The current state of the wine market in Russia

Pavlova Tatyana Alexandrovna ORCID: 0000-0002-8033-3272 Senior Lecturer, Department of Foreign Languages, Sevastopol State University 299053, Russia, Sevastopol, Universitetskaya str., 33, tatyana_bokhan@mail.ru Other publications by this author

Rogovenko Natalya Sergeevna ORCID: 0000-0003-4589-2236 Senior Lecturer, Department of Foreign Languages, Sevastopol State University 299053, Russia, Crimea, Sevastopol, Universitetskaya str., 33 ottom6131@mail.ru

Introduction

The wine industry in Russia is one of the traditional sectors of the economy. Wine has been produced in Russia for many centuries and is a traditional drink during holidays or recreation of the country's population. Winemaking in Russia has ancient roots, covering many regions with different climatic and soil conditions. In recent decades, interest in winemaking in the country has increased significantly, both among consumers and producers. The current state of the wine market in Russia is an object of active study from both business and researchers. This article examines the current situation on the wine market in Russia, the factors influencing its development, as well as the prospects and challenges facing the industry.

Problem statement

The need to study the current state of the wine market in Russia is due to several factors. Firstly, recent changes in legislation and policy contribute to the development of domestic winemaking and create new opportunities for its development. Secondly, competition in the market, both within the country and with the participation of foreign manufacturers, is becoming more intense. Thirdly, changes in consumer demand and preferences also have an impact on market dynamics. Thus, understanding the current situation in the Russian wine market and analyzing the factors influencing its development are key aspects for a successful strategy of producers and investors in this industry. Despite the importance of wine products to society, the industry has been in decline for many years after the anti-alcohol company of the 90s of the last century, and only in the last two decades has it begun to revive on an industrial scale.

Within the framework of the State Program for the Development of Agriculture and regulation of agricultural Products, Raw Materials and Food Markets, approved by Decree of the Government of the Russian Federation No. 717 dated July 14, 2012, in which the development of viticulture and winemaking is highlighted as a separate area, a large-scale restoration of the industry has begun. For this purpose, the state allocated subsidies to increase the area of vineyards, as well as to modernize and expand the production of wine products.

Methodology and research conditions

To achieve the objectives of this study, a set of analytical methods was used, including the collection and analysis of statistical data on wine production, import and consumption in Russia, as well as a review of existing literature on the topic. Interviews were also conducted with representatives of leading wineries and industry experts to obtain additional information about the current market situation and forecasts of its development. The research conditions included access to official statistical data, scientific literature and industry experts, which allowed for a comprehensive analysis of the current state of the wine market in Russia and to identify the main trends and prospects for its development.

The results of the study

One of the results of the effectiveness of the state program was an increase in the area of vineyards (Figure 1). Only in the period from 2018 to 2022, the total area of grape crops in Russia increased by 7.66 thousand hectares. The average growth rate of vineyard area in the country over the past five years has been 2% per year.

Figure 1 – The area of grape crops in 2018-2022, thousand hectares (compiled by the authors according to ^[7])

The gross grape harvest in Russia increases annually, which is associated with both an increase in the area of grape crops and an increase in the yield of existing vineyards (Figure 2).

Figure 2 – Dynamics of gross grape harvest in the Russian Federation in 2019-2022, thousand quintals (compiled by the authors according to ^[7])

So, if in 2018 6277.4 thousand quintals of grapes were harvested in Russia, then in 2022 the grape harvest already amounted to 8895.7 thousand quintals.

The highest growth rates of the grape harvest are observed in 2019, 2021 and 2022. In 2019, the growth rate of the grape harvest was 8.01%, in 2021 – 10.20%, in 2022 – 18.37%. Both the increase in the area of vineyards and favorable climatic conditions in these periods contributed to the high growth rates of the grape harvest, which significantly increased the yield of vineyards in the country.

Viticulture is mainly developed in Russia in two federal districts – the Southern Federal District and the North Caucasus Federal District, as evidenced by statistical data on grape harvesting (Figure 3). About 60% of the grapes are harvested in the Southern Federal District, and about 40% in the North Caucasus Federal District.

This is due to the fact that there are five ZGU (protected geographical indications of winemaking) in the Southern Federal District, and two in the North Caucasus Federal District.

