Reviews

Doing business the Russian way
Meininger’s Wine Business International Issue 1 March 2009

As selling wine gets tougher, many producers have set their sights on the emerging Russian market.

But, as Eleonora Scholes explains, there are many obstacles to market, with many of the big distributors having full books. On top of that, wine consumption itself is relatively low. But Russia is possible for those who are the most prepared — and patient.

In May 2005, Francesco Bolla went to Russia to participate in Vinitaly Moscow. He chose that event for the first official public appearance of Dromos, his premium red wine from a new Maremma winery, Poggio Verrano. Bolla had no previous knowledge or experience of the Russian wine market; neither did he have any Russian contacts. At the tasting he was pouring Dromos 2003, the first ever vintage, and it seemed to be popular with the guests — including at importer who kept tasting and re-tasting. A week later, Francesco Bolla received his first order from Russia — and continues to supply his wine to that same importer today. This happy story may encourage many a small or big producer in their forays into Russia; however there is a rather large and unfortunate ‘but’. Bolla’s experience is exceptional. He was extremely lucky to have his product in the right place, at the right time, and in front of the right importer. For others, though, simple good fortune is unlikely to produce the same results.

Getting the perspective right

Russia today is commonly viewed as one of the most lucrative places for selling wine. It is the world’s biggest country by area, and one therefore automatically assumes the market of a corresponding size. Higher disposable incomes and steadily rising wine consumption, currently estimated at 6 litres per capita and with potential for further growth, offer optimism for the market’s future — but there’s a danger of falling into a trap.

Too many people base their expectations solely on population figures and anecdotal evidence of extravagant purchases by wealthy oligarchs. The reality is far more complex. Of around 145m Russians, only a fifth can afford to buy imported wine. Bringing wine into the country is costly, and high retail margins don’t help either. This is why most of the imported wine on the shelves has to be ‘upgraded’ to a higher price segment than, for example, in its market of origin. With the exception of entry-level Bulgarian, imported wines are bought at medium, premium and super-premium price points. While producers may be happy to see their wines elevated to a higher level, there are implications for distribution and affordability.

People who view Russia as a good opportunity for quick and easy returns should be warned by the words of Edouard Moueix, from the venerable Bordeaux négociant Établissements J.P. Moueix. “Do not be blinded by the shine of new money”, he says. It is perhaps wise to adopt the attitude expressed by Marc Pohl at Wineconsale, a small-sized German agency and exporter of premium wines. The company, which deals with over 20 international markets, is yet to find partners in Russia, but is taking a sensible, broad operational view. “As a professional wine exporter we strive to cover as many markets as possible… As a private company, it is a pure necessity for us to operate as widely as possible”.

Researching the market

Only three years ago comprehensive reports on the wine market in Russia, written in English or any other language (including Russian) were almost non-existent. This is gradually changing, and the number of information resources is growing. “Possibilities to gather valid information about Russian companies have improved in the past years, and the importers communicate and cooperate more open-mindedly”, notes Alexandre Wagner of Germany’s Klein Export, whose company has a particular focus on Eastern European countries and which has been supplying wine to Russia since the early 1990s.

Meininger’s was among the first to publish a series of in-depth articles written by local experts, while some international research agencies have undertaken large-scale surveys of Russian consumers. A good analysis of affluent wine drinkers in Moscow and St. Petersburg was recently done by UK-based Wine Intelligence. Results of the survey, together with a full market overview, were published in the Wine Intelligence Russia Wine Market Landscape Report. Several Russian research and consulting companies, most notably TsIFRRA (the Research Agency for Federal and Regional Alcohol Markets) and Business Analytica, regularly compile reports about the local wine market, but these are available only in Russian.

Producer associations on the local and national levels, chambers of commerce, national institutes for foreign trade such as the Spanish ICEX or Italian ICE should perhaps be an initial point of contact for producers and exporters who seek advice on the Russian market. The level of service varies, but these institutions should at least be able to provide free basic information about how to do business in Russia. For example, Toscana Promozione, a promotional agency for Tuscan businesses, has a dedicated office in Moscow and helps wine producers establish contacts with Russian buyers. Marketing Manager Christian Dworan, who is responsible for the Russian market at the Austrian Wine Marketing Board, refers new producers to the AWMB handbook on exports, produced in cooperation with Austrian Trade Commissions in more than 50 countries. The book includes chapters on wine regulations, labelling, duties and taxes, fairs and events, consumer buying habits and other topics. In addition, people can check which Russian importers already work with Austrian wine producers and what ranges they carry, as well as see statistics for exports to Russia on the AWMB website.

