Alcohol question: what Russians will now drink and how much they will pay for it

Victoria Pavlova

In 2021, the alcohol market grew by 7.6%, and for 8 months of 2022, sales of drinks stronger than 9 degrees in physical terms increased by 8.4% (up to 723.5 million liters). Sales of liqueur wines (by 2 times), sparkling wines (8%), vodka (7.1%) have especially increased. And sales of low-alcohol drinks, according to Rosalkogolregulirovanie, jumped by 66.6%. Someone drinks down the stress of what is happening, someone seeks to arrange at least small holidays while there is such an opportunity, and employees of oil and gas companies do have a reason to celebrate record profits. Also, the New Year is on the nose - it's time to stock up before prices jump. Only until now, 4 months after the start of the parallel import program, it is not clear what will happen to the assortment in the alcohol departments of supermarkets and liquor stores. "Novye Izvestia" figured out what are the prospects for legalizing the parallel import of alcohol, and whether it poses a danger to consumers. In other words, what and at what prices will we drink, since again everyone is not up to smoothies?

Banned, but not everything

There are fewer imported products in the country due to anti-Russian sanctions. According to the Association of Retail Companies (AKORT unites X5 Retail Group, Magnit, Lenta and other retail chains), the supply of real champagne has been completely stopped, the supply of whiskey has decreased by 70%, French cognac and beer - by 60%. But the demand for alcoholic products, as we see, on the contrary, is growing. Many are pinning their hopes on the "parallel imports" that have already become so boring - the supply of products without the permission of the copyright holder, or, more simply, the supply of products purchased from some unknown intermediaries.

But there is no agreement on the legalization of parallel imports not only in the government of the Russian Federation, but also in the expert community. Even among companies that supply and sell alcohol, there are two opposing opinions. Igor Karavaev, Chairman of the AKORT Presidium, is sure that without parallel imports, the country will be filled with unknown counterfeit products - in any case, the demand must be satisfied.

- The most significant decrease in imports occurred in the categories of strong alcohol, which are difficult to replace with domestic products - whiskey, cognac, gin, tequila. It is now impossible to quickly establish the Russian production of these drinks in the required volumes due to the lack of imported raw materials, production equipment and technologies, as well as objective logistical difficulties. Consumer loyalty to specific foreign brands of strong alcohol is quite high, and there is a risk that if familiar brands are not available in legal retail, consumers will start looking for them in “shadow” channels.

But the development director of LADOGA (importer and distributor) Dmitry Isachenkov believes that there are many worthy alternatives to brands that have left Russia.

- Some brands owned by international companies did have a significant market share. Basically, we are talking about Champagne sparkling wines, French cognac and Scotch whiskey. However, even now there are interesting drinks in these and border categories, including those produced in Russia. The departed Champagne brands may be replaced in part by less politically motivated suppliers from the region. In addition, in the same France, you can turn to cremant and blanket, in Spain - to cava, and in Austria - to zekt. All of them are made using the same technology as Champagne wines, but in other wine regions and are more affordable. They keep coming to the market. Among Russian producers, some also use the classical method - Kuban-Vino, Novy Svet, Usadba Divnomorskoye and other wineries have such wines.

In addition, the expert believes that the import of sparkling wines from Champagne has not completely stopped.

- Only our company has signed contracts with 3 new suppliers and will import 80,000 bottles by the end of the year, which is 4 times more than last year. With such a volume, we could enter the top 5 importers in Russia. As far as we know, other importers also continue to carry Champagne. Yes, the share of brands that have left the market is about 50% of all Champagne in Russia, but not 100%. According to the results, the volume of cognac imports planned by us from France will be 4 times more than in 2021, whiskey - 70% more.

Non-guaranteed quality

Imagine that the dispute is resolved in favor of the supporters of parallel imports. But what will be imported into Russia within its framework? Fake expensive drinks, because not only here. Of course, there is the EGAIS system, which should track the origin of products, but it does not always work. So, by July 2022, according to the Research Financial Institute under the Ministry of Finance of the Russian Federation, the share of counterfeit goods in the Russian alcohol market reached 19.6%. In the category of grape wines, 16.4% of products illegally enter store shelves, in the category of beer - 26.9%, in the category of vermouth and flavored wines - 38.6%, and among fermented drinks (cider, mead) - 44.7%.

Anna Fomicheva, co-founder of the Digital VED digital business platform, also believes that EGAIS is not a panacea, and parallel imports can open the door to products of uncertain quality.

- By itself, the EGAIS does not solve the problem of the quality of alcoholic beverages, and counterfeit is not only a brand fake, but also a statement of unreliable qualitative and quantitative characteristics, so you should not rely only on the EGAIS in this matter.

Igor Karavayev takes a different point of view. He believes that without the possibility of legal supplies, the volume of a completely uncontrolled flow of "gray" imports will increase. And in the case of the legalization of parallel imports, stable product quality will be ensured at least by large retail chains, for which games with outright fakes are not at all profitable.

- Legal import of alcohol is carried out in strict accordance with Russian legislation. Unfortunately, the so-called "gray" alcohol import schemes exist, but counterfeit goods are not the responsibility of retail chains, but of competent authorities. It is obvious, in our opinion, that a ban on parallel imports can create conditions for an increase in the "shadow" sector of the alcohol market. Parallel imports will just solve this problem, making it possible to import legal products. EGAIS provides control over the movement of products at all stages, starting from the moment of import, which further enhances the responsibility of market players. In the current situation, parallel imports are the most effective way to counter the emergence of "gray" schemes and the spread of illegal channels.

