctions and trade wars. After US-Russia relations deteriorated, the impact on US wines was felt immediately although some high-end wines remain in Russia. Interest in local wine can also be explained by the fact that many wine specialists and PR people, having lost their EU projects and employers in Russia, have been forced to work for Russian wineries or winery associations. With the addition of Crimea, the country’s areas under vine have dramatically increased. While the quality remains debatable, there are positive examples of better wines appearing, both at the high end and mass market levels.

Chile remains the leading New World supplier in Russia, but consumers are losing interest in wines from across the Andes. They are simply not trendy anymore and do not fit the price to quality ratio Russians like to see. Important brands of the past have been washed out of the stores with the likes of Luis Felipe Edwards and Concha y Toro being virtually all that have survived. With no marketing presence in Russia, Argentina and its Malbec have been unable to take root on the shelves.

New Zealand’s Sauvignon Blancs, on the contrary, have doubled their exports to Russia in the past few years. Although imports in general remain relatively small in comparison to Chile’s, intense, crispy Sauvignons sell faster than pancakes on a sunny Easter day.
With regards to French wine, something has gone terribly wrong so that they no longer compete on a par with Italy. Oxana Batarshina, export manager for the Gérard Bertrand Group, believes several factors are to blame: bad consecutive harvests in Bordeaux leading to a surge in prices, the ruble devaluation, and strong competition from other countries in the price level previously occupied by cheaper Bordeaux. “People are also simply fed up drinking wines of the same regions,” she adds.

Italy, on the other hand, faces equally negative developments. Expensive classic bottlings from Tuscany and Piedmont are much less attractive while booming sales of Prosecco have not helped much on the value side. Affordable Italian reds from Puglia and Sicily perform better with distributors reporting increased interest.

Russia used to be one of the fastest growing markets for sparklings. The good news for Italy is that Prosecco remains big, although DOC/DOCG distinction is mostly disregarded. Another interesting market mover has been Spanish Cava, which attracts ever more people. This interest is driven by democratic offerings that have appeared in supermarkets. Chains like Krasnoye & Beloye sell Cavas at $9.00 to $10.00.

Russians love wines with high alcohol. While professionals are calling for Pinot Noir-ish elegance and lower alcohol levels, ordinary consumers vote with their rubles for intense, powerful wines. The alternatives to $20.00 Amarones sold through Krasnoye & Beloye are Puglia’s lush reds and Georgian Kindzmarauli, a semi-sweet wine made from Saperavi grape.

Georgian wine, banned from the Russian market in 2006, is now back on the shelves and stronger than ever since the ban was lifted in 2013, although it’s more mass-market options than quality-driven wines that are available. The thirst for Georgian wines is explained by the demand from consumers who remember Soviet times and Georgia’s position as the winemaking Mecca of the Soviet Republics. The popularity of Georgian cuisine and tourism are also contributing to growing demand; Georgia is clearly becoming an important travel destination.

While the political status of Abkhazia remains an issue, it has become, alongside Georgia, one of the fastest-growing suppliers of wine to Russia, dominating the cheap wines segment; the wines are probably made from Moldovan bulk. Brands like Lykhny, Apsny and Psou cost virtually nothing at just $5.75 and are semi-sweet. There are positive trends for countries such as Azerbaijan and Armenia too. Winemaking in the latter is moving at speed and geographical names like Areni are becoming familiar, thanks to Arthur Sarkisyan’s efforts to bring these wines to Russia.

Mysteriously, Portugal, whose grapes most Russians can’t even pronounce, is making a strong comeback, with sales doubling in value in 2017 compared to 2013. The secret is, of course, attractive pricing, great quality, drinkability and Vinho Verde. The “zelenoye vino”, as Russians call it (green wine), is probably the most emblematic Portuguese wine in Russia. The Wines of Portugal 2018 marketing campaign has also helped.

Sales of Spanish wines, not including the imported bulk used to produce “Russian wine”, are also on the rise. Democratic offerings from La Mancha and Jumilla are driving the segment with distributors increasing the presence of smaller wineries from Spain’s non-classic regions.

Grower Champagne, although a niche offering for HoReCa and Moscow’s private clients, has become interesting in places where sommeliers play an important role. Instead of carrying one or two well-known brands of Champagne as they did several years ago, Russian distributors are looking for niche terroir wines of limited production, which generate all-important cash flow.

With people still figuring out which wines taste better, organic concepts are not yet attracting strong interest. While both retailers and media have made great efforts to explain the difference between organic and biodynamic farming, the population at large still remains uneducated on the matter and, in any case, it looks like organic ideals don’t really speak to the Russian soul.

Pét-nat wines, on the other hand, have attracted interest thanks to favourable reviews from hip somms and traders. While companies are still bringing such wines into Russia, it looks like the saturation point is not far away.