“Producers would often choose partners blindly, neither understanding the market nor the importer. They then often find themselves in a situation where a company that has promised a lot cannot deliver, or where a company’s philosophy doesn’t actually correspond to what it claimed to be”, says Maxim Kashirin, owner of the biggest Russian fine wine importer, Simple. “To producers, I would recommend to check references more widely. Ask your colleagues [who already sell to Russia] if their importer can provide information about another importer. Also contact your country’s trade mission in Russia. They should be well aware of the market situation and can request information about an importer, without necessarily disclosing a producer’s name”.

Producers who successfully work with Russian partners also find it useful to get the advice of a local expert. “You need to have someone from the country to help you understand the buyers. We were lucky to meet a journalist from Moscow who helped us tremendously”, recalls Edouard Moueix whose company has been working with Russian importers since 2001.

Knowing the players

All wine imports are handled by specialised businesses. Some inexperienced producers wishing to gain a presence in Russia mistakenly approach wine retailers or HoReCa operators for contracts; wine boutiques, restaurants and supermarkets do not import directly, due to the very expensive set up and high operational costs, as well as Russia’s infamous bureaucracy.

The total number of importers is well over a hundred, most of which are located in the two major Russian cities — Moscow and St. Petersburg. They are usually founded by, and belong to Russian entrepreneurs, though several foreign-owned importing companies have also recently opened up offices.

“There are always difficulties in finding good importers in a market that is in the initial phases of development. Some companies can suffer from lack of working capital to build and develop their business, even though they have sound business plans”, says Dominic Symington, whose company, Symington Family Estates is a well known premium Port shipper, whicht has been exporting to Russia for some seven or eight years. “Unfortunately, the volatility of the current economic situation and the consequent effect on the Russian economy, makes trading conditions for even the well established wine importers difficult”.

Producers and agents can increase their chances of a successful negotiation if their offering matches the general profile of a potential Russian partner. Some importers, such as Luding, mainly work with high-volume wines for off-trade distribution, especially in supermarket chains. Others, like Whitehall or Fort, have ranges for both off-trade and on-trade. There are also companies, for example, United Distributors or MBG, who focus on fine wines. With the exception of Bordeaux, Russian importers work with producers on the condition of exclusivity. If a producer has a large range, different brands may be divided between two or three companies. However, in practice, each importer will have its own specific profile and requirements.

“A new producer should correspond to the overall idea of our portfolio, namely, to match the reputation of the existing names; to be family owned or family-run; to be reasonably small so as not to demand from us ‘industrial’ distribution, of which we are not specialists; not to be in direct competition with the existing members of our portfolio”, explains Dmitry Pinsky of fine wine importer DP-Trade. “Another delicate matter would be his previous position, if any, on the Russian market — what his achievements were, with which competitor he worked. We do not want to tug, or ‘steal’ anybody”.

Alianta Group, a big player on the Russian market with a wide range of wines, operates with a different vision. “We constantly monitor the international wine market and try to understand the latest developments for already existing, successful brands, as well as for newly developed and launched ones, in different countries”, comments Alianta Group owner Armen Grishkian. He explains that his company visits international wine fairs and producers, checks the wine press and Internet resources, and keeps in touch with a wide network. “Our marketing department studies and monitors the local market, evaluating and forecasting major trends. Thus we can take advantage of our global experience and project it onto the developing Russian market, whilst taking into account its unique features”. This approach means that they are able either to create new projects tailored specifically for Russian consumers, or to adapt world brands to the Russian reality. “For a new entry, it is important to have a ‘charismatic’ product; to position it in the right market segment; to choose correct price points (especially in the current economic conditions); to carry out a successful launch and development programme; to create consumer loyalty. Our suppliers should meet these requirements, as well as providing quality wines, understanding our partnership goals and acknowledging the general market specifics”.

If a producer, négociant or agent happens to have genuine wine gems, as Établissements J.P. Moueix, then signing a Russian contract is just a matter of time. “Importers have always been very welcoming; however, it took many years and efforts to find the right partners considering the width of our portfolio”, says Edouard Moueix. Many others, however, need to listen carefully to what Russian importers say.

