The ABC of dealing with the Russian wine market

By Anton Moiseenko in Moscow

Ask 10 wineries how the Russian market is doing for them and you’ll get 10 different answers from “it’s very small” to “it’s one of our top 10 markets”. This variety of opinions is easily explained: it all depends on how you approach the market, who your partner is and how much attention you pay to it.

Peripheral thinking doesn’t work with Russia: if you want to be here, you have to work on it, see customers and even travel across the country. If it’s not for you, in most cases it won’t really work. Unless, of course, your wine is something of a hot sell.

The market structure

It’s safe to say that the Russian wine market structure is quite traditional: there are importers and distributors (mostly combined, though some technical importers provide only brokerage function), who sell to all other channels, from supermarkets and restaurants to specialised shops and private clients. Despite some attempts to nationalise the alcohol trade and transform it into a monopoly, Russian trade is relatively free — business owners decide which wines they want to bring, and they can bring virtually any wine.

The role of importers, though, has been slightly undermined by big retailers looking to cut the intermediaries and import wines by themselves. Big and medium-size wineries can, in fact, deal directly with retailers. Retailers visit wine exhibitions and select wines just like wine importers do.

In terms of wine volumes sold retail is the biggest segment, but this information doesn’t really help: very wine distributor has its own sales structure. Some are focused on HoReCa, others have strong private clients and corporate departments or specialise in doing business with big retail. Most “classic” importers combine all channels and have specialised departments dealing with each of them independently.

In most cases your importer will also distribute your wines across Russia. Importers ask for exclusive contracts and that’s normal — that is, if they present a good plan. Bigger producers have a choice to stretch their SKUs between different importers.

Wine importers can be classified by different parameters: size, sales channels, economic health, marketing power, etc. The classics are importers born in the 90s — there are quite a few of them. Bigger or smaller, they sell to everyone.

“Neo-classic” players came to life in the 2000s and looking at the mistakes of their peers adopted new strategies of influencing the sommelier community with educational programs and focus on younger generation. There are also some very small and niche “post-modern” players that target new and quickly growing market segments. Biodynamic, natural, Grower Champagne are the target for them and serving the hip, “green” somms is the main idea.

Around 50 wine importers and distributors can be called noticeable, not considering numerous technical and regional importers, pushing this number to maybe a hundred.

Regulations and tariffs

A state-imposed EGAIS electronic system regulates the alcoholic drinks turnaround. Because of that wineries cannot send samples directly via normal delivery channels — a special stamp has to be on every wine bottle when it enters the country. Stamps are put onto the bottles outside Russia, normally in the Baltic countries and the town Riga in Latvia is especially suit for it. If you work with Russia, chances are your wines will travel through Riga.

Till the end of 2019 the excise duty was around €0.26 per litre (for still wines), but from the 1st of January 2020 it was almost doubled to €0.44 per litre. The excise duty for sparkling wines, oddly enough, is much higher (was also raised from €0.51 to €0.57 per litre). Both still and sparkling wines excise taxes are expected to be gradually raised further in years to come. There’s also a 12.5% customs duty and a 20% VAT. Wine importers have been unsuccessful in fighting rising excise duty taxes, as they have been unsuccessful in opposing the wine advertising ban of 2013, online wine trading ban or anything else.

Importers’ margins 

The margins may vary greatly depending on importer; it could be 400-500% for some HoReCa-oriented platers, and 40-60% for those who targets off-trade. Most Russian wine businesses prefer to inflate their price-lists in order to give impressively looking discounts later.

Basically a wine with a €2 ex-cellar could cost in €8 on the shelf of a big volume moving chain and €16 in the price-list of a well-known fine wine distributor with a reputation. With discounts up to 60% everything in Russia is a matter of negotiations: if you buy a lot, you get bigger discounts. So far this is how the psychology works — if no discount is given, there’s a feeling of a bad client attitude, but some importers are breaking the ground offering clean fair-price-no-discount scheme to the market. Since most importers prefer not to disclose their real margins in order not to alienate their clients, this practice is extremely rare.

The demand: styles and price points

The average alcohol spending in Russia is 800 RUR ($13) per purchase

(Deloitte CIS, 2019), which sums up at $780 annually. This is not very revealing since wine is just a part of the equation.

Price wise the psychological points for a Russian consumer are €4-7 (low segment), €7-13 are “second best”, €13-20 are premium wines, €21 and higher will be considered super-premium by most (considering the exchange rate of 75 RUR per €1).

Sweeter style, higher alcohol wines are known to be loved by Russians. The HoReCa market is different, but its share isn’t that big. There’s no trends for low alcohol or organic on a larger scale. Ordinary consumers vote for intense, powerful wines with their Ruble, the wines able to hit and impress.

Georgia, banned from the Russian market in 2006 is now back on the shelves (the ban has been lifted in 2013) with more mass-market options than quality-driven wines. The thirst for Georgian wines is explained by the demand from consumers of older generation. The cheapest mass-market wines come from Abkhazia, it is one of the fastest growing suppliers of wines to the country. Some of these wines cost virtually nothing and, as one can expect, are semi-sweet and wire a price tag of €5. There are positive trends for countries like Azerbaijan and Armenia too.