Figure 3 – The structure of harvesting by federal districts of Russia in 2018-2022, % (compiled by the authors according to ^[7])

The following winemaking zones are located in the Southern Federal District:

- ZSU "Crimea";

- Lower Volga State University;

- ZSU "Don Valley";

- Stavropol State University;

- Kuban State University.

The North Caucasus Federal District owns the following two winemaking zones:

- ZSU "Dagestan";

- ZSU "Terek Valley" ^[3].

It should be noted that despite the fact that the winemaking zone in the North Caucasus Federal District is significantly smaller than in the South, its share of grape harvest is increasing dynamically.

If in 2018 the share of the Southern Federal District in grape production was 58.45% of the total grape harvest in the country, and the share of the North Caucasus Federal District was 37.22%, then in 2020 the share of the Southern Federal District decreased to 54.31%, and the share of the North Caucasus Federal District in the total volume of grapes harvested in the country increased to 41.71%.

In 2022, the share of the grape harvest harvested in the Southern Federal District increased to 56.49%, but did not reach the figures for 2018, at the same time, the share of the grape harvest in the North Caucasus Federal District was 40.23%, which is 3.01% more than in 2018.

However, despite the constant growth in the volume of the grape harvest in Russia, the volume of sales of wine products in physical terms, according to data from the Federal Service for Alcohol and Tobacco Market Control, is constantly decreasing (Figure 4).

Figure 4 – Dynamics of sales of wine products in Russia in 2018-2022, thousand dal. (compiled by the authors according to ^[8])

In 2018, Russian wineries sold 95,166.40 thousand dal. products, in 2019, sales of wine products increased by 2.39% and amounted to 97,495.80 thousand dal.

However, in subsequent periods, there has been a steady decline in sales of wine products in Russia. Thus, in 2020, sales decreased by 7.57%, in 2021 – by 7.71%, in 2022 – by 3.09%.

The drop in sales of wine products over the past three years was caused by a decrease in sales of wine drinks, sales of which decreased by 51.69% in 2020, by 85.86% in 2021, and by 84.93% in 2022.

The reduction in sales of wine drinks is caused by the requirements of the Federal Law "On Viticulture and Winemaking in the Russian Federation" dated 12/27/2019 No. 468-FZ, according to which the label "Is not wine" must be indicated on the produced wine products if the winemaking product is not such, as well as if the product is produced in Russia from imported wine materials ^[1]. In addition, the import customs duty was significantly increased on imported wine materials, as well as on imported wines, which made it unprofitable to purchase imported wine materials for the production of wine drinks ^[2].

At the same time, sales of still and sparkling wines are constantly increasing, but the sales growth rate is insignificant (Figure 5).

Figure 5 – Dynamics of sales of wine products in the Russian Federation in 2018-2022, thousand dal. (compiled by the authors according to ^[9])

In 2018, Russian wineries sold 52150.4 thousand dal. quiet wine. In 2019, the volume of sales of pacific wine increased by 2.36% and amounted to 53413.30 thousand dal. In 2020, sales increased by 2.95% and amounted to 55037.90 thousand dal.

The lowest growth rate of sales of still wines is observed in 2021 – by only 0.36%. In 2022, the growth rate of sales of still wines was insignificant – 0.49%. The total volume of sales of still wines in 2022 amounted to 55512.80 dal.

Sales of sparkling wines show a more significant growth rate. In 2018, the sales volume of sparkling wines amounted to 16,904.40 thousand dal. In 2019, sales of sparkling wines increased slightly (by 1.28%) and amounted to 17123.0 thousand dal.

Starting in 2020, the growth rate of sales of sparkling wine produced in Russia is increasing. In 2020, the growth rate of wine sales was 3.94%, in 2021 – 7.85%, in 2022 – 7.63%. The sales volume of sparkling wine reached 20,942.30 thousand dal.

The insignificant growth rates of sales of still and sparkling wines of the Russian wine industry are due to the fact that due to the ban on the use of imported wine materials and the insufficiency of their own raw material base, some wineries cannot yet operate at full capacity. According to experts, in order to increase the volume of wine production from its own wine materials, it is necessary to increase the area of vineyards by at least another 25%, while their growth rate averages 2% ^[3].

Despite the fact that the state consistently implements a policy of import substitution in the wine industry, stimulates the expansion of vineyard areas and subsidizes the renewal of production capacities of wineries, about half of the Russian wine market is still occupied by imported products (Figure 6).

