Translated material
Degree of uncertainty
New shocks await the Russian vodka market
Despite all the disruptions that have occurred in the alcohol market over the past year and a half, the production of strong alcoholic beverages continues to grow. This is evidenced by Rosstat data. However, the opinions of independent analysts are divided: some believe that the market will be driven by the production of premium varieties of strong alcoholic drinks, others, on the contrary, are confident that against the backdrop of rising prices, more and more counterfeit vodka will be produced in the country and less and less legal vodka. Moreover, some experts question the correctness of comparing the current relative increase in vodka production with last year, when the market was in a deep crisis.According to Rosstat estimates, the alcohol market is growing in all segments. Ethyl alcohol production in July increased by 91% compared to last year, to 3.3 million deciliters. The production of vodka and liqueurs increased by 55%, and grape wine by 25%, according to a Rosstat report.
Experts explain the convincing growth in vodka production in different ways: by the consolidation of the market, which occurred due to the washing out of small players who did not pass the test of the Unified State Information System, and by the peculiarities of statistical data, because exactly a year ago problems began on the market, accompanied by a drop in production.
According to analysts at the investment company Renaissance Capital, the Russian vodka market is expected to achieve an 8 percent annual growth rate in the next five years. The Russian vodka market, which ranks second in size in the world after the US market, will grow mainly due to the transition to premium varieties of vodka against the backdrop of increasing household incomes, says a report from Renaissance Capital Investment Company. According to company analysts, the average annual growth rate of the vodka market in the mid-price segment will be 14%, and in the premium segment - 25%. Due to the fact that the Russian vodka production market is highly fragmented and the top ten players control no more than 40% of turnover, consolidation in the market, similar to the example of the beer industry, can be expected in the future, the company’s review says.
According to Vadim Drobiz, director of the information department of the Union of Alcohol Market Participants (SUAR), it is simply incorrect to compare production volumes this year with last year’s period, when the market was experiencing a deep recession. If we compare the average indicators for the alcohol market in 2007 with the crisis-free year of 2004, then this year we can see a decline of 12.8% and 2.7% compared to 2005. Unpredictable actions of the authorities to regulate the market make any forecasts extremely inaccurate, Mr. Drobiz is sure.
Alcohol producers fear another crisis , which could begin as early as November 1. The heads of 15 vodka factories near Moscow received an oral warning from the Federal Tax Service that if by November 1 of this year the enterprises do not begin to transfer data from alcohol meters to the Unified State Automated Information System, they will be deprived of their license . At the same time, software that would allow the transfer of information from meters to EGAIS has not yet been provided.
The next “Day X” for the alcohol industry will come on January 1, 2008. From this day on, all distilleries in the country are required to install expensive equipment for processing alcohol waste, the so-called stillage. For players in the alcohol market, installing equipment will result in serious financial costs - the price of one such installation is approximately 1-1.5 million dollars.
The statistics kept by the alcohol market participants themselves differ significantly from the official ones. According to XUAR, over two years - from 2005 to 2007 - the number of enterprises producing ethyl alcohol from food raw materials decreased from 166 to 124, the number of enterprises producing vodka decreased from 362 to 257, producing vodka and liqueurs - from 389 to 275. Ernst&Young is also pessimistic about the prospects of the Russian vodka market. According to company analysts, alcohol production in Russia is becoming an increasingly less attractive sector of the Russian food industry and will decrease by 8% by 2010-2012.