A topical guide to the Russian wine & drinks market 2009
Wine & drink merchants view the the Russian market as a potentially lucrative area. Yet to conduct business sucsefully in this large and evolving market requires careful planning, and most importantly, establishing strategic partnerships with Russian based partners .
In this article MICHAEL FABIAN, wine & food director of international recruitment specialists Hyperion Associates & Vintners Jobs.com, asks his colleague, OLIVIER SAUVAGE, eastern european markets strategy specialist for the wine and spirit industry, to provide a guide to operating in this fascinating market.
The wine market in Russia: survival of the flexible - by Olivier Sauvage
Before I left Moscow last year, a pragmatic local entrepreneur and friend told me, When the revolution happened, the gap between the richest and poorest Russians was 95 times. Today it is 87. You're enjoying the wealth now, but you'll have to stay for what's to follow.
After three years working in the local wine industry, I left Russia when its economy was still booming. A year later, it is in the thick of one of the worst crises it has faced, though I am not sure it's quite what my friend expected.
On a recent trip to Moscow, the message from importers was consistent; everyone wants to buy cheaper products and they want a 90 day payment option. Needless to say, not much is changing hands these days.
A model ineffective today.
The main problem is that the entire wine industry in Russia is based on an obsolete business model. Until now, importers were more or less free to do what they wanted since they always had plenty of producers lining up at their doors.
Their stock was funded by bank loans, with interest rates running at around 12 percent per annum. Once the stock sold, revenues were used to reimburse the bank, while a new loan would be taken for each new batch coming.
This worked all very well until summer 2008, when suddenly banks started calling in their loans, and their interests rates being variable rocketed to around 30-35 percent. Moreover, the ruble lost over 20 percent of its value in 6 months, making the product even more expensive for the end-customer. Eventually the whole system collapsed.
The economy is on a slow train, the cost of debt is ruining importers, and those who haven't already closed down are suffering from a very bad hangover. Today, everybody is looking at each other wondering who is going to survive, and who is pretending to be alive.
This is the second crisis in the Russian wine industry in 3 years. In 2006, with the change of the excise system, we saw a huge clean-up of the market, where only importers with strong finances survived. Our cellar was forced to close for four months as all our bottles went back to customs to be re-labelled. But, as the industry consolidated, those companies able to survive a few months without trade saw a future that was relatively bright.
The difference with today's crisis is that having sufficient working capital is not enough. Only companies able to adapt quickly to the new order will be able to survive.
Everyone is walking blind in Russia. Nevertheless, there are some actors in the market who are looking for innovative solutions. Russians are born survivors; after all, it took them less than 10 years to recover from the 1998 crisis.
A call for a regional approach
Today the market is quiet, everybody is circumspect, wondering who is about to burn and who is ready to scavenge among the ashes. Companies are reorganising their portfolios (one major spirit importer is allegedly ridding itself of 70 positions), and wondering how they are going to finance the next year or so. Those of us coming with innovative financial propositions will be taken on.
The future of business in Russia is not in Moscow or Saint Petersburg, but in the regions. There are 11 other towns of over one million inhabitants in Russia and most of their wealth is based on natural resources (not only oil and gas) rather than financial services. Entering the Russian regions requires creativity and strength, but those markets should give good rewards within the next couple of years.
Russia is still one of the most interesting markets to follow. Risks still exist, but even if growth in the coming two years is slower than one would wish, it will get there. Those who stand their ground will be well rewarded.
For further information please contact either Olivier Sauvage or Michael Fabian
Olivier Sauvage, eastern european markets strategy specialist for the wine and spirit industry
Magellan Consulting olivier.sauvage@magellanconsulting.com mob +44 7528 913 419
Michael Fabian, director www.HyperionAssociates.co.uk & www.Vintnersjobs.com
mob+44 7783 707 949
The London International Vintners Exchange - Liv-ex - trading platform & financial info on the fine wine market
Since its inception in 1999 the London International Vintners Exchange - Liv-ex - has become the foremost exchange for fine wine providing a web & phone based information, trading and settlement platform for top end wine merchants.
This sophisticated site essentially provides a trading platform plus a host of ancillary services including detailed financial analyses, that, for example track wine prices & give info on availability. All this is available in various packages to both professional traders and wine collectors, designed to keep them bang up to date with the latest developments in the fine wine market.
It also offers a specialist consolidation, storage and freight forwarding service for importers and exporters of fine wine - Vine International. There is an entry level free service for those interested in building up their own cellar.
More info to come. For the full picture got to:
http://www.liv-ex.com/
Hyperion Associates presents a unique look at wine prices - the Liv-ex 100 - courtesy of Liv-ex
The Liv-ex 100 Fine Wine Index is the fine wine industry's leading benchmark. It represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market and is calculated monthly. The majority of the index consists of Bordeaux wines – a reflection of the overall market – although wines from Burgundy, the Rhone, Champagne and Italy are also included.
The index is calculated using Liv-ex Mid Prices and is then weighted to account for original production levels and increasing scarcity as the wine ages. As such, the index is designed to give each wine a weighting that corresponds with its impact on the overall market.
The Liv-ex 100 Fine Wine Index is the fine wine industry's leading benchmark. The value of the index as of 31st October 2008 was 221.62, a fall of 12.4% on the previous month. The year to date change is -7.6% and the year on year change is -7.4%.
For more details visit http://www.liv-ex.com/