Voluntary Report - public distribution

**Date:** 10/1/2004

**GAIN Report Number:** RS4319

RS4319

**Russian Federation**

**Wine**

**Market Brief**

**2004**

**Approved by:**

![](media/image1.wmf)Eric Wenberg, ATO Director

AtoMoscow

**Prepared by:**

Olga Taybakhtina

**Report Highlights:**

Fueled by the stable economic growth over the last six years, Russia is
one of the most rapidly growing wine markets in the world with an
average 30 percent wine consumption increase per year. Although Russian
consumers still drink a greater quantity of popular wine labels from CIS
countries like Moldova, Georgia, and European wines from France, the
popularity of New World wine is steadily growing. U.S. wine exporters to
Russia have excellent prospects.

Chile and Argentina are the wine leaders among the other 'New World'
countries in the Russian imports. In addition, French exporters this
year are going to invest about one million euros in wine promotion to
Russia, three times more than last year.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Moscow ATO \[RS4\]

\[RS\]

**Summary**

With annual growth of almost 30 percent, the Russian wine market offers
excellent opportunities for U.S. exporters. The rapid growth of wine
sales is typical of the overall growth in the Russian food market, which
is one of the fastest developing sectors of the Russian economy. The
number of regular consumers of wine has increased by an average 10
percent each of the last four years.

According to 'GFK-Rus', a local market research company, the share of
wine in the total volume of alcohol products in Russia was 6.2 percent
in 2003, a 19 percent increase over 2002. Wine's share of alcohol
products over the same period of time was 14.7 percent in value,
compared to 12.3 percent in 2002. The share of wine from grapes (over 13
percent of alcohol, but less than 18 percent) reached 66 million
deciliters, a 9 percent increase from 2002. The market share of Russian
wine decreased from 48.5 to 42.6 percent while there is a slight
increase of wine produced in the CIS countries from 44.3 to 45 percent.
The share of imported wine increased twofold, from 2002 by 7.3 to 12.4
percent in 2003. Based on 'Academy Service', another local marketing
agency, estimates the total imports of wine from grapes (over 13 percent
of alcohol, but less than 18 percent) in 2003 reached \$189.8 million in
value (a 32 percent increase than in 2002) and \$17.6 million deciliters
in volume (a 41 percent increase).

## Wine Imports by Categories

Type of Wine Imports Volume in 2003 2003/2002 Leading Countries

15%-18% 500,700 decaliters +80% Moldova

Chile

13%-15% 16.6 million decaliters +40% Moldova

Georgia

Less than 13% 513,000 decaliters +34% France

Germany

Source: 'Business Analytica'

Although the number of U.S. wine labels is steadily growing in the
market, most Russian consumers are not aware of the variety, quality and
value of wine produced in the United States. The following table shows
various factors influencing the growth of wine consumption, in general,
and the level of wine imports from the United States, in particular.

