The Vodka Report - Russia and Ukraine

According to Nielsen statistics, the largest decline in sales was observed in the segment of cheap vodka, which is most affected by the anti-alcohol measures of the state. 

Sales in this segment only in the past year in Russia fell by more than 40% in real terms. 

It is noteworthy that the segment of inexpensive vodka (with a price of less than RUB300 (US$6) and UAH120 (US$5) per half litre) is the largest both in Russia, where it accounts for 91% of the total market’s size, and in Ukraine, where it accounts for about 84%. 

Hopes for better year

This year’s figures are hoped to be quite different for producers of vodka in Russia and Ukraine, as the authorities of both countries have applied new policies in response to the problems. 

Both states are currently moving to support vodka producers to defeat illegal sales, so consumers switch back to legal vodka. 

As reported by the deputy head of the Russian Agency for Alcoholic Market Regulating (Rosalcoholregulirovanie) Alexei Kruzalin, in 2014 Russia lost 14% of all consumers from the legal vodka market and the “authorities don’t believe that these people really fully stopped consuming vodka”. 

Therefore, the Russian government decided to support the market with the decision to not raise the level of excise tax on alcohol from January 1 this year, as had been planned. 

Representatives of the largest companies in Russia support this decision, stating that it will definitely support the market’s situation. 

In November last year Ukraine also decided to decrease the volume of excise tax on alcohol by 28.7%. However, a report from the Ukraine’s Association Ukrvodka says expensive energy, the rising cost of Russian gas and fuel and devaluation of the Hryvnia are all hampering sales in the legal market. 

Polish CEDC, which recently united with Russian Standard vodka in the report from the third quarter of 2014, says the decision to freeze the increase of the excise rate in 2015 should support sales in Russia and even lead to a slight increase both in natural and monetary terms. CEDC observers expect an intensifying of the state’s campaign to clamp down on shadow and counterfeit production. 

Tightening legislation

According to Kruzalin the Russian State Duma (parliament) is considering tightening legislation to fight illegal vodka production. In particular, Rosalcoholregulirovanie proposes to confiscate all equipment which has been used for these activities. CEDC’s report says such measures will make the market situation more credible and predictable. 

“Illegal sales of vodka in Russia will really decrease if these legislative initiatives are implemented,” says vice-president of Russian Standard Igor Kosarev.

In his opinion it will support the legal market, as currently the volume of illegal production in Russia accounts for 60%. But the adoption of these measures will mean that, by the third quarter of 2015, this figure would decrease to 40%, he believes. 

CEDC’s main competitor, Synergy, has a similar forecast for the development of the Russian market. Last year it faced a drop in sales of 7% year on year, while in 2013 this figure amounted to 12%. Synergy co-owner Alexander Mechetin believes the size of the illegal market in Russia today is about 50%, but the sales of legal vodka in the near future should stabilise.