RUSSIA LANDSCAPES November 2018 Report

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Russia 2 Landscapes Russia Landscapes 2018 report Deliverables

Insights to help your business flourish

The Russia Landscapes 2018 report includes:

• Report with the latest information regarding the • User-friendly data table with all the measures from Russian wine market, supported by: Vinitrac® Russia showing significances, cross tabbed with: • Wine Intelligence Vinitrac® Russia • Semi-annual drinkers of imported wine • Wine Intelligence market experience • Gender groups • Secondary sources • Age groups • Trade interviews • Key cities for imported wine consumption: Moscow and St. Petersburg • Tracking data 2014-2018

Russia 3 Landscapes Introduction to