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Wine in a time of crisis
Meininger’s Wine Business International Issue 6 December 2008

The question that people are asking now is not whether the financial meltdown will affect the wine business in Russia, but rather how great this impact will be.

The largest Russian restaurant companies, through whom the premium wine offer is predominantly channelled, have already suffered a drop in demand. Their sales were on average 5% down in September-October. The number of business guests and tourists in restaurants decreased, the former due to companies cutting down on corporate entertainment and the latter as a result of people preferring more democratic eateries. As we enter the first months of 2009, when restaurants traditionally see fewer customers, they may well see their business reduced by as much as 15-20% — double the usual figure. Russian restaurateurs have already started to lay off up to 30% of their staff and put on hold development of new projects.

The situation appears even more critical in supermarket chains where over half of all wine volume is moved. Historically, most of the multiples relied heavily on extended bank loans for their operations. With the crisis hitting sales, they have found themselves struggling to pay off debt, though there are a few lucky ones who have been rescued by financial aid from the state and can claim relative safety.

Where does this leave Russian wine importers? So far, the crisis has had different implications on them. Some businesses are already tumbling, particularly those who aggressively expanded through heavy bank borrowings. One importer with the largest market share is known to have stopped his operations at least until the New Year, sending an alarming message to the market. Many companies have adopted a policy of wait-and-see, even if their businesses haven’t yet been affected. Advertising budgets are on hold, and the companies are refusing to supply bottles for the wine press, although this type of promotional activity is usually very popular with the trade.

Demand may not slow until January, as the final few months of the year are traditionally the busiest period for the wine trade. However, it is likely that people will be counting their roubles more carefully and the Russian trade is preparing for a shift in demand towards less expensive bottles, with an optimal price/quality ratio.

The crisis may bring bad news to many, but not to all. Some Russian wine importers remain upbeat as they see the current situation as an opportunity to consolidate forces and increase their market share. “We can hire professional staff for lower salaries. Our mood is very positive — thanks to effective anti-crisis management and the arrival of new opportunity to capture a larger market share”, says Alianta Group CEO Armen Grishkian. This is the third crisis that the Russian wine trade has to deal with in a ten year period. Though one may never get used to such things, it can be argued that Russian importers know better how to deal with them. But what is true for everyone is that only the fittest will survive.