Is there no place for import substitution?

Traditionally, the restriction of supplies from abroad has an impact on the domestic producer. To establish, for example, protective duties to support domestic producers is a common practice for almost all states that have gone through a stage of rapid development. Most successful Asian countries have gone through this, and in Russia there is a practice of setting protective duties on cars, which allowed the creation of many assembly enterprises (most of which, unfortunately, closed in 2022). Maybe a ban on parallel imports of alcohol will allow domestic enterprises to create their own replacement for Hennessy, Moet, Olmeca and other drinks? Alas, there is no consensus here either.

Director General of the export agency Weconn, foreign trade expert Natalya Prokazova supports the policy of protectionism.

- The departure of foreign manufacturers is a point of growth for Russian companies. Domestic producers have the opportunity to think about how to increase the volume, variability and quality of products. In general, parallel imports can close gaps where there is not enough production, occupy niches of scarce goods.

But Anna Fomicheva points out that Russian and foreign companies often occupy different non-overlapping market niches.

- Domestic and foreign producers mainly occupy different niches in the alcohol market. The reaction of the business to the absence of premium brands is not yet clear. If our manufacturers try to copy past models and not invest in creating the uniqueness of their product, nothing good will come of it, but if they reorganize and create their own line, this is a fairly good prospect.

Yulia Tulupnikova, Senior Lecturer at the Department of Economic Theory and World Economy at the Synergy University, also notes that import substitution has already taken place in a number of positions, where it was possible.

- If we evaluate the situation exclusively from a quantitative point of view, then domestic producers are not able to satisfy our market either in terms of volumes or in terms of the required assortment. In particular, tequila is practically indispensable. For some, parting with the usual American whiskey will become painful. However, do not despair. Such spirits as gin, whiskey and rum are also relatively successfully produced in Russia; besides, they are imported to us from friendly countries like Belarus, Cuba, India. Most of the whiskey is bottled here (over 60% by volume), namely Bell's, Black & White, White Horse and all sorts of private labels.

Swan, cancer and pike in the Russian cabinet

There is no agreement among commercial enterprises. But we also have a government that is actively engaged in the regulation of the market in manual mode. Maybe at least officials will find a compromise and guide entrepreneurs on the right path? Alas, so far the government has only exacerbated the situation with conflicting statements and inability to make a decision.

The Ministry of Industry and Trade, which is responsible for allowing parallel imports, cannot yet unequivocally determine its position. In May, the agency refused to include alcohol in the list of products allowed for parallel imports due to the position of the Ministry of Agriculture, which fears an increase in the flow of counterfeit products due to "difficulty in identifying the copyright holder". But in September, at the Innofood forum, the head of the Ministry of Industry and Trade, Denis Manturov, called for the legalization of parallel imports so that store shelves would not be empty by the New Year. He also noted that this issue should be resolved by the end of September. But it's already October and still no solution.

Now we have to fight not with the Ministry of Agriculture, but with the Ministry of Finance, which also opposes parallel imports because of the risk of importing counterfeit goods. And we must not forget that the Ministry of Finance has a specialized agency subordinate to it - Rosalkogolregulirovanie, which also has its own opinion. According to Interfax sources, Rosalkogolregulirovanie proposes to solve the problem by creating a single operator for the parallel import of alcohol. FKP Soyuzplodimport may be given such powers. In this case, the state-owned company will receive a considerable jackpot and will be able to set its own margin. Looks tempting! But there is no official information on this proposal. Novye Izvestia sent a request to Rosalkogolregulirovaniye, but Igor Alyoshin's department did not provide a specific answer to this question about the state monopoly, providing only information about the increase in the production of alcoholic beverages in Russia.

Anna Fomicheva explained the pros and cons of such a state monopoly:

- The positive point is that a single operator is supposed to have transparent supply chains, which means a guarantee of the quality of the delivered product. But there are two questions. The first is the implementation of the state monopoly: if it is carried out with the involvement of smaller contractors for supplies under contracts from a single large operator, then, of course, there is no point in such a system. The second question is that price regulation will cease to be market based. But do we need market regulation of alcohol prices? Or should retail price regulation be part of a policy to combat overuse of these products? The answers to these questions should be sought by the government.

Yulia Tulupnikova agrees that a single operator will help fight counterfeit goods, but fears price increases in the event of a state monopoly.

- Like any monopoly (especially the state one), the potential monopoly of FKP Soyuzplodoimport, albeit under the reasonable pretext of fighting for quality, will not have the best effect on the market in the direction of raising prices and limiting the range of alcoholic products. This is the inevitable result of a lack of competition.

But do not forget that a place for counterfeit appears where there is an increase in product prices. And it’s good if people switch at least to home production (moonshine stills are already presented even at tourist and fishing exhibitions), and they don’t go to buy poisonous fakes from under the counter. Again a vicious circle.

So far, one thing is clear: in the near future, permission for parallel imports of alcohol can not be expected. There are too many contradictions both among market participants and in the government. The decision will likely drag on for many months. You should not expect that the usual drinks will arrive in stores by the New Year - look for an alternative. Unless the ups and downs of parallel imports will not affect the front-line 100 grams - in the trenches they will not drink tequila or French champagne. And the production of vodka in Russia in January-August 2022 increased by 9.2% - up to 500 million liters. Who needs now your claims to delights from Champagne?