+-----------------------------------+-----------------------------------+
| # Advantages                      | # Challenges                      |
+-----------------------------------+-----------------------------------+
| Six years of a growing economy    | Still low average per capita      |
|                                   | income; price heavily influences  |
|                                   | on consumers' wine preferences    |
+-----------------------------------+-----------------------------------+
| Increase of per capita income of  | Traditionally, Russians prefer    |
| the Russian population            | strong alcoholic drinks to wine   |
+-----------------------------------+-----------------------------------+
| Russians have become more         | Most Russians are not aware of    |
| health-conscious. As a result,    | wine quality & taste difference   |
| they consume more high quality    |                                   |
| products, including more          |                                   |
| expensive and elite types of wine |                                   |
+-----------------------------------+-----------------------------------+
| Russian consumers are switching   | Absence of the national           |
| from vodka to more expensive and  | distribution network              |
| elite strong alcoholic drinks. At |                                   |
| the same time, wine consumption   |                                   |
| is increasing by almost 30        |                                   |
| percent per year.                 |                                   |
+-----------------------------------+-----------------------------------+
| Advertising of wine consumption   | Strong presence of wine from the  |
| by the major wine players in      | CIS and European countries in the |
| Russia, including wine            | Russian market.                   |
| consultations for consumers in    |                                   |
| the large retail outlets and wine |                                   |
| boutiques and special sessions    |                                   |
| for wine professionals            |                                   |
+-----------------------------------+-----------------------------------+
| Growth of special wine stores,    | Aggressive promotion of wines     |
| primarily in the large Russian    | from Europe, France and Italy and |
| cities                            | the New World, Chile              |
+-----------------------------------+-----------------------------------+
| Russia's vineyards in the         | High profit margin in the retail  |
| Southern regions are insufficient | outlets put inexpensive U.S.      |
| to meet the growing demand for    | table wine into the higher        |
| quality wine. Therefore, Russia   | premium category.                 |
| depends heavily on imports of     |                                   |
| bottled wine and wine materials.  |                                   |
+-----------------------------------+-----------------------------------+
| Russian importers want reforms to | Love-hate relation to U.S.        |
| raise interest in wines (lift a   | products on the part of the       |
| ban on grape wine in press).      | Russian consumers: recognition of |
|                                   | U.S. high quality products versus |
|                                   | GMO products                      |
+-----------------------------------+-----------------------------------+
| The Russian government taxes with | High import tariffs and lengthy   |
| a VAT domestically produced wines | inspection procedures             |
| at rates equal to imported wines. |                                   |
+-----------------------------------+-----------------------------------+

## Production

Before 1985 the Russian wine market was dominated by domestic wines
produced from locally grown grapes. However, during an "anti-alcohol
campaign" in the mid-1980s, most local wineries were destroyed. As a
result, domestic wine production fell by 80 percent and has still not
recovered. In 2003, 327 wine companies were operating in Russia. They
produced 36.5 million deciliters, a 9.7 percent increase than in 2002.
Production of sparkling wine and champagne reached 8.8 million
decaliters in 2003 versus 8.1 million decaliters in 2002. However,
according to market experts, there is no high quality domestic wine.

In addition, with consumers continuing to switch from vodka to "softer"
alcoholic beverages, wine consumption and imports are on the rise. This
trend is expected to continue, particularly among younger, more affluent
Russians.

## Consumption

The total volume of the Russian wine market is estimated at 300 million
liters a year, while the total volume of the alcohol market in Russia is
\$18 billion by value. Annual per capita alcohol consumption in Russia
is 9 liters, with 4 liters of wine consumption. For comparison, the
average per capita wine consumption in Europe is 26 liters.

**Dynamic of Per Capita Alcohol Consumption in Russia: 2001-2003**

2001. 9.09 liters

2002. 9.24 liters

2003. 9.29 liters

Source: Business Analytica

For comparison, the average alcohol consumption in the Czech Republic,
Slovenia and Slovakia is 13.3, 11.5 and 9.0 liters, respectively.

## Dynamic of the Growth in Alcohol Consumption, by major categories

Cognac, tequila +129 percent

Low alcoholic drinks +93 percent

Beer +88 percent

Wine +28 percent

Vodka +11 percent

Source: Business Analytica

Traditionally, Russia is a vodka drinking country with consumption of
220-250 million deciliters per year. However, over the last few years
one can see the change of consumer preferences to low alcohol
categories. At the same time, vodka production decreased by 3.3 percent
in 2003. According to market experts, wine has the brightest prospects
in the alcohol category. At the end of the 1990s, the demand for beer
reached its maximum growth rate of 40 percent a year. At this point,
beer consumption growth is slowing down and may even decrease to a 4-5
percent growth rate a year.

Market experts estimate a per capita wine consumption in Russia might
reach 14-15 liters a year in the near future. It is important to note
that Russian consumers in the large cities are potentially ready to
purchase all wines presented in the stores, regardless of price. Even
very expensive wines can find a buyer for a special occasion.

