27 Feb 2018
Vodka on the Rocks as Russia's Picky Tipplers Turn to Whisky and Wine
Changing consumer preferences see Russia's national drink losing market share to a number of spirited interlopers.
Contrary to popular conceptions, Russians drink less now than they did 10 years ago. While, back in 2007, the average Russian knocked back 16.4 litres of pure alcohol – largely in the form of beer and strong spirits – over the course of the year, a more modest 10 litres is now the norm.
While this drop is notable across all age groups, classes and genders, it is most pronounced among 20-40-year-old men, the demographic most assiduously wooed by distillers. As well as this drop in volume, there are also signs that consumer preferences are changing, a development seen as likely to benefit the wine and non-vodka spirit sectors.
In line with this, Russia's wine imports grew by a massive 40% in 2017, taking the total volume to 244.4 million litres. Overall, Spain was the lead supplier, with 53 million litres, followed by Italy (43 million) and Georgia (33.7 million), with the latter overtaking France for the first time last year. A quick overview of the prices indicates just how much cost has been a factor in these purchase decisions, with Italy coming in at US$3.57 per litre, Georgia at $2.92 and France at $4.54. By comparison, Spanish wine averaged $1.36 a litre, no doubt a prime factor in its abiding popularity.
In the case of Georgian wine, competitive pricing isn't the only factor in its success and, in fact, it appeals to Russian consumers on two different fronts. Among older Russians, it has huge nostalgia value, with many fondly remembering visits to the republic when it formed an integral part of the Soviet Union.
For younger citizens, they have discovered the country anew, with its proximity to southern Russia making it the most popular weekend break destination for many city dwellers in the sub-40 age bracket. Its allure has been boosted by low travel costs and the pro-Russian attitude of the locals, as well as the promise of good weather and the country's array of stunning landscapes.
On top of that, the ever-growing number of restaurants serving Georgian cuisine across Russia have proved highly popular, with many diners also getting to sample prime examples of the country's wines along the way. Against such a backdrop, it's no wonder that Russia is now the destination for 60% of all Georgian wine exports.
Tellingly, even as wine consumption has soared in Russia – with the palates of many of the locals now relatively sophisticated – domestic wine production has tailed off dramatically in the past 10 years. For 2017, it stood at 320 million litres, a 13% drop over the previous year.
A similar trend can be discerned among the country's vodka distillers, many of which have struggled to maintain market share, with a substantial number of consumers deserting Russia's traditional tipple in favour of imported wines or other premium spirit sectors – most notably whisky, Cognac or brandy. Of late, even the more exotic / novelty alcoholic beverages – such as calvados and tequila – have started to lure away once-loyal vodka drinkers.
In recognition of these changing consumption patterns, Diageo, the world's largest distiller of alcoholic drinks, is now producing three of its whiskies at Moscow's Kristall Vodka Distillery. Ironically, the facility, which has long distilled the Stoly and Moskovskaya brands, has now been co-opted for the production of Bell's, White Horse and Black & White – three of the brands that have helped displace its former output from the affections of the nation's drinkers.
Another consequence of the change is that Russia has now emerged as one of Europe's leading suppliers of glass bottles. This is on account of the surge in demand for bottling services from many distillers, a significant proportion of which now make huge savings on logistics costs by shipping vast cisterns of premium spirits to Russia before re-packaging them locally.
Overall, such a practice has resulted in a saving on production costs – excluding material costs and duty – of up to 30% for many distillers. One company that has already taken advantage of this new opportunity is the Moscow-headquartered Beluga Group, Russia's largest spirits company, which now also acts as the local distiller for William Lawson whisky, a Scottish single malt dating back to 1849. The whisky has been produced by Bacardi – the Bermuda-based spirits giant – since 1998.
Leonid Orlov, Moscow Consultant