Vodka consumption in Russia could fall by a third within five years as Government regulation pushes more consumers out of the grey market and towards beer and wine, according to Renaissance Capital analysts.

A 30% duty tax hike on vodka, set to be implemented in two stages next year, is likely to reduce consumption of legal vodka in Russia by a tenth, according to Renaissance Capital. Beyond that, the analysts believe that Government concern about Russians' excess drinking will lead to stronger attempts to diminish the so-called 'grey' market.

Taken together, duty rises and strong regulatory controls are expected to reduce Russia's overall vodka consumption to 8 litres per capita in 2015, down from an estimated 11.9 litres per capita in 2011. The winners, according to Renaissance, are likely to be wine companies and brewers, even though this latter group have themselves seen beer consumption decline rapidly in the past couple of years, and are facing tougher regulation on sales and advertising.

Renaissance analysts said this week that duty tax increases will mean higher consumer prices for legal vodka. But, tougher regulation will stop licensed producers from siphoning off spirit for the grey market.

As a result of higher prices, Renaissance believes that more consumers will be attracted to lower-alcohol drinks such as beer and wine. At the same time, vodka will be much closer in price to international spirits, such as whisk(e)y or Tequila, and so these, too, may get a lift.

Not everyone in the vodka sector is set to lose, however. Renaissance analysts said that legal producers, particularly those at the premium end, will increase their profitability due to higher pricing.

The analysts also expect to see limited consolidation in the industry, but added: "Although the Russian vodka market is expected to continue its consolidation, ... it will remain very fragmented, with the top-five players occupying less than 45% of the market in 2012."

In January 2010, Russia's Government introduced a minimum price on vodka of RUB89 (US$2.85) per half-litre. This is expected to rise to nearer RUB200 by 2014, according to local media reports