Imports back on a premium roll
Patience Gould looks at the dynamics of brands in the Russian market – and finds that there is a growing demand for all ‘things’ premium.
Mention Russia to anyone and it’s odds on that vodka will loom into mind. Indeed voddy is as synonymous with Russia as fish is to chips – but things are a-changing. There is a vibrant imported spirits market and a growing demand for premium and deluxe drinks across the entire spectrum, aided and abetted by the attractions of the western lifestyle.
Russia is a massive spirits market, amounting to 2.4 billion litres, and since 2001 the imported sector has grown by a multiple of 40 – all categories, apart from Scotch, were hit during the recession but the bounce-back has been relatively quick.
The growing demand for premium spirits is also fuelling growth for locally produced brands – that is of course vodka. One player, Russian Standard, is certainly benefiting from this upward trend – and is now the number one premium vodka in Russia.
“Premiumisation” is another important trend that continues to show momentum in the Russian market. The consistent growth of the local economy has helped to fuel the consumer desire to trade up to more premium brands,” the company told The Spirits Business. “This is not only visible in the metropolitan cities such as Moscow and St Petersburg, but throughout the country. People are choosing to trade up across categories, from cars to clothes and of course vodka as well. This consumer behaviour has been a major driving force behind the exceptional growth of Russian Standard Vodka brands and has earned it the status of being the leading Premium Vodka in Russia.”
This definite move up the quality ladder is exactly in line with Pernod Ricard’s marketing strategy and not surprisingly the French multinational is making the most of it, particularly when it comes to its Scotch whiskies Chivas and Ballantine’s, as well as the Irish whiskey Jameson.
“We are activating several brand-building initiatives for our premium and super premium whisk(e)y brands in Russia, including Chivas Regal, Jameson and Ballantine’s,” says Cyril Claquin, marketing director for Pernod Ricard Eastern Europe. “We are fortunate to have a strong portfolio of brands with international stature and outstanding quality which allows us to build inspiring brand initiatives through-the-line in Russia.”
The company has just enacted “a powerful marketing plan” for Chivas Regal, leveraging the official partnership with the Cannes Film Festival, and also launched a new print advertising campaign in key magazines. Under the banner ‘Manifesto’, the advertising delivers witty statements linking the brand’s values with topical news stories, providing a further connection to the brand for affluent consumers.
“We expect a bright future for Chivas Regal in Russia due to a combination of the expansion of the upper-middle class from an economic perspective, and the current strength of the brand as a super premium whisky, fuelled by several years of successful brand building in the market,” says Claquin.
Clearly Pernod Ricard is committed to reinforcing its leadership in the super premium whisky category, and its other front runner, Jameson’s is going from strength to strength.
“Russia along with the US and South Africa is one of our three strong pillars – and we are now the number two whisk(e)y after Johnnie Walker Red Label and turning in strong double digit growth,” says Conor McQuaid, Irish Distillers international commercial director. And considering Jameson sells at a 20% to 30% premium to Red Label, that is no mean feat.
Another plus for Jameson is that the brand is moving out of the main cities like Moscow and St Petersburg into the regions. Its ongoing success – sales are “well north” of 100,000 cases – is again put down to taste. “It’s ideal for the consumer moving from vodka to brown spirits – it makes a nice transition,” says McQuaid. “We are hugely optimistic about Russia – it’s not traditionally associated with Irish whiskey but it’s so good to be at the forefront – and we are very positive about the future of the brand.”
While brown spirits and Scotch whisky in particular are at the forefront of the imported action there is coincidentally a growing demand for ‘other’ white spirits – notably Tequila. The category in the late 1990s was a mere 4,000 cases in Russia – but has since spiralled to a more respectable 300,000 cases. Outside the likes of Moscow and St Petersburg, a white Tequila is considered to be equivalent to a “very, very” up market, exotic vodka and is consumed accordingly.
One brand that’s picking up good momentum is Olmeca, and in value terms it is the brand’s third most important market, including Mexico. “Russia is a very good market and generally very, very interesting for spirits,” says Olivier Fages, Olmeca’s international vice president. “There is a great opportunity for very good quality spirits.”
Generally Eastern Europe is good for Tequila in that producers do not have to get over the hurdle of the ‘slammer’ syndrome – Tequila being used as a get drunk-quick spirit rather than a quality drink in its own right.
“In both Russia and Turkey there are no preconceptions about Tequila, as it was not available because of the Cold War,” says Fages. “So we are able to educate those consumers who are interested.”
To this end Olmeca has introduced the Tahona Society, in collaboration with Worldwide Cocktail Club founders Henry Besant and Dre Masso. This exclusive community of Tequila-enthusiastic and passionate bartenders has so far inducted over 250 members from seven international cities, including London, Johannesburg, Cape Town, Istanbul, Kiev, Moscow and St Petersburg.
On the face of it Russia is on a roll – but there are black clouds on the horizon. The Federal Service for Alcohol Market Regulation is pledging to reduce the number of import licence holders by half. And in March Alexei Kudrin, the finance minister, unveiled plans for a fourfold increase in the excise tax on alcohol by 2014. For consumers, that would mean a huge tax increase on half a litre of vodka and other spirits – from the current 46.20 roubles (£1) to 180 roubles (£3.90).
But Russian distillers are still optimistic. In February, Alliance 1892, a Kaliningrad-based spirits producer, signed a deal with Scottish suppliers to import and bottle its own Scotch blend. The newcomer “Seven Yards” will take on The Famous Grouse and White Horse in the economy segment.
