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Favouritism adding to the woes of Russian vodka producers

28-Sep-2004

Preferential treatment by local authorities is pushing Russian vodka producers on hard times. According to a recent market report it is the regional allocation of brands that is affecting profitability, which, combined with the fact that vodka sales are stagnating, is causing the industry to struggle.

Market Advice, the Moscow-based market analysis group, points out in a recent report on the vodka industry that the market remains tightly controlled by federal and regional authorities who apportion quotas for alcohol production as well as dictating the geographic reach for each vodka brand.

"We would like to supply more, but there is limited opportunity because regional authorities have become increasingly restrictive," said one industry executive quoted in the report. "It is very difficult to supply vodka in areas outside of where it is manufactured as regional governors tend to have marked preferences for local producers. This means that vodka manufacturers from other regions are likely to incur additional bureaucracy that can lead to long delays and difficulty in getting vodkas approved for sale in those areas."

 

But it is not only favouritism that is taking its toll on Russia's national tipple. Although vodka consumption is still phenomenal - at 15 litres per capita it is by far the highest in the world - the Russian government has been making concerted efforts to sway drinkers away from spirits to 'lighter' alcohol such as beer. Measures that are starting to work.

 

As the Market Advice report highlights, government moves have included increasing excise duties on vodka, which is also taking its toll. Five years ago 80 per cent of the drinking population consumed vodka and 12 per cent took beer. Now market experts estimate that the figure for vodka has dropped to approximately 70 per cent, while the proportion of beer drinkers has risen to 19 per cent.

 

As a result, the vodka industry in Russia appears to be largely stagnated. Although major players such as Stolichnaya have increased production by tapping into fashion-led Western European markets, the majority of players are becoming increasingly cautious.

 

As a result of the falling sales it is currently estimated that one third of all vodka manufacturers are currently in debt. In turn Market Advice says that 62 per cent of vodka companies did not launch any new brands in the last year - a telling sign that this is a market that is ripe for consolidation.