Russia could give ‘fatal blow’ to spirits brands

As fears for the spirits market in Russia deepen, a leading analyst has warned rising tensions with the west could provide a “fatal blow” to producers.

Euromonitor’s Spiros Malandrakis has warned Russia’s “Mexican stand-off” with the west could provide a “fatal blow” to spirits producers

According to Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor International, Russia’s recent spate of embargos on certain western agricultural imports could “produce the mother of all hangovers” for international drinks groups.

Spirits were exempt from the embargos, but the Russian Federal Service for Consumer Control, Rospotrebnadzor, has banned a number of spirits brands over allegations they breach consumer rights.

A number of Ukrainian vodka brands have been outlawed, in addition to Sazerac’s Kentucky Gentleman Bourbon and Jack Daniel’s Tennessee Honey in the country’s Sverdlovsk region.

“There is a very real danger that the country’s Mexican stand-off with the west alongside the rising spectre of Cold War sanctions, embargos and paranoia could derail international trade and agreements, undermine evolving drinking patterns and ultimately provide a fatal blow to imported beer, wine and spirits brands,” said Malandrakis.

He noted that these sanctions come at a time when the Russian alcoholic drinks market was already reeling from a number of tax hikes, advertising bans, and tightening legislation.

According to Euromonitor data, total alcoholic drinks volumes in Russia were down by more than 5% in 2013, with declines expected to continue in 2014.

Malandrakis states that imported whisky, rum, Cognac and Tequila secured double-digit growth due to “westernisation trends, aspirational consumption and a fundamental shift in drinking rituals”.

However, he adds: “Worryingly, these are the exact same categories that stand to lose the most if the on-going Ukranian crisis leads to the adoption of the unilateral sanctions already threatened”.

International drinks groups have already begun to prepare further market pressures in the country.

In August this year, Diageo revealed it had a contingency plan in Russia in case political relations deteriorate further, while Pernod Ricard said it was “importing as much as they can before retaliatory action”.