Russias drinks market is expected to consolidate

Russia's drinks market is expected to consolidate

Russia's vodka market will consolidate, more through smaller players going to the wall than through acquisitions, the head of Central European Distribution Corp (CEDC) has forecast.

In a conference call yesterday (10 May), CEDC president William Carey said that the 11 companies that account for about 55% of the vodka market in Russia would soon shrink to five or six controlling 80%. “The smaller players will continue to have problems like in most emerging markets,” Carey said, adding that more companies would exit the market than be swallowed up in mergers or acquisitions.

CEDC continues to have the biggest value market share in Russia, with 12.4% as of December and January, according to Neilsen figures. Sinergiya is second with 11.2% and ASG third with 5.4%.

However, CEDC's share has shrunk from 14.4% two years ago as its competitors narrowed the gap.

“Certainly, we are not happy that we haven’t gained in this consolidation that you've seen,” Carey said. “If you recall a few years ago our vision was that we were going to gain a couple of points. But we are not accepting where we are and we are going to grow market share.”

Carey outlined CEDC's new strategy in Russia, which includes a partnership with vodka rival Russian Standard. Last month, Russian Standard pumped US$100m into CEDC in return for a potential 28% share.

Carey said the partnership, along with management changes including the installation of Grant Winterton as general manager in Russia, would help CEDC take back its lost market share in the country.

“Not only do we believe we have found a strong partner, and Russian Standard can help us on the financing, but also we can align in business together in Russia with a strong Russian partner and look at synergies that we can put together in terms of businesses and other opportunities,” he said.

Carey also said that more jobs could go in Russia as the company continues to cut overheads. Some 180 jobs went at the end of March and 240 were cut last month, totalling about 10% of CEDC's workforce, Carey said.

Alcohol sales are expected to decline in Russia by 5% to 10% as a government excise tax kicks in, although brown spirits and wine should continue their volume growth, CEDC said.

Earlier yesterday, CEDC saw net profits jump in Q1 result, however operating profits dropped into the red.

To view CEDC's company presentation from yesterday, click here.