Russia story image 180x180 - Economic worries and Covid temper Russia’s wine renaissance

For the past five years, the story of wine in Russia has been one of growth in wine volumes and spending on wine, led by urban Millennials. The Covid pandemic, plus tax rises and currency decline, appears to have dampened momentum

The state of Russia’s wine market today is a classic case of good news mixed with bad. The good news is that the long-run picture shows a market returning to meaningful volume growth in the second half of the 2010s, after years of regulatory uncertainty and difficult trading conditions. This growth has been sustained despite progressive tax increases on alcohol, which, along with a weakening currency, have driven recalled spend per bottle up by over 20% in the off premise since 2014.

More encouraging news can be found in the engines of consumption growth – the middle class, urban, Millennial population, who are also responsible for wine market renaissances in other countries and appear to be playing a similar role in the group of wine drinkers polled in Moscow and St Petersburg for this report. These consumers are more likely to be saying they care more about wine, that it is important to their lifestyle and that they are taking more time over their purchases. From this, one can reasonably infer that they are willing to trade up to a higher quality, more expensive product when the mood or occasion demands.

Their enthusiasm for the category appears to be tempered by a growing struggle to find affordable choices, and evidence of this can be found in the choice cues being used to inform purchases. The importance of a promotional offer in the purchase decision process has leapt since 2014 – now over 6 in 10 consumers regard it as an important part of their decision making, up from 47% in 2014.

The bad news chiefly concerns the recent Covid pandemic. Russia has suffered both in terms of social restrictions and economic damage, with the fall in the price of oil in 2020 undermining the value of the Ruble and making imported products, such as wine, more expensive. Faced with another steep price increase, uncertainty about the future and fewer opportunities to socialise, Russian consumers have pulled in their horns and reduced drinking volumes across all alcohol categories, including wine. The effect on wine volumes will most likely be felt in the first half of 2021, when the continued restrictions on mobility combined with the typical Russian winter discourage socialising and celebrating.

Post-pandemic, the short-term outlook of most Russian consumers is decidedly cautious. On balance, consumers are not planning to participate in events and activities that involve crowds, and socialising will be low-key rather than expansive. Looking further ahead, consumers are expressing desire to trade up to higher quality wine alongside a broader wish list that includes foreign holidays and celebrations. However, the most widely held desire is to save money for the future. This apparent contradiction is not unusual in consumer sentiment studies where a degree of cognitive dissonance is often at work between desires and the cost of fulfilling those desires. However, in this instance, the findings align with the broader pattern we are observing in the Russian wine market, namely a growing desire to invest in a higher quality product tempered by concerns over affordability in a category that is experiencing rising prices. The implication: that any return to normal spending patterns will be constrained by a reluctance to expose household finances to undue strain, given the economic uncertainty of the Covid era.

Richard 180x180 - Economic worries and Covid temper Russia’s wine renaissanceAuthor: Richard Halstead



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