Page 6 - bne magazine November 2021_20211104 uzbekistan risding

6 I Companies & Markets bne November 2021
Vodka drinking on the decline in Russia
bne IntelIiNews
Russians are famous for drinking vodka, but it’s falling out of fashion as a vogue for healthy lifestyle choices sweeps the country. As vodka becomes a luxury product, alcohol manufacturers have to be inventive.
One of the winners from the change is Beluga Group, which is now the largest alcohol producer in Russia.
Beluga Group produces 13% of Russian vodka in addition to other spirits and wine. It also imports alcohol brands from abroad, which are in high demand in Russia, and sells in over 200,000 retail outlets. In a report on the company, VTB Capital forecasts a compound annual growth (CAGR) of 20% for Beluga Group for the period 2021 to 2025.
“The group’s strategic objective is to double sales from RUB63bn ($880mn) in 2020 to RUB130bn by 2024, as per the management. The figure implies a sustainable CAGR of 20% and would imply one of the most rapid growth profiles in our consumer coverage,” VTB Capital (VTBC) said in a note.
Beluga Group’s brand portfolio is very diversified to meet the demands of a rapidly shifting alcohol market. It acquired retail chain Winelab in 2018, for example, and expects to see it become a key segment of the group’s business model as
it plans to grow the proportion of its revenue generated by e-commerce from 3% to 10% in the next four years.
The retail segment is the main growth pillar for Beluga Group and the company guides for the store count to surge four-fold to 2,500 by 2024. As a result, retail advances with 33% CAGR in 2021-25 from a low base and delivers 85% of the total revenue uplift in next five years according to VTBC estimates.
Winelab will be all the more crucial to the group’s success given that wine is currently enjoying a surge in popularity in Russia. This is down to government incentives for domestic wine growers and changing consumer preferences. Wine is an emerging category, particularly trendy among young people as an alternative to the more traditional vodka. Beluga expects Winelab to expand four-fold by 2024, driving growth in the group.
Beluga’s vodka sales, meanwhile, are transitioning towards
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The stereotype of Russians drinking vodka may no longer hold true.
premium and export markets. This is in step with a wider pattern of decline in vodka drinking in Russia.
In 2000, Russians consumed a total of 215mn decilitres of vodka. Today, that figure is more than two and a half times lower. Vodka used to be sold with disposable metal lids on the assumption that the entire bottle would be consumed in one sitting, but that kind of binge drinking is now
a thing of the past. The decline in vodka consumption has corresponded with increased life expectancy for Russians, which was just 65 years in 2005, is now 72.3, according to data from Gapminder.
Russia still has the highest vodka consumption level globally, but it now represents just 36% of alcohol consumed in the country, compared to 45% ten years ago.
Wine drinking, meanwhile, is up. This is partly down to government incentives for domestic production of wine, like tax breaks and reimbursing marketing costs for companies using local grapes. The shift is also down to a cultural change, though, as wine is in vogue among younger generations. It is now the only spirit, which is growing in popularity in Russia.
In fact, interest in alcohol in general dropped by 20% among young Russians in the ten years from 2008-2018, according to Russia Beyond. Alcohol continues to be the fourth largest spending category for Russian consumers, but it has taken
a hit after President Vladimir Putin waged a 10-year campaign against alcohol abuse, which he described as a “national threat.” The introduction of higher taxes on alcohol, controls on promotion, and laws which restrict sales of alcohol at night have successfully lowered consumption of booze per capita by 35%, as has the promotion of healthy lifestyles, aimed at countering widespread binge drinking which is seen as a hangover from the Soviet Union.
The result is a radically shifting market, in which beer and wine have overtaken vodka and social drinking accounts
for more consumption than binge drinking. Alcohol manufacturers and retailers will have to account for this
shift, as well as the potential for further regulatory tightening, before toasting their own success.