The wine industry isn't doing enough to grow its consumer base, according to a recent Gomberg, Fredrikson & Associates review. Liza B, Zimmerman reports.
Meet the new Russian wine consumer
Friday, 26. May 2017 - 15:15
Surprising as it seems, the urban wine consumer in Russia has evolved more over the past couple of years than during the so-called ‘oil boom’. This is explained by two factors: the arrival of a new generation, and a total market shakeup due to the political and financial crisis of 2014. These effects are shaping consumption trends among the people the top wine producers would like to see sipping their wares in Russia.
One important group of wine importers and distributors in Russia caught the wave early and seriously set out to service private clients and corporations by establishing dedicated sales departments that proved to be much-needed additions to the companies’ existing sales channels. While far less significant in financial terms than the HoReCa and off-trade, they offered features that are lacking in those sectors. Among these, says Ilya Veinberg, head of private and corporate sales for wine importer and distributor Classica, is rapid cash flow which “makes the department extremely important”. So, too, is image-building among a very valuable target audience.
The major players with established private and corporate departments are importers whose history stretches back to the 1990s: Simple, MBG, Eurowine, FORT Wine & Spirits, DP-Trade and a number of smaller players. Of these, one company has shaped the face of today’s private and corporate sales in Russia. With a department employing more than 50 people and a good grip on the most important corporate wine consumers in Russia, Simple has raised the bar for its competitors, outweighing them by salesforce, PR, market aggressiveness, and the scale of its ambitions. As Russia’s economic situation stabilises and rules covering online sales are expected to be relaxed, that competition is likely to become fierce.
Mid-sized companies like Classica, Grape, and Vinoterra are paving the way to further growth. Another new phenomena of recent years has been efforts by vodka producers and distributors to tap into the wine market. The St Petersburg-based Ladoga Group, for example, has sought to build a serious wine portfolio, attracting names like M. Chapoutier and expanding its operations to Moscow.
At the other end of the scale, smaller companies like Wine & Only manage a compact portfolio of French wines and are dealing directly with private and HoReCa clients. “We generate new clients mostly via word of mouth,” says Natalia Zubova. “Our wines are mostly recognised thanks to the specific winemakers who produced them.”
In attracting private clients, some companies rely heavily on famous brands, communications, PR, and educating both private clients and sommeliers. Others focus on building stronger personal relations, offering niche wines and more flexible payment terms. Pricing is another crucially important factor for wine importers seeking to succeed in the private and corporate channels. One way to get this right has been by managing currency exchange rates in a period of severe fluctuations. As of mid-April 2017, several wine importers declared considerable price reductions due to exchange rate stabilisation and a steadily strengthening ruble.
Where did all the oligarchs go?
Back in the 1990s and 2000s, it was sommeliers who were pouncing on the new wealth. For better or worse, the anecdotal days when oligarchs bathed in Pétrus and Château Margaux and barbecued with grand crus are over. Those businessmen have virtually disappeared from the modern wine scene. “Private clients have evolved. They travel, they speak foreign languages, they know the wines,” says Vladislav Volkov of Vinoterra. “People who drank Super Tuscans and grand crus had no choice but to switch to less-expensive bottles,” observes Liudmila Mamontova, head of the private and corporate clients department at MBG, a key fine wine player in Russia.
With the political crisis of 2014 and subsequent collapse in the value of the ruble, many clients with thick wallets fled the country and now only visit to check their remaining assets. “Even for those rich people who are still here, it’s not good to consume the way they used to. It’s not only about the money, it’s about the evolving culture,” says Alexander Lipilin, the CEO of FORT Wine & Spirits.
The reasons to drink wine are also changing. Private consumers are moving away from drinking for status to drinking for pleasure. “They now realise that it’s not necessary to drink expensive wines. Wine is not Rolex anymore,” says Elena Kuznetsova, head of the private and corporate department at Eurowine.
As for the corporate side of the wine market, that normally stays hidden from prying eyes and ears – a secret carefully kept within their companies. But there is no doubt that if anyone is spending heavily on wine in Russia, it is the corporate clients, who are satisfying the wine needs of holiday gifting for their employees and business partners.
The oil, gas, construction, financial, and mining sectors and top consulting companies are all desirable targets for wine distributors seeking to secure important seasonal sales during the New Year period. Hardly surprising, some players estimate about 30% to 50% of fine wine is sold during this time of year, but national holidays such as Defender of the Fatherland Day on February 23rd and International Women’s Day on March 8th also offer lucrative opportunities. “It’s an important part of the sales,” says Volkov. “With these clients it’s quite simple: the major thing is to have the right price.”