According to the data provided by analysts within the framework of the forum "Russian Retail Week 2023", the share of sales of Russian wine in natural terms in 2022 amounted to 50.9%, that is, slightly more than half of all wine products sold.

The rest of the market is almost proportionally distributed among the world's leading wine producers. In physical terms, France took 4.2% of the Russian wine market, Spain – 8.2%, Italy – 8.5%, Georgia – 9.5%.

Producers from other countries occupied 18.7% of the Russian wine market.

Figure 6 – Structure of the wine market in Russia in 2022 by producing countries, % (compiled by the authors according to ^[8])

Discussion of the research results

Thus, it can be noted that despite the sanctions and significant fluctuations in the exchange rate, the Russian wine market is still of interest to the world's leading wine production leaders, and their products are still sold in Russia ^[17,18].

At the same time, the market share of Russian winemakers in monetary terms can be called a negative trend. In 2022, it amounted to only 25.1%, while the market share of wine importers totaled 69.9%. This suggests that the price of imported wine is significantly higher than the price of Russian wine products. The statement that the price of imported wine is significantly higher than the price of Russian wine products can be justified by several factors:

1. Customs duties and taxes: Russia has introduced customs duties and taxes on imported wine, which increases its cost to the end consumer. These additional costs associated with customs duties can be significant and significantly increase the price of imported wine compared to Russian.

2. Transportation costs: Imported wine is transported from the producing countries to Russia, which also increases its price. This may include transportation costs across thousands of kilometers, as well as storage and processing costs in Russia.

3. Currency fluctuations: Changes in the exchange rate can significantly affect the price of imported wine. If the currency of the producing country strengthens against the Russian ruble, the price of imported wine may increase.

4. Branding and reputation: Many global brands of imported wine have a high reputation and recognition in the global market, which allows them to set higher prices for their products. This creates a price difference between imported and domestic wines, even if their quality and production costs are comparable.

5. Supply and demand: Imported wine is often perceived as a prestigious product, and demand for it may be higher than for domestic wines. High demand may also allow producers to set higher prices for imported wine.

However, despite this, the Russian population is actively purchasing imported wine. Based on this, it can be concluded that Russian wine producers are pursuing an ineffective marketing policy, which should be aimed at attracting buyers and reorienting them to Russian wine products.

Conclusions and further directions of research

Thus, the wine industry in Russia is gradually developing – the area of vineyards is increasing, the volume of harvest is growing, and the volume of sales of Russian wines and sparkling wines is increasing. However, there are still a number of problems in the industry. First of all, the available raw material base is not enough to fully fill the Russian market with domestic wines. The ban on the use of imported wine materials led to a sharp decrease in sales of wine and wine drinks, which were in demand among the low-income population, while sales of quiet and sparkling wines of high quality are growing at a slow pace. The ban on the use of imported wine materials in Russian winemaking was introduced on July 1, 2015. This decision was made as part of the implementation of sanctions in response to political events, in particular, the sanctions of the European Union and the United States against Russia. One of the aspects of these sanctions was the ban on the import of certain goods, including grapes and wine materials, from the European Union and the United States ^[14,15,16]. This led to serious changes in the Russian wine market and significantly limited access to imported grape varieties and wine materials for Russian wine producers. Imported wines still occupy half of the Russian wine market, while their cost is higher than the cost of Russian wines, therefore, in monetary terms, wine importers receive income a quarter higher than the income of Russian producers. In order for the Russian wine market to be filled with domestic products in the future, it is necessary, first of all, to increase the pace of creation of new vineyards, which in the future will be able to fully provide Russian winemakers with domestic wine materials, develop their own production of wine materials, their own production of grapes, which will reduce dependence on imports and ensure stable product quality. Invest in marketing and branding. For successful competition in the market, it is important to invest in marketing and brand strategies to promote domestic wines and create unique offers for consumers. The development of the premium wine segment. Taking into account the growing consumer interest in high-quality wines, manufacturers should actively develop the premium wine segment and offer high-quality products with an appropriate pricing policy. Cooperation with international partners. Russian winegrowers should seek partnerships with foreign producers in order to share experiences, technologies and expand access to international markets. Industry training and support. Government agencies can support the wine industry through training, financial assistance and the creation of a favorable legal and economic environment for business development.