## Share of Consumers' Spending by Category

Strong Alcohol 56 percent

Beer 31 percent

Wine 13 percent

Source: Business Analytica

## Traditions of wine consumption in Russia are very specific and can be broken down into the following three categories: 

##  

## 40 percent of wine is purchased for a national or family holiday; 

## 25 percent when meeting with friends; and 

## 15 percent when eating out.

## Red wine accounts for the largest share of wine consumption for all price categories in Russia. 

Russians prefer table red wine (60 percent) to white wine (40 percent).
According to 'GFK-Rus', consumption of wine in Russia by color in 2003
was as follows: 53.5 percent in volume for red wine, 33 percent for
white wine, and 13.5 percent for rose wine.

Many low and medium quality wines from the CIS countries, particularly
from Moldova, are the leaders in the local retail sales. These wines
cost \$2.0-\$2.75/0.75 liter. The \$4 price is critical for high volume
lines in the Russian retail market. At the same time, there is a growing
demand for medium segment wine (\$5-10 per bottle). Russian consumers
are ready to purchase expensive wine, but they are reluctant to spend
considerable amounts of money for high quality wine. The best choice for
consumers is wine of good quality for a reasonable price. Semi-dry wine
remains the most popular type in the low- and medium segments of the
market while dry wine is the most common purchase in the expensive or
elite wine segments. However, consumer demand is steadily switching from
semi-sweet and sweet types of wine to high quality dry and semi-dry
wines. According to 'GFK-Rus', wine consumption by categories in 2003
was as follows: 6.4 percent for dry wine, about 54 percent for
semi-sweet wine, and 28.4 percent for dessert wine.

There is no fluctuation in wine consumption by season. However, the
sales volume of wine in Tetra packs and bag-in-boxes rises at the end of
spring and in summer as this type of wine package is convenient for
using outside the city.

## Market Dynamics

Wines from Moldova, Georgia and Ukraine make up jointly over 60 percent
of the imported wine consumption. Moldova is the market leader in Russia
(almost 60 percent by volume) followed by France (15 percent) and
Georgia and Bulgaria (five percent each). The share of wine from Moldova
is going up by 20 percent per year.

However, the share of wines from the CIS countries is shrinking, the
result of a market flooded with better-quality, lower-priced wine from
other countries. For instance, the import of Chilean wines to Russia has
increased tenfold over the last four years. At this point, Chile is a
wine leader among the other 'New World' countries in the Russian
imports. In addition, French exporters this year are going to invest
about one million euros in their wine promotion to Russia, three times
more than last year.

## Distribution 

Over 100 alcohol importers/distributors are operating in the Russian
market today. Most wine importers are located in Moscow and St.
Petersburg.

Moscow-based importers and wholesalers are the major wine suppliers to
the local retail outlets. While supermarket/hypermarket chains currently
account for only about 20 percent of total retail sales in Moscow and
less than 10 percent for the country as a whole, these chains are
expanding rapidly and must be considered prime targets for increasing
sales of U.S. wine. Despite the rapid growth of supermarket chains,
traditional outdoor markets still account for about 43 percent of total
retail sales and also remain an important target for wine.

At this point, there are also more than 10 specialized wine boutique
chains in Moscow, typically offering up to 500 different wines and
spirits from all over the world. Some of these chains belong to the
Russian importers.

The restaurant segment is also expanding quickly. Russian consumers are
beginning to recognize the nutritional value of wine, and its
consumption is growing in this market sector too. Although wine from
France, Spain and Italy are now among the most popular in Russia, wine
from 'New World', particularly from Chile, is becoming very popular too.

## Market Access

**Import Documentation**

Imported wine with 9% percent alcohol and less is not a subject to an
excise in Russia. This factor is valuable for an importer only as it
makes a cost of wine less compared to the wine with higher percentage of
alcohol. The wine with higher percentage of alcohol falls under the
different customs codes. It is very important for the importer to
indicate in customs documents the code that corresponds to the specific
percentage of alcohol.

The Importer has to provide the customs office with the following
documents:

-   Product Certificate issued by the Russian relevant certification
    entity. This document (the notary copy is accepted) has to be
    submitted to the customs office when wine crosses the border. For
    getting the certificate, the Importer has to provide to the relevant
    service the following documents (the fax copies are accepted):
    Contract signed between the Exporter and Importer, Certificate of
    Origin, certificate of Quality, and Certificate of Analysis along
    with the wine samples (3 bottles per each name).