Many corporate clients buy and spend enough to create fierce competition for their business. Tenders are a common way to select wines for corporate gifting, especially since harder economic times drove corporations to tighten their budgets significantly. “They want 50% to 60% less than before the crisis of 2014,” estimates Mamontova. Nevertheless, according to most market players, wine remains an important option for corporate gifting. “Everything counts in the corporate game: wine prices, and brands, and relations with the person who makes purchasing decisions,” says Alexander Lipilin of FORT. Eurowine is watching the regional corporate market closely. “With the crisis, many Russian companies are moving their headquarters outside Moscow. We have to pay attention,” says Kuznetsova.
The wine distributors’ representatives agree that Russian clients of every income level are counting their rubles carefully before spending them. “Nobody takes prices for granted anymore,” says Olga Taipova, who is responsible for private and corporate sales at AST International Environment. What this also means is that the desire to experiment with new wines is growing.
The exchange rate fall that slowed wine sales in the end of 2014 also ignited interest in Russian wines produced in the south of the country, and especially in the annexed region of Crimea. Most wine distributors who initially resisted adding Russian wine to their portfolios now carry at least one brand. “High-quality Russian wines are rare and they are in demand, especially as gifts for foreign friends or partners,” Lipilin says. The overall interest in Russian wine and its share in wine sales across all channels has certainly grown significantly, and Lipilin attributes this to the value for money they offer rather than patriotism. “As the ruble gets stronger, demand for Russian wine goes down,” he observes.
Bordeaux grand crus, by contrast, have suffered because of the ruble exchange rate. “We carry nice second- and third-growth Bordeaux grands crus – wines offering better value for money. Top chateaux are too expensive; it’s hard to guess the best vintage,” says Ilya Veinberg of Clasisca.
The new generation
Step inside one of the Moscow’s many wine bars and you will be surprised by the number of young women chatting and having a good time. There are definite gender shifts among modern urban wine drinkers. The Russian wine market created in the ’90s by and for men is changing rapidly. While serious wine buyers still tend to be male, women are now making many more wine purchasing decisions. “Ladies are often leading wine buying, especially in restaurants. It’s also easier for them in terms of image since wine has been traditionally thought of as a drink of choice for women,” comments Veinberg.
Even so, the buying power of Russian males still lies largely in their business activities: men are more exposed to sophisticated gifting situations and negotiations that require a quality dining experience with business partners.
“Among older consumers, men are still dominating, while 35- to 45-year-old urban men and women are more evenly matched when it comes to selecting and buying wines. They are having fun and advising each other,” says Sergey Podporin, owner of LEO Wine & Kitchen restaurant in the southern Russian city of Rostov-on-Don. According to him, female customers’ interest to wine is also connected to the end of their maternity leave. “Women who start thinking about themselves again are literally hungry for wine,” he notes. Lipilin also refers to the way decisions tend to be made within younger Russian households: “The person with more time and knowledge normally leads.”
Ageing with grace: the generational change
The new generation of young people in their 30s is already defining the future shape of the Russian wine market. They don’t yet have the means of the wealthier over-45-year-olds who were raised on labels like Sassicaia and Tignanello, but their habits and openness to new tastes and new wines are already very apparent. And it is not only Moscow and St Petersburg that are experiencing this trend. Sergey Podporin says his clients are no longer satisfied with discussing a single red or white. “They want to sit down with five to six glasses of different wines.”
Keeping younger generations in mind, some forward-thinking Russian companies have decided to be more open-minded and friendly to this group of consumers than others. While traditional wine marketing includes traditional ways of doing things: discounts, wine dinners, direct calls, and even various forms of financial inducements, companies like Invisible and WineStyle are putting their efforts into aggressive forms of online strategy. Invisible, in particular, is noted for using youth-oriented internet slang and hipster-style graphics, while WineStyle has built a reputation for its extensive online wine catalogue that incorporates wines from many different wine importers. Both firms’ sales are rising.
Being in the game
Wine distributors understand that their private and corporate departments are not just about making sales. Today they act as private sommelier services that guide clients through the world of fine wine, sometimes on a 24/7 basis. In order to tap into the private and corporate wine market, Russian professionals recommend a proactive approach: first, visit the market often and talk to the potential consumers face-to-face. “It’s important how charismatic the winemaker or the owner is. People tend not to remember the names of wineries, but they do remember the other people,” says Lipilin.
Private and corporate client departments are not just meeting needs – they are creating them. Being a direct connection to wine producers and the whole world of wine ratings and critics, they can influence and educate, shift preferences and tastes. “The vicious circle is that where there’s no supply, there’s no demand,” says Kuznetsova. With the improvement of the economic situation, and especially the gradual improvement of the value of the ruble, these parts of the business will become even more important.
This article first appeared in Issue 2, 2017 of Meininger's Wine Business International.