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Russia turns the corner
www.wine-business-international.com, 14 May 2009

The Russian wine market is continuing to feel the effects of the current financial and economic downturn and is likely to do so for some time yet.

However, the first signs have emerged to indicate that the worst may be over. Latest figures published by TsIFRRA (the Russian Research Agency for Federal and Regional Alcohol Markets) reveal that the wine market appears to be heading towards stability.

Russia was one of the last economies to be hit by the crisis. Whilst many global markets were under pressure as early as summer last year, Russian economic activity turned negative only starting from the fourth quarter of 2008. Local wine production, still largely industrial in nature and catering for entry level products, followed the timing of the general downturn. Its consolidated output for January-October 2008 increased compared to the same period in 2007, but then suffered a progressive decline in the final quarter.

Wine imports, on the other hand, couldn’t change swiftly, due to the extended timescales connected with transportation and logistics. In Russia, at least two months are needed for wines to be shipped and cleared, before appearing on retail shelves. Orders for late autumn sales had been confirmed well before Russian stock markets plummeted. The financial turmoil in October-November put on hold a number commercial transactions between Russian importers and foreign producers, especially in cases where the former heavily relied on credit support. Regional distributors with fledgling import divisions quickly opted out of foreign operations, while many established import businesses were forced to review shipment schedules for early 2009, drastically cutting volumes or cancelling orders until spring 2009.

General import statistics for 2008 closed positively, but on detailed inspection one sees a dramatic drop between October and December. Sparkling wine took the hardest blow — in December imports contracted to -27% against the same month in 2007, whereas as recently as October they were showing a healthy increase of 233%. Nonetheless, annual figures for Russia were better than in many other countries — year-on-year imports of sparkling wine gained 62%, and still wines had a growth of 3%. Imports of still wines hit the bottom in January, showing a loss of -44% versus January 2008, whilst sparkling wines plummeted in February, down -58%, year on year.

Local wine production was also negative, with the notable exception of wines in the premium price segment which retail in Russia for over 250 roubles (€5.5). They actually enjoyed a rising output December through February.

Although an objective conclusion can be drawn only after statistics for the second quarter are published, March figures provide grounds for cautious optimism. They are a mixed bag, but they have certainly improved from the winter in almost all categories. However, the encouraging March trend couldn’t reverse negative consolidated figures for the first quarter. Imports of still wines were down by -23.4%, and of sparkling by -35% compared to January-March 2008. Local production for table and sparkling wines shrank by around -14%, whilst premium Russian bottled wines bucked the trend with an increase of 17.2%.

As the financial and economic situation remains uncertain, it is pointless to make any short term forecasts. One only hopes that the Russian market will ride out the storm, and that the situation can at least stabilise in the next few months.