Insight - CEDC warns of slow vodka turnaround, lines up Russian releases
Central European Distribution Corporation (CEDC) has warned that vodka volumes in its key market of Russia are not expected to pick up until the final quarter of this year.
Earlier today (5 August), the US-based company, which operates primarily in Russia and Poland, reported a 14% slide in second-quarter sales to $362.1m, thanks to the 33% average devaluation of its primary functional currencies.
While the company has seen improved trends for vodka volumes in Poland, CEDC said it believes a turnaround in Russia, where CEDC is the country's largest vodka producer, may take a little longer.
"Russia has not seen any pick-up in last three or four months, with volumes down between 10% and 15%," said CEDC's president and CEO, William Carey. "As we move into the fourth quarter and into 2010, we anticipate some pick-up. Right now, generally, the Russian consumer is relatively soft and I don't see any change in that right now. But, certainly, it's not getting any worse either."
Carey noted that CEDC is "very well-situated for any consumer rebound in both our key markets" going forward, thanks to its greater market share and lower cost base.
Also today, the company increased its stake in Russian Alcohol Group (RAG), in which it now holds 60% control. Coupled with its purchase last year of an 85% interest in Copecresto Enterprises Limited, which owns the Parliament vodka trademarks in Russia, Carey noted that CEDC is looking for synergies between Parliament and RAG going forward. "We're looking at at least half of the targeted synergies to come in 2010," Carey said.
Later this year, Carey said, the company is looking to launch two new vodka brands in Russia, one each from Parliament and RAG, which will target the "middle mainstream".
"There are still pricepoints that are missing in our portfolio," Carey said, although no specific details were released.
CEDC also said that it does not expect the Russian government to introduce a large excise increase next year. Reports out of the country have suggested that the Government is planning to plug a budget deficit by tripling excise tax on beer, which may lead to a similar hike for spirits.
"For the 2010 Budget, we expect the Government to stick to the annual increase of 9%, which has been the case each year for the last six," Carey said. "The beer market has grown faster over time than the vodka market in Russia. Maybe they want to tax the industry which has shown considerable growth in volume over time.
"Any big excise increase on vodka's just going to drive people towards the black market, which is something they really don't want."
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