HISTORICALLY, THE TWIN FRENCH ICONS OF CHAMPAGNE AND COGNAC HAVE BEEN MUCH PRIZED IN RUSSIA, from the days of the tsars to the age of the oligarchs. But doing business in Russia has never been a simple affair – witness the country’s rather slapdash attitude to cognac’s GI status, not to mention its current economic plight.
So, while the Russian cognac market has topped 300,000 cases in recent years, those volumes are almost matched by Pernod Ricard’s Ararat Armenian brandy on its own. Meanwhile, Alliance 1892 brandy (bottled in Kaliningrad using French spirit) produced some 1.5m cases in 2014, taking a market share of some 24% (Nielsen).
Ararat has been the success story of the brandy category in the past few years, following a full relaunch to hit back against market rival Noy and “really kill any copycats”, to quote Cyril Claquin, marketing director, eastern Europe and Russia, Pernod Ricard.
But now the tumbling rouble has added confusion to a market that already defied simplistic forecasts. What it hadn’t done at the time of writing – somewhat counter-intuitively – was kill off demand.
Alliance 1892 purchasing/import director Andrei Nikitin reports a 10% volume gain for the brand in 2013, and further growth last year. “With the first winds of the crisis we felt a small decrease in sales, but the regions showed good demand and we made a plan with an even better result than in 2013,” he says. “We producers of RUB380-500 brandy didn’t feel any changes at the end of the year.”
“It’s paradoxical, but the Russian consumer is behaving quite differently to what we do,” adds Claquin. “When the rouble started to collapse, they didn’t save money – on the contrary they started to buy like hell.” Nor is this phenomenon confined to brandy: Porsche sales in Russia were up 55% in the last three months of 2014.
The big question is what happens next. A rush to buy is generally followed by a collapse in demand as stocks are consumed, but Claquin is wary of making predictions, although he expects early 2015 “might be a bit more difficult”.
Miguel Torres brandies have enjoyed steady growth in Russia for a number of years, but master distiller Matias Llobet concedes that “inevitably the current economic and political situation is causing some concerns”. Optimism for the future is founded on the company’s shift to a new distributor, Synergy, and the breadth of the Torres range.
“Prices on imported products are already starting to increase due to the rouble devaluation, and this is likely to have an impact on consumer demand for imported products, while helping locally produced brandies,” Llobet says. “It is difficult to foresee what effect this will have on our brandy sales in Russia. We can imagine some of our consumers would maybe change from T20 to T10, for example.”
Rising prices – Nikitin reckons they went up by 10%-15% in December alone – are even more of an issue in a market which, prior to the run on the rouble, had been experiencing price deflation. “These are artificial price increases linked to the rouble crisis,” says Claquin. “On the long-term perspective, the consumer is getting more price-sensitive. Cross-category, many competitors are doing huge discounts, especially in the whisky category.”
Whisky is an extra complicating factor. With the assistance of western brands, Russian consumers have been migrating from vodka to cheaper blended scotch, and the major players are so convinced of the market’s potential that they’re willing to indulge in a price war, sacrificing margin in a short-term bid to capture share.
Has this impacted brandy? Not too much so far, says Claquin, but he acknowledges that whisky is another threat to the brandy category in Russia – this frustratingly capricious market that remains as multi-layered as the most painstakingly assembled matryoshka doll.