-   Import license of the Importer;

-   License of the customs warehouse (where wines are to be cleared);

-   Excise stamps documents set; and

-   Certificate of Origin, Certificate of Quality, and Certificate of
    Analysis

**Labeling Requirements**

For selling wine in Russia, each bottle of wine is required to have a
back-label in Russian. It can be put on the bottles after customs
clearance or before the shipment at the Exporter/Producer warehouse. In
any case it is necessary to put labels before wine goes for selling.
There is no requirement for design of the label. But there is a list of
the strict requirements for the label contents, ie:

-   Type of wine (natural, grape, table, dry, etc);

-   Name of wine;

-   Percentage of alcohol;

-   Sugar content for wines that contain more than 2 g/liter;

-   Name of wine producer and address;

-   Name of importer and address;

-   Name of distributor and address in case the importer does not sell
    wine directly;

-   Certification sign that reconfirm that wine has a Russian
    certificate;

-   Bar code (or EAN code);

-   Date of bottling;

-   Health warnings;

-   Expiration date;

-   Terms of storage; and

-   Terms of consumption (serving temperature).

## Contact Information for FAS Offices in Russia and the US:

U.S. Agricultural Trade Office

American Embassy

Bolshoy Devyatinskiy Pereulok 8

121099 Moscow, Russia

Tel: 7 (095) 728-5560; Fax: 7 (095) 728-5069

E-mail: <atomoscow@usda.gov>

Eric Wenberg, Director

***For mail coming from the U.S.:***

Agricultural Trade Office

PSC 77 AGR

APO, AE 09721

***For international mail*:**

Agricultural Trade Office

U.S. Embassy - Box M

Itainen Puistotie 14

00140 Helsinki, Finland

***Covering Northwest Russia (St. Petersburg):***

ATO Marketing Assistant

American Consulate General

Nevskiy Prospekt, 25

191186 St. Petersburg, Russia

Tel: 7 (812) 326-2580; Fax: 7 (812) 326-2561

E-mail: [Maria.Baranova@usda.gov](mailto:Maria.Baranova@mail.doc.gov)

***Covering the Russian Far East (Vladivostok):***

ATO Marketing Assistant

American Consulate General

Ulitsa Pushkinskaya, 32

690001 Vladivostok, Russia

Tel: 7 (4232) 300-070 or 300-089

Fax: 7 (4232) 300-089

E-mail: <Svetlana.Ilyina@usda.gov>

**Table 1.** Wine Imports to Russia, 2204 - Wine of Fresh Grapes, in \$
million

  ---------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
                                                                       **%                   **%
                                                                       Share**               Change**

  **Rank**   **Country**   **2001**   **2002**   **2003**   **2001**   **2002**   **2003**   **03/02**

  0          \--The        280        286        374        100        100        100        31
             World\--                                                                        

  1          Moldova       150        140        171        54         49         46         22

  2          France        42         44         54         15         15         14         22

  3          Georgia       26         27         33         9          9          9          26

  4          Italy         10         14         19         4          5          5          40

  5          Bulgaria      6          12         19         2          4          5          55

  6          Argentina     2          3          16         1          1          4          364

  7          Spain         7          11         16         3          4          4          46

  8          Ukraine       13         9          14         5          3          4          49

  9          Germany       4          6          8          1          2          2          35

  10         Chile         3          5          7          1          2          2          48

  11         Uzbekistan    4          4          3          1          1          1          -7

  12         Hungary       2          3          3          1          1          1          -15

  13         Country       1          1          2          0          0          0          48
             Unknown                                                                         

  14         United States 2          2          2          1          1          0          1

  15         Cyprus        0          1          1          0          0          0          19

  16         Australia     1          1          1          0          0          0          63

  17         Portugal      0          1          1          0          0          0          75

  18         Latvia        1          1          1          0          0          0          49

  19         South Africa  0          1          1          0          0          0          18

  20         Romania       1          0          1          0          0          0          32
  ---------- ------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------

Source: Customs Committee of Russia