Overall, while times are tight, they’re also good for ordinary consumers, who have more and better wines on offer than ever before.

This article first appeared in Meininger’s Wine Business International, 22 Nov, 2018

Meet the new Russian wine consumer

Surprising as it seems, the urban wine consumer in Russia has evolved more over the past couple of years than during the so-called ‘oil boom’. This is explained by two factors: the arrival of a new generation, and a total market shakeup due to the political and financial crisis of 2014. These effects are shaping consumption trends among the people the top wine producers would like to see sipping their wines in Russia.

One important group of wine importers and distributors in Russia caught the wave early and seriously set out to service private clients and corporations by establishing dedicated sales departments that proved to be much-needed additions to the companies’ existing sales channels. While far less significant in financial terms than the HoReCa and off-trade, they offered features that are lacking in those sectors. Among these, says Ilya Veinberg, head of private and corporate sales for wine importer and distributor Classica, is rapid cash flow which “makes the department extremely important”. So, too, is image-building among a very valuable target audience.

The leaders

The major players with established private and corporate departments are importers whose history stretches back to the 1990s: Simple, MBG, Eurowine, FORT Wine & Spirits, DP-Trade and a number of smaller players. Of these, one company has shaped the face of today’s private and corporate sales in Russia. With a department employing more than 50 people and a good grip on the most important corporate wine consumers in Russia, Simple has raised the bar for its competitors, outweighing them by salesforce, PR, market aggressiveness, and the scale of its ambitions. As Russia’s economic situation stabilises and rules covering online sales are expected to be relaxed, that competition is likely to become fierce.

Mid-sized companies like Classica, Grape, and Vinoterra are paving the way to further growth. Another new phenomena of recent years has been efforts by vodka producers and distributors to tap into the wine market. The St Petersburg-based Ladoga Group, for example, has sought to build a serious wine portfolio, attracting names like M. Chapoutier and expanding its operations to Moscow.

At the other end of the scale, smaller companies like Wine & Only manage a compact portfolio of French wines and are dealing directly with private and HoReCa clients. “We generate new clients mostly via word of mouth,” says Natalia Zubova. “Our wines are mostly recognised thanks to the specific winemakers who produced them.”

In attracting private clients, some companies rely heavily on famous brands, communications, PR, and educating both private clients and sommeliers. Others focus on building stronger personal relations, offering niche wines and more flexible payment terms. Pricing is another crucially important factor for wine importers seeking to succeed in the private and corporate channels. One way to get this right has been by managing currency exchange rates in a period of severe fluctuations. As of mid-April 2017, several wine importers declared considerable price reductions due to exchange rate stabilisation and a steadily strengthening ruble.

Where did all the oligarchs go?

Back in the 1990s and 2000s, it was sommeliers who were pouncing on the new wealth. For better or worse, the anecdotal days when oligarchs bathed in Pétrus and Château Margaux and barbecued with grand crus are over. Those businessmen have virtually disappeared from the modern wine scene. “Private clients have evolved. They travel, they speak foreign languages, they know the wines,” says Vladislav Volkov of Vinoterra. “People who drank Super Tuscans and grand crus had no choice but to switch to less-expensive bottles,” observes Liudmila Mamontova, head of the private and corporate clients department at MBG, a key fine wine player in Russia.

With the political crisis of 2014 and subsequent collapse in the value of the ruble, many clients with thick wallets fled the country and now only visit to check their remaining assets. “Even for those rich people who are still here, it’s not good to consume the way they used to. It’s not only about the money, it’s about the evolving culture,” says Alexander Lipilin, the CEO of FORT Wine & Spirits.

The reasons to drink wine are also changing. Private consumers are moving away from drinking for status to drinking for pleasure. “They now realise that it’s not necessary to drink expensive wines. Wine is not Rolex anymore,” says Elena Kuznetsova, head of the private and corporate department at Eurowine.

As for the corporate side of the wine market, that normally stays hidden from prying eyes and ears – a secret carefully kept within their companies. But there is no doubt that if anyone is spending heavily on wine in Russia, it is the corporate clients, who are satisfying the wine needs of holiday gifting for their employees and business partners.

The oil, gas, construction, financial, and mining sectors and top consulting companies are all desirable targets for wine distributors seeking to secure important seasonal sales during the New Year period. Hardly surprising, some players estimate about 30% to 50% of fine wine is sold during this time of year, but national holidays such as Defender of the Fatherland Day on February 23rd and International Women’s Day on March 8th also offer lucrative opportunities. “It’s an important part of the sales,” says Volkov. “With these clients it’s quite simple: the major thing is to have the right price.”