Italy and France has always been the locomotives of the Russian wine market — in the end, these are the countries we go the most. Still expensive wines don’t really sell anymore and the competition with Portugal and Russian wines became fierce. They both lost significant import share in value compared to the runners-up — Spain, Portugal, and Georgia.

German wines have seen growth in bottle value, but they are still quite unfamiliar to consumers at large. The restaurant sales of German wines, on the contrary, are very optimistic with Rieslings and Pinot Noirs growing fast.

Portugal on the contrary, almost doubled the value of sales in 2017 compared to 2013. The secret? Attractive pricing, great quality and the powerhouse brand Vinho Verde.

Less demand for New World 

New World wines are in downfall: Australian, South African, Chilean, and — especially — the US and Argentine producers have suffered significant losses during the past four years. Chile remains the biggest New World wine country on the market, but as the wines got more expensive in 2014-2015, the interest to them clearly decreased.

New Zealand’s Sauvignons, on the contrary, steadily gain popularity and doubled its exports to Russia over a period of several years. Intense, crisp Sauvignons sell faster than pancakes on the sunny Easter day.

Micro trends: Grower Champagne, pet-nats, biodynamic and natural

Grower Champagne, while remains a niche offering for HoReCa / private segments, has been a point of interest among the sophisticated clientele in places where sommeliers play an important role. Instead of carrying one-two major brands of Champagne like several years ago, Russian distributors are looking to bring niche wines clearly marked with terroir and limited production.

Although much efforts are put by retailers and media to explain the difference between organic and biodynamic farming, the population at large still remains uneducated on the matter and looks like these concepts don’t really play the strings of Russian souls. Easy sparkling pet-nats are also attracting interest due to favorable reviews from hip somms and approachable style, they sell well in the “hip” HoReCa segment.

Domestic wine

After Crimea annexation by Russia in 2014 more wine and better wine appeared on the shelves. Wine is used by the Russian government as a tool to showcase the successes of the so-called “import-substitution” policy. Despite that, quality Russian wine is rare and is dependent on the supplies of vineyard management tools, machinery and know-how from abroad resulting in higher prices for few quality wines. It is a tough-to-sell in restaurants and attracts most attention from tourists rather than from the locals. Most Russian wines are sold in below €13 price range.

Russia’s own grapes are not nearly enough to satisfy the country thirst: the wine industry relies heavily on imported wine. The quality of this mass-produced wines is bearable at best. On the other side, locally produced sparkling wines have always been an important category with two companies (Abrau Durso and Sparkling Wines) accounting for 50% of all the wine in the market. The low-budget mass-market Russian sparkling wines start at around $5 on the shelf.

Tips and tricks

There’s this general idea that the Russian market is hard to deal with. This is partly true and mostly because of its instability and unpredictable nature than anything else, but also — due to the language barrier, if not the cultural one. One thing the wineries have to understand clearly — wine importers and distributors are constantly in the crisis management situation, so wineries should be coming in eyes open. It’s a very important notion that wine market regulations are not a piece of cake and importers are often put in conditions they cannot influence. That said, the one thing is clear — with the right approach, the Russian market can be a good share you one’s sales.

So what’s the right strategy in such a complex environment? Thing number one — understanding what kind of distributor is needed and taking it slow. But when a chance comes up there should be a quick evaluation and a decision made. Although the market is not easy, building a brand here is important and you do it with the right partner, the oner that is capable of presenting a clear vision.

One important thing is persistence and awareness. With this market you have to actually follow it, not leave all the job to the importer. Importers tend to be overwhelmed with priority brands and everyone absolutely has to do its own due diligence. Visiting the market and getting to know the players is a good idea. Talking to the people who sell the wine directly is en even better idea. Thus, with expanded contacts, you’ll have news coming in way faster.

Exporting to Moscow isn’t your only option, too. There’s a bunch of companies in Saint-Petersburg and several importers in other cities. Moscow is overly competitive and starting somewhere else can be a good idea, considering the fact that some importers have high ambitions of conquering other cities.

Participating in wine exhibitions might work. Exhibitions manage wines delivery and one gets to meet many people from the business. Vinitaly is out there as well as Gambero Rosso, but the quality is not comparable. Go for the first, if you are choosing. Portuguese wineries now have the annual Wines of Portugal event taking place in April. Wines of Germany hold different events throughout the year, too.

There’s a simple reason to come in for an exhibition to Russia — it’s focus and the ability to see many market players in one place, feel their meeds and make personal connections. And, most importantly, collect the feedback on wines. Man, I’ve seen cases of wineries finding importers after a first exhibition. Others have been unsuccessful for years. 

The hardships of 2020

With the global effects of COVID19, 2020 is not going to be easy for the wine market. In the wake of the crisis related both to health, economy and political situation some players might — and will — disappear. Some restaurants will never open again. Others will come in their places. Falling oil prices are already giving birth to a new pricing reality, where consumers have to re-adapt.

Due to the coronavirus fears retail will be in much better shape than the HoReCa, so a lot will depend on how soon the situation gets better. As the past crises show, as time passes, the consumer adapts to the new reality and the sales come back. Even more than the currency exchange rate, stability is the most important factor of them all.