Russian Market of Ready to Drink Alcoholic BeveragesResearch of the Company “Euromonitor International”
According to “Euromonitor International”, market of low-alcohol beverages* in Russia remained volatile during the past few years. The reason for that is constantly changing excise taxes, as well as the impact of economic crisis in the production of low-alcohol drinks and their consumption. After a decade of constant market growth, as well as the gradual shift of consumers to more expensive alcoholic drinks consumption, the sales of alcoholic beverages’ drop-down in 2009. The Russian market decreased by 6% in volume terms and reached 14 bn litres in 2009. However, indicators of 2010 may be even worse because of new governmental policy to reduce alcoholic drinks consumption per capita by 55% and the introduction of additional restrictions on advertising and trade.
The last years have not been stable for RTDs market. Changing governmental policy, rising raw material and packaging cost, high inflation influenced the 10% unit price increase during the 2009. This, together with deteriorating purchasing power of the population, significantly affected the decrease of volume sales of RTDs over the last year and still will be felt over the next five years period. RTDs total volume sales dropped by 6% in 2009 by reaching 396 mn litres. On the other hand, the ban to sell alcoholic drinks in kiosks will have the major impact on RTDs market changes in Russia over the 2010–2015 year period. This channel accounted 31% of RTDs sales in Russia in 2009, so manufacturers will feel strong negative impact when it will be closed for alcoholic drinks.
Despite these changes, forecasts for RTDs remain more positive than strong alcoholic drinks. Russian alcoholic drinks market was affected by lower alcohol drinking trend lately and RTDs benefited from this. Consumption of spirits decreased by 17% over the last five years – from 14 to 12 litres per capita while RTDs consumption remained unchanged – 3 litres per capita over the 2004–2009 year period. It is forecasted that RTDs market will be less affected by economic downturn than other categories. Few companies, such as “Happyland” LLC (Moscow), “Bravo Premium” LLC (Saint-Petersburg), “Ochakovo MPBK (Moscow Beer and Non-Alcoholic Plant)” CJSC**, managed not only to retain its market share but also to increase it during the times of economic recession. Companies introduced more brands focused on health aware consumers, like products with low alcohol content. They also have more goods in stock and can regulate prices in more flexible way to be attractive for price sensitive consumer.
Malt-based RTDs, wine-based RTDs and spirit-based RTDs*** are the main RTDs categories in Russia. Spirit-based RTDs is not only the oldest market category, but it also occupies 90% of the RTDs’ market – accounting for 366 mn litres in 2009. The leading brands in 2009 remained “Hooper’s Hooch” (“Megapak” LLC, Moscow region/”Molson Coors Brewing Co”) – 9%, “Bravo” (“Bravo Premium”) – 8% and “Jaguar” (“Happyland”/“IBB” Ltd.) – 8%. Wine-based RTDs took the second place in total volume sales with an amount of 7% and reached 31 mn litres in 2009. This sector was less susceptible to economic crisis and showed the decline of 5% in total volume terms over the last year.
Malt-based RTDs had the most favourable sales environment Russia in 2009. They did not require additional sales permit, have lower excise tax, as well as the opportunity to be advertised on television after 10 pm. Nevertheless, this type of low-alcohol drinks is still too young for Russian market and did not manage to increase the market share significantly.
The health and wellness trend has been reshaping consumption patterns in all FMCG industries over the past decade. A “healthier” spin has also become incremental to the performance of the alcoholic drinks industry because of the opportunities it provides in terms of expanding audiences in already mature and saturated markets. Low-carb/low-calorie variants, natural/organic offerings and low ABV varietals have surfaced as the most prominent ambassadors of the health and wellness trend within the alcoholic drinks industry.
However, with regard to the prospects of the health and wellness trend in the alcoholic drinks industry, organic/natural variants are expected to witness a slowdown in the short term and for the duration of the recession due to their largely premium positioning. Although, core established audiences will retain their interest in the category, perceiving it as an essential and affordable luxury. Low- calorie/low- carb variants will spearhead the health and wellness trend, capitalising on their appeal among primarily younger and female audiences.
Sales of RTDs/high-strength premixes were dominated by the off-trade, with most initially sold through street kiosks. With the evolution of retailing in Russia and an increasing number of chained outlets in supermarkets/hypermarkets, the share of kiosks rapidly decreased during the last five years. Moreover, local authorities introduced the new ban to sell alcoholic drinks in kiosks starting 2010 with aim to reduce the number of kiosks present in their cities and towns. Talking about on-trade, this channel accounted for only 10% of total volume sales during the 2009. Producers are still not oriented to supplying RTDs/high-strength premixes to the on-trade.
According to “Euromonitor International”, low alcohol drinks are expected to recover from the falling sales in the long term. As seen over the last five years, market players are expected to focus on expanding production into the regions, in order to better cater to consumers there. Povolzhje, Ural and Sibir, are the emerging areas expected to see strong growth in production from the leading players.
Low alcohol drinks market will also benefit from lower packaging costs like, for example, PET bottles for RTDs. While the ongoing financial volatility means that the majority of manufacturers are hesitant about investing in radically innovative products, the advantages offered by adopting alternative packaging could provide for strong returns, especially for those that catch the first wave of the “packaging revolution”.
* In this article, beer and ready to drink alcoholic beverages (RTDs) are treated as low alcoholic drinks. Wine and spirits are excluded from this category.
** Companies are listed according to their market shares.
*** RTDs stands for ready-to-drink. Other terms which may be used for these products are FABs, alcopops and premixes. The RTDs sector is the aggregation of malt-, wine-, spirit- and other types of premixed drinks. These drinks usually have an alcohol content of around 5% but this can reach as high as 10% abv.