«I’d say the overall structure of the wine trade in Russia is more similar to that of Japan. First, Russia imports virtually all of its wine, although it possesses its own production. Second, we have no historical preferences to wines from specific wine regions like some other countries. The rest of the system is fairly traditional: there are importers who have the right to sell wine to retailers or directly to final consumers and to the on-trade. If a company wants to sell wine in the regions then it has to look for a distributor.

Today there are no obstacles to the creation of a wine importing company: the importing license in Russia is missing, one just have to obtain a federal alcohol sale license. It is more complicated, but it is fair: we don’t need everybody to sell wines here. Afterwards it’s all very simple: put EGAIS computer system, hire personnel, choose the range of wines to import and negotiate with them. In that sense it’s a free market. The more serious problem is the financing of such a venture, bank loans are currently very hard to obtain. Starting importing alcohol is a difficult task for a newbie because a substantial start-up capital is needed. At the same time the newcomers like «to break the market». They don’t gain much just making the life for all the market players worse.

The taxes structure for imported wines in Russia is as follows: 18% VAT + very sparing excise tax (2,6 rubles per liter fot still wines) + duty. The thing is the wine duty is 20%. Throughout the world such a duty would be considered prohibitive and designed to protect local producers. I’d like to underline that there is nobody in Russia to protect. Those companies that do produce wines in Russia are able to supply their wines much cheaper than those who import wines, in this sense they will always have an advantage. On the other hand, strikingly, the import duty for bulk wine must is 5%! And this is exactly what kills our winemakers. It is the duty on bottled wine that should be lowered, while the bulk wine -higher. In my opinion the duty on bottled imported wines should be 5-10%, while the importing the must should be more expensive — 10-15%. Imported raw materials mustn’t hinder the development of our own winemaking. In fact it’s much easier to buy wine in bulk and bottle it in Russia under the Russian brand. Thus the real agriculture and viticulture is not supported at all, we deal with the decreasing employment, and people are not “tied” to earth which is bad.

The most influential people in the Russian wine trade are, paradoxically, the government officials. Only they can destroy all of the system with tremendous speed as it happened in 2006. In wine business there is no really influential people, even big players can’t noticeably influence the tastes of Russian consumers.

I think that wine importers are not able to manipulate Russian distributors. The market is open and no one forces anybody to work with each other. Therefore, we cannot tell anybody what they should do, we can just recommend, we can sometimes insist, but nothing more. Distributors can choose a partner importing company the way they want to.

What is still very difficult when talking about the Russian wine business is the relations with supermarkets and retail chains. Department stores still don’t understand how they should earn their money. «Entrance fees» for an importer to enter retail chains are incredibly high. Moreover, the mark-ups on wine are huge — from 60% to 100%. We are not able to influence this situation now and they don’t want to hear about the recommended shelf prices. The retail wine segment has still to be more regulated in order to achieve the civilized trade.

The main problem with supermarkets is their desire to obtain maximum profit with non-trading mechanisms — shadow payments, inflating the margins and retro bonuses. The government declares that it can’t interfere in the margins regulations, and that’s right because if the state once again begins to regulate everything we will return to the regulated economy again. Extra supermarket profits are usually hidden in the retro-bonuses. Now the state is trying to eradicate this practice of retroactive benefits. It is a usual practice for chains to say they have such a small margins, only (let’s say) 20%! And it’s true, they have a small margin from the initial price that we negotiate on, but after the sale we will give them another 25% as a retro-bonus, and afterwards they will add a little more – and here it is, a 65% margin.

Thus, the wine market is very opaque, chains are beginning to twist importers’ hands saying “You should do like that because we want you to do like that”. This is hard. I hope that the new trade law which will soon be adopted will lead the wine trade in supermarkets to a more civilized form. We need to discourage supermarkets’ passion for wealth and force them to deal not with our arguments and their conscience but with the authorities and the real threat of big fines for non-market trade. Rather than receiving profits from the fair margins, as it should be, they profit from the gray schemes.

I have a highly negative attitude to some regulated wine monopolies: it is a pure corrupted mechanism. I saw those buyers of these monopolies, they tend to wear too many diamonds. And this is not strange — these people make an important wine choice for the whole country. Even the importers themselves admitted they do certain things that tip the scales in their favor. I can understand some effectiveness in fight against drunkenness — well, those people are not restricted in their movements, they can always go to nearby countries with their own laws and purchase alcohol there. In our global world, it’s just a wild idea. In Russia this just wouldn’t work.

In Russia you need to look for ways to control illegal traffic of alcohol because about 50% is not legal. We are mostly talking about cheap vodka here. It is crucial to reduce the duty on imported bottled wine. Indeed the problem is not only that vodka is cheap, but also that wine is expensive. Local wine supply can’t cope with today’s volumes of consumption. Russia is a risky viticultural zone, which means that in any year all the harvest and all the investments can be lost. The ideal model for the Russian wine trade includes the recognition of foreign wine certificates, because the Russian bureaucratic system really does not certify anything. The second – we need major reductions in import duties, and the third – we have to get rid of the regional barriers, when a region sometimes requires a dual certification of wine, jus to collect some additional money while this practice is totally illegal.

