It's time to sober up: how rising duties and excise taxes make wine an unaffordable luxury in Russia

It's time to sober up: how rising duties and excise taxes make wine in Russia an unaffordable luxury

Alena Belaya Forbes Editorial

Copy link Photo by Vladimir Gerdo/TASS High import duties on European wines will lead to a strong rise in prices and a decrease in supply volumes by at least 15% by the end of the year, Forbes experts predict. Domestic winemakers are increasing production, but they are unable to compensate for the lost volumes. In retail, wine prices have increased minimally so far, but both retailers and wholesale suppliers are preparing for serious growth

Wine in Russia is becoming more and more expensive, and European brands are gradually leaving the market, say experts interviewed by Forbes. Russian producers do not have the resource to replace imports, so there will be less wine, it will be more expensive, and some wine consumers will switch to vodka and cocktails.

Excise duty blow

All of Forbes' interlocutors predict that wine prices will rise in the foreseeable future, and this is due to two key events for the market that have occurred over the past year. Thus, on August 1, 2023, import duties on wines from “unfriendly” countries were increased from 12.5% to 20%, but not less than $1.5 per liter.

And from May 1 of this year, excise taxes on still and sparkling wines have increased significantly in Russia. Initially, a rate of 35 rubles per liter of still wine was envisaged for 2024, and until May it was 34 rubles per liter, but amendments to the Tax Code increased the wine excise tax to 108 rubles per liter. For 2025, a rate of 112 rubles per liter is envisaged, in 2026 – up to 116. The excise tax on sparkling wines, previously amounting to 45 rubles, increased to 119 from May 1, 2024. These changes affected both Russian and imported wines.

Material on the topic

There are other factors too. There is a high probability that European wines will become even less accessible, Forbes’ interlocutors warn. “There is talk about another serious increase in duties on wine from the EU,” recalls Ruslan Soloviev, manager of the Gradusy TS. This spring, the Association of Winegrowers and Winemakers of Russia (AVVR) proposed establishing import duties on wines from NATO countries at 200%, and the initiative has already been supported by the Ministry of Industry and Trade.

If the proposal is finally accepted, wines from the EU will cost, at best, 600–700 rubles, Soloviev is sure. “If they decide to further increase duties on the import of products from the EU, they will become prohibitive, and European wines will become inaccessible to us, and there is nothing to replace them,” warns the director of strategic development of the B2C direction of Simple Group and the head of the SimplePrivé & Corp Elena Tsareva.

In addition, AVVR asked to fix quotas for Russian wines in horeca and retail. As a result, supply will be less than demand and prices will automatically increase, Soloviev argues.

Wine in Russia cannot be very cheap also because a significant part of the equipment used in production is imported from abroad, and its cost is tied to currency, says Leonid Popovich, director for Russia of the World Wine Tourism Organization, in an interview with Forbes.

Telegram channel Forbes.Russia Channel about business, finance, economics and lifestyle Subscribe

Goodbye cheap wine

According to Rosstat, grape table wine from January to April 2024 increased in price from 560.64 to 572.17 rubles per liter (plus 2%), fortified grape wine – from 759.48 to 778.18 rubles per liter (plus 2 %), and domestic sparkling – from 472.86 to 480.25 rubles per liter (plus 1.5%).

“The changes have not yet been strongly felt; the wine market is very inert,” notes Alexander Stavtsev, head of the WineRetail information center. — Before the recent May increase in excise taxes, as well as before the previous one that happened in 2020, companies were actively stocking up on wine, both Russian and imported. In March, the EU increased wine supplies to the maximum since the end of 2022 – 26,600 tons. Supplies from Georgia also increased noticeably.” True, Stavtsev continues, only some importers and retailers had the resources for such operations, many did not have enough working capital, in addition, companies were limited by high, more than 20%, loan rates and not as profitable as in 2023 and 2022. exchange rate. “But the stocks will last for several months, and prices will change gradually, so that the buyer gets used to it,” the expert predicts.

Many wineries are introducing increases in stages, agrees Soloviev, and chains, according to him, are also in no hurry to broadcast the changes to the shelf. “The price increase has already occurred, and this was reflected especially in the low and medium price segments,” notes Tsareva from Simple Group. — While the market has not fully recovered the change in excise taxes and duties, this has only been done by 15-20%.

However, further increases in wine prices are inevitable. “A consistent policy to limit the import of wine from the European Union, one of the leaders in the production of these products, leads to an increase in the cost of supplying both wine itself and wine material, which inevitably leads to a general increase in prices,” states Ivan Fedyakov, General Director of INFOLine .

Russian manufacturers have already stated that their products will rise in price by 4–20% during the year.

In just two months, the minimum cost of a bottle of wine will be equal to vodka and will be at the level of 300 rubles, predicts Vadim Drobiz, director of the Center for Research of Federal and Regional Alcohol Markets “CIFRRA”. “If a couple of years ago, Russian-made wine, even if not of the best characteristics, could be found for 149–199 rubles per bottle, then an excise tax of 70–80 rubles on this cost and inflation changed the situation,” complains Soloviev from TS “Gradusy.” “Now cheap wine on the shelf is at least 299–399 rubles.”