Maxim Kashirin bluntly states that proposals for cooperation are never considered, because: “100% of offers come from companies in whom Simple is not interested. If we wish to get a producer in our portfolio, we contact him directly, offer our services and convince him to work with us. Producers on the [high] level that we work with, do not really need to promote themselves. If they happen to contact us, it normally happens indirectly, via people we already know. We’ve had many of these contacts recently, and treat them seriously”. Sergey Tarasov of Grandi Vini reads all offers, but he almost repeats Kashirin’s words by saying that “the type of producers with whom we normally deal don’t need to look for importers”.

Dmitry Pinsky and Armen Grishkian also consider offers, yet most are still being rejected. “We receive proposals very often. They are considered and answers are being sent; however, historically, in the majority of cases, co-operation was initiated from our side”, notes Pinsky.

Clearly, if producers want to get a coveted contract, they need to be genuinely willing to co-operate with Russian partners, to match carefully their offer to importers’ requirements, and of course to have great reserves of patience.

Forging relationships

Securing an exportation contract is important, but not enough for successful work in Russia. Commitment to the market and product support are, at the very least, expected from wine producers. This doesn’t necessarily mean, though, that only companies with big promotional budgets have the chance to get their wines accepted in Russia.

“Simple never looks at promotional budgets as a pre-requisite condition for cooperation. Quality is fundamental. If a budget is available, it helps in selling wine, but would never be a key sales factor”, says Maxim Kashirin. “Our relationships with suppliers are built on true partnership principles: full trust, respect and professionalism. They rely on us and follow our recommendations. We, in turn, understand their specific points and know where to focus. All in all, it is a harmonious partnership”.

Dmitry Pinsky comments that almost no joint promotional/marketing activities are done at DP-Trade. “Where necessary, we do them ourselves. When really needed for some producers, we have reasonable joint promo/marketing budgets. They are compiled by both sides and are strictly reportable. All expenses are shared 50/50”.

Requirements change where higher volume brands are involved. “A wine can be launched and made successful on the Russian market when the right distribution channels are set up and there is ongoing work on the brand’s promotion and development. A budget from a supplier is proof that he is committed to the market and is prepared to develop joint programmes”, says Armen Grishkian, but he hastens to add that promotional budgets are not the only form of investment from producers. “Support may also mean special conditions for a wine launch, or product know-how, or a ‘charismatic’ brand, successfully established in other countries”.

The view from the other side

Italian producer Ferrari F.lli Lunelli, best known for its Ferrari sparkling wines, is one of Alianta’s suppliers, and appears to have built a perfect partnership. “Working with a brand like Ferrari means a lot of communication, PR, events, sponsoring, etc. Since the very beginning Alianta demonstrated great skills in creating a culture around our brand. To sustain all activities and promotion in Russia, we work on a three-year marketing plan with 50% shared investments. In my opinion, we have succeeded quite well”, says Federico Delvai, Europe Area Manager for Ferrari F.lli Lunelli. He explains that the company runs continuous co-marketing programmes with luxury brands and sponsor prestigious events, including the Russian Bosco Club during the Olympic Games in Beijing. “As a result of all our activities and investments, Ferrari distribution and sales in Russia have dramatically increased. Today we are exporting to Russia a yearly average of 65,000 bottles, and this is growing”.

Insider tips

What additional information or advice can producers successfully working with Russia give? “Whilst it is certainly not easier to find a good importer here than in other export markets, it is not necessarily harder either”, says Alexandre Wagner.

Federico Delvai points out that “the right partner with the right skills plays an essential role in this market”. Nationwide distribution, a professional approach to marketing, different products for on and off-trade channels, frequent visits to the market, a reliable and faithful relationship with your Russian partner and connecting to local opinion leaders are Delvai’s recommendations to big producers.

“I feel that the Russian market is a huge challenge but this is far outweighed by the potential as the country develops into a free market economy with a professional ‘international’ middle class”, says Dominic Symington. “I do find the centralised political situation quite frustrating because it tends to have an influence right down into normal everyday commercial life”. He adds that he is generally very happy with his current distribution, finding his importers “very professional and willing to be successful although there is still a degree of naivety in some of their commercial decisions, but I’m sure this will change as they gain more experience. This is in reality more to do with the sales teams and more junior management rather than the senior management who are as good as any professional management that I work with elsewhere”.