Vodka Still Leads the Way for Russian Quality Drinks Exports

Russia has a strong drinks sector, for spirits, beer and juices, especially. Alcoholic beverage makers are having to deal with flat sales in their domestic market and a government determined to reduce alcohol consumption, forcing producers to look for export sales to boost profits. With a new alcohol tax and minimum price, the cheapest 0.5 litre bottle of vodka is now set at RUB89 (around USD$3), deterring low income spirits sales.

Beer production and consumption has been less targeted by the state in the past – because of its lower alcohol content – and manufacture soared by 20 million hectolitres from 1998-2008 according to Euromonitor. But those easy days are over now – the Russian government trebled beer duty this year and it is likely that this will impact heavily on sales.

Market leader Baltika Breweries is at least bolstered by foreign muscle, being owned by Carlsberg. It has led the way abroad as well as at home, helped by its owner's impressive distribution network and international sales nous. As Europe's top beermaker by volume, it now makes Baltika beers under licence in Australia, the UK, Uzbekistan, Ukraine and Kazakhstan - from its first overseas unit in Baku in Azerbaijan - and exports to many countries direct, including for the first time, in 2009, to Vietnam, Lebanon, Chile and Guinea. Tuborg Lemon and Black, along with its own female-oriented label Eve (launched last year), are key export products said Baltika in its latest annual report. Within Russia, Baltika makes Tuborg, Carlsberg, Kronenbourg 1664 and Asahi under licence, while Corona Extra is distributed in Russia through a deal with Mexico's Grupo Modelo. Rival SUN InBev imports its parent's flagship brands: Stella Artois, Beck's, Brahma, Staropramen and Hoegaarden, with a company memorandum saying although the Russian super premium and premium beer segments are narrow at 10% and 23% respectively, they are highly profitable.

Russian juicemakers have alo waded in abroad - old Soviet contacts remain strong. Lebedyansky, Nidan and Wimm-Bill Dann (WBD) all do business in neighbouring countries – WBD has production units in Georgia, Uzbekistan, Kyrgyzstan and Ukraine. Danone currently holds an 18.4 % stake in NYSE-listed WBD, which aims to generate US$5bn in worldwide sales (87% of which from juices) by 2015. Russian juice imports are a negligible 0.5% of the domestic market, according to Tetrapak.

Despite the government’s anti-alcohol policies, vodka still fuels Russia's reputation for quality drinks and alcohol exports. It is not easy to make vodka in Russia: new licensing procedures mean both exporters and importers need to go through Ministry of Industry & Trade procedures, which applies to all alcohol producers but affects spirits the most. However, red tape can be punishing for importers too: all wine imports were suspended for up to a fortnight in January until paperwork was processed. Russia imports 70% of its wine requirements, according to russianvodkanews.com.

And yet, vodka sales remain powerful. Euromonitor says the vodka sales in Russia in 2009 was RUB517bn (US$16.7bn). And vodka exports continue to be strong. The UN reports that Russia exported 82m litres in 2009, netting US$135m in earnings. And that was in a recession year. In 2008, exports stood at 92m litres (US$154m).

Producer Russian Standard Vodka even saw sales rise by 5% in 2009 to 2.2m cases with exports now heading to over 70 countries. These were particularly healthy in the US, where it scored 56% sales growth last year. Exports also account for 75% of its total income.

Euromonitor reports the top three spirits producers in Russia in 2009, were respectively Russky Alkohol ZAO, Synergya OAO and Alkogolnaya Sibirskaya Gruppa OOO.

Market size of alcoholic and soft drinks in Russia, 2009 (RUB m and %)

 

2009

% 2008-09

Market size

Alcoholic drinks

1,513,289.8

4.3

Beer

664,982.7

6.5

Cider/Perry

-

-

RTDs/High-strength premixes

41,636.0

3.3

Wine

289,109.5

5.4

Spirits

517,561.7

1

Soft drinks

317,778.8

-2.8

Carbonates

99,313.1

-2.6

Fruit/Vegetable juice

109,002.8

-7.4

Bottled water

71,056.2

0.4

Functional drinks

14,111.4

17.5

Concentrates

1,874.1

13.7

RTD tea

22,071.1

-1.7

RTD coffee

350.1

-3.4

Source: Euromonitor International

Total volume sales for Russia drinks market, 2009 (m litres)

Growth in Russian drinks categories from 2008 to 2009.

Market

Sector

Growth

Russia (m litres)

Alcoholic Drinks

-8.3

Russia (m litres)

Beer

-8.8

Russia (‘000 litres)

Cider/Perry

-

Russia (‘000 litres)

RTDs/High-Strength Premixes

-6.2

Russia (m litres)

Wine

-5.5

Russia (‘000 litres)

Spirits

-7.7

Sources: Euromonitor International

This is part three of the six-part just-drinks' management briefing for June. For part four, click here. Part two can be found here.