Many corporate clients buy and spend enough to create fierce competition for their business. Tenders are a common way to select wines for corporate gifting, especially since harder economic times drove corporations to tighten their budgets significantly. “They want 50% to 60% less than before the crisis of 2014,” estimates Mamontova. Nevertheless, according to most market players, wine remains an important option for corporate gifting. “Everything counts in the corporate game: wine prices, and brands, and relations with the person who makes purchasing decisions,” says Alexander Lipilin of FORT. Eurowine is watching the regional corporate market closely. “With the crisis, many Russian companies are moving their headquarters outside Moscow. We have to pay attention,” says Kuznetsova.

The wine distributors’ representatives agree that Russian clients of every income level are counting their rubles carefully before spending them. “Nobody takes prices for granted anymore,” says Olga Taipova, who is responsible for private and corporate sales at AST International Environment. What this also means is that the desire to experiment with new wines is growing.

The exchange rate fall that slowed wine sales in the end of 2014 also ignited interest in Russian wines produced in the south of the country, and especially in the annexed region of Crimea. Most wine distributors who initially resisted adding Russian wine to their portfolios now carry at least one brand. “High-quality Russian wines are rare and they are in demand, especially as gifts for foreign friends or partners,” Lipilin says. The overall interest in Russian wine and its share in wine sales across all channels has certainly grown significantly, and Lipilin attributes this to the value for money they offer rather than patriotism. “As the ruble gets stronger, demand for Russian wine goes down,” he observes.

Bordeaux grand crus, by contrast, have suffered because of the ruble exchange rate. “We carry nice second- and third-growth Bordeaux grands crus – wines offering better value for money. Top chateaux are too expensive; it’s hard to guess the best vintage,” says Ilya Veinberg of Clasisca.

The new generation

Step inside one of the Moscow’s many wine bars and you will be surprised by the number of young women chatting and having a good time. There are definite gender shifts among modern urban wine drinkers. The Russian wine market created in the ’90s by and for men is changing rapidly. While serious wine buyers still tend to be male, women are now making many more wine purchasing decisions. “Ladies are often leading wine buying, especially in restaurants. It’s also easier for them in terms of image since wine has been traditionally thought of as a drink of choice for women,” comments Veinberg.

Even so, the buying power of Russian males still lies largely in their business activities: men are more exposed to sophisticated gifting situations and negotiations that require a quality dining experience with business partners.
“Among older consumers, men are still dominating, while 35- to 45-year-old urban men and women are more evenly matched when it comes to selecting and buying wines. They are having fun and advising each other,” says Sergey Podporin, owner of LEO Wine & Kitchen restaurant in the southern Russian city of Rostov-on-Don. According to him, female customers’ interest to wine is also connected to the end of their maternity leave. “Women who start thinking about themselves again are literally hungry for wine,” he notes. Lipilin also refers to the way decisions tend to be made within younger Russian households: “The person with more time and knowledge normally leads.”

Ageing with grace: the generational change

The new generation of young people in their 30s is already defining the future shape of the Russian wine market. They don’t yet have the means of the wealthier over-45-year-olds who were raised on labels like Sassicaia and Tignanello, but their habits and openness to new tastes and new wines are already very apparent. And it is not only Moscow and St Petersburg that are experiencing this trend. Sergey Podporin says his clients are no longer satisfied with discussing a single red or white. “They want to sit down with five to six glasses of different wines.”

Keeping younger generations in mind, some forward-thinking Russian companies have decided to be more open-minded and friendly to this group of consumers than others. While traditional wine marketing includes traditional ways of doing things: discounts, wine dinners, direct calls, and even various forms of financial inducements, companies like Invisible and WineStyle are putting their efforts into aggressive forms of online strategy. Invisible, in particular, is noted for using youth-oriented internet slang and hipster-style graphics, while WineStyle has built a reputation for its extensive online wine catalogue that incorporates wines from many different wine importers. Both firms’ sales are rising.

 

Being in the game

Wine distributors understand that their private and corporate departments are not just about making sales. Today they act as private sommelier services that guide clients through the world of fine wine, sometimes on a 24/7 basis. In order to tap into the private and corporate wine market, Russian professionals recommend a proactive approach: first, visit the market often and talk to the potential consumers face-to-face. “It’s important how charismatic the winemaker or the owner is. People tend not to remember the names of wineries, but they do remember the other people,” says Lipilin.

Private and corporate client departments are not just meeting needs – they are creating them. Being a direct connection to wine producers and the whole world of wine ratings and critics, they can influence and educate, shift preferences and tastes. “The vicious circle is that where there’s no supply, there’s no demand,” says Kuznetsova. With the improvement of the economic situation, and especially the gradual improvement of the value of the ruble, these parts of the business will become even more important.
Anton Moiseenko

This article first appeared in Issue 2, 2017 of Meininger’s Wine Business International.