Specialist wine shops are still a very difficult business to run and we don’t see any new significant players. Among the importers we see different trends: the crisis has shown who is capable of what, who has the right financial and managerial skills and power. The wine market here is being totally rebuilt, we see brands changing importers and companies disappearing. I do not see any prospects for the emergence of new players. The consolidation around the strong players will continue and we will try to take advantage of the situation to become stronger and gain more influence.

The ruble prices rose significantly after the devaluation, but people who used to buy wine for 500 rubles (€11,4) continue to buy for 500 rubles. And in reality they do buy cheaper wines. Cheap wines are selling better while expensive bottles show almost a complete failure. In the regions the situation is even harder, many distributors went bankrupt, and people are more sensitive to prices.

In current situation it is absolutely meaningless and impossible to make predictions for the future. In Russia wine is still a kind of luxury item, rather than a daily demand. If people do not have enough money, the luxury products are ignored».

The global financial meltdown caused a serious damage to some of the major players in wine imports in Russia. Several small and middle-size wine importers have already stopped their operations and the producers they deal with have to seek new importers. Quite a known company Magister Bibendi used to import New World and Spanish wines and stopped operating on the market some time ago. Its director, Oleg Osipov, a former head of a leading wine importer Whitehall, had to close the business down and even sell some of the private assets to cope with the situation. The Saint-Petersburg importing company Svarog seized its operations in Moscow too. Some of the other leading wine importers do lose their producers to the crisis natural selection – if you can’t sell the wine, get rid of it faster.

«High-end wine sales in Russia have plummeted due to the current economic crisis, traders say. Wine sales plunged 50% compared to the same time last year, said Yana Jelvanova, import manager for Keider, a wine importer in Russia since 1998. The shrinking value of the rouble combined with a troubled economy is being blamed for the fall in sales of fine wine. Simple Wine Co – one of the largest wine importers in Russia – recorded a more modest 15% sales drop from January 2008 to January 2009, but a company spokesman stressed that consumers are drinking just as much if not more, but they are opting for less expensive wines. ‘We should just mention that consumers are simply trading down and turning to brands with good price/quality ratios,’ said Anatoly Korneyev, cofounder and vice president of Simple Wine Co. ‘It does not mean that consumption will fall in 2009 compared to 2008,’ he added.

And it seems it’s not just the mass market who are neglecting the more expensive brands.

‘Even big spenders are looking for bargains,’ said Kirill Drozdov, manager of Vinoteca Grand Cru, a popular Moscow fine wine retailer, also owned by Simple Wine Co. ‘They are buying less Montrachet and more Pouilly Fuissé.’

However, the forecast for the Bordeaux 2008 futures is mixed. ‘In this difficult market, we are not interested in buying futures, even if the vintage is excellent,’ Jelvanova from Keider said. For his part Korneyev said Simple Wine Co has already stocked up on 2008 Bordeaux. ‘We follow ratings and our own opinion about the vintage but we have not taken into account the current market situation,’ he said. ‘We are sure that the Bordeaux top growths will sell anyway; if not in 2010 or 2011, they will be demanded in subsequent years when everyone will have forgotten about the crisis.’»

The most known “independent” wine magazine Magnum was gone in the beginning of 2009. It was the last time I saw it. Its editor in chief and co-owner Igor Serdyuk is now writing for lots of glossy magazines not related to wine and also for some leading Russian business newspapers. Which is good: at last some wine knowledge will go into the masses.

Another long-living project – Vinomania – had to reduce the magazine volume dramatically. Its March 2009 issue is a 64-pages-only edition compared to 100+ in the recent past. Not only the magazine has decreased in volume – it is obviously economizing A LOT on the quality of photographs and articles. Almost a third of the magazine is devoted to a rewrited translation of a Wine Business International article and trying to repeat the article experiment in Moscow wine shops. Good idea with actually a very bad implementation. Being unable to attract any top-notch advertisers the magazines fall into pieces: the magazine contains 4 (!) full-page advertising modules and a dozen small modules. Not sure, how many of them is actually paid advertising.

The third young project that suffered the economical grip is the one belonging to a wine importer – United Distributors – based in Moscow. Honestly, the magazine called Fine Wines (a reference to the wine world famous The World of Fine Wine?) was a concept plagiarism of the existing Simple Wine News magazine, published in collaboration with another well-known importer Simple. Fine Wine started at the end of 2007, made four issues in 2008 and… vanished despite the financial support (or failure to support) of UD.

I would say the only quality magazine that’s left on Russian wine scene is Simple Wine News. For now it’s the only edition successfully going through the economic situation without any significant quality / circulation loss and without firing its own editors.