Today, the average wine segment ranges from 3,000 to 5,000 rubles per bottle, although it was once available for 500 to 1,500 rubles, Tsareva notes. “There are people who really understand wine, but now, because of the introduced duties, they can no longer please themselves with not simple, but exquisite wine with a complex bouquet for 1000–2000 rubles,” she explains.

“New cost of wine production and their price on shelves retailers will be clear by September,” Solovyov sums up. — But wine will continue to rise in price. Logistics is going golden and old supplies are about to run out. By the end of 2024, wine imports to Russia from “unfriendly” countries will decrease by 15%.

Material on the topic

Wine import substitution

The share of Russian still wines on the market since 2017 has been about 50%, and so far it has not been possible to reverse the situation, recalls Drobiz from TSIFRRA. In sparkling wine, domestic producers now account for 70%, he notes. The share of Russian wine in sales (together with sparkling wine) in physical terms is about 60% with an upward trend, believes Stavtsev from WineRetail.

“The EU’s share on the shelf is declining, although there are still stocks of products,” states Soloviev from TS “Gradusy”. “There is a movement towards increasing the representation of domestic wines, but it took 15–20 years and a lot of effort.” “Russia needs 20 years or more to fully develop the industry, by which time domestic wines will take off and will even occupy a serious place in the international market,” predicts Tsareva from Simple Group.

In 2023, Russian producers produced, according to Rosstat, about 30 million dal of grape wines, that is, 8.3% less than in 2022. But from January to May 2024, domestic wineries produced 13.3 million dal of grape wines (17.2% more than in the same period a year earlier), 3.1 million dal of sparkling wines (plus 28.8%), and 654,300 dal of liqueur (1.8 times more), according to Rosalkogoltobaccontrol.

In total, alcohol companies produced 75.3 million dal of alcohol-containing and alcoholic beverages (except beer, beer drinks, cider, including pear cider – perry, and mead) in the first five months of this year, which is 13.5% higher than the 2023 figure. Wine imports for January – April also increased by 20% year-on-year, to 138 million liters.

Related material

Russian winemaking is developing, notes Tsareva from Simple Group, there are many world-class wines, producers are successfully working with both classic varieties, from pinot noir and cabernet sauvignon to merlot, they skillfully create blends, but it will not be possible to cover all the demand with domestic products alone, Tsareva is sure.

“Close The gap created by only domestic wine is difficult, real self-sufficiency is about 60%,” says Solovyov.

“We must understand that European and domestic wine are not competing for an abstract consumer, but specifically for the Russian middle-class woman,” Drobiz points out. “90% of Russian and 80% of imported wines are consumed by women, and for now, in order to maintain their usual consumption level of four to five bottles a month, they are ready to spend 1,200–1,500 rubles more on Italian or French products. They are psychologically more comfortable buying them than those produced in Russia, even if they are comparable in quality.”

While Russian producers cannot saturate the market on their own, European wines are being replaced through imports from more exotic countries, Forbes’ interlocutors say. “The range of wines in Russian stores is changing, and gradually more wines from Africa are appearing,” says Fedyakov from INFOLine. “But those specialists and consumers who are accustomed to European products will, of course, overpay for supplies from Europe, and most importantly, in the absence of a worthy competitor, Russian products are also becoming more expensive, so wine is gradually becoming less and less accessible to the average buyer.”&nbsp ;

“Degrees” are negotiating with several manufacturers from Kazakhstan and other Central Asian countries, but so far they have not been able to agree on price, quality and volumes. “Kazakhstan is among the top 10 countries in terms of the number of vineyards, but many wineries already have production limits,” says Soloviev. — You can’t just produce a large batch of wine. There is an excellent manufacturer, Arba Wine, but it cannot fill the need for chains in Russia. And so far, in fact, Central Asia produces the simplest things: fortified and dessert wines.” According to him, wines from Central Asia are incomprehensible to the Russian consumer. At the moment, Russian winemakers are taking many steps forward, and this took many years. In terms of price, even though it has increased recently, and quality, Russian and European wines are better than what Central Asia offers.

Wines are moving into the niche of the privileged class, notes Fedyakov from INFOLine. However, sales of alcoholic cocktails and strong alcohol are growing. “There, the banal ratio of degrees per ruble is more profitable,” he specifies. “The reduction in the wine segment turns into an increase in others that compete with it,” agrees Solovyov from TS “Gradusy”. – In all retail, not only in liquor stores, the shelves are being rebuilt. The amount of wine consumed by Russians in liters will decrease by 10-20% in Russia as a whole by the end of the year.”

The coming reduction in wine consumption is a disaster and a problem for consumers and wine producers, says Fedyakov, but retail, by and large, doesn’t care what it sells. “In any case, sales volumes are not falling, in terms of money they are even growing: both due to inflation and due to the physical volume of consumption, which is growing against the backdrop of the psychological state of Russians,” the expert comments, recalling that last year an absolute historical record for the number of liquor store openings when Krasny & Bely” and “Bristol” more than 4,600 points appeared. And Russians, seeing sales points literally on every corner, will increase the overall demand for alcohol, the expert concludes.

Material on the topic

< /li>

Alena Belaya 

Forbes Editorial

#wine #European Union #beer #vineyard Forbes newsletter The most important things about finance, investment, business and technology Subscribe Copy link Share Add to favorites Materials read by Marusya – voice assistant from VK Listen Mode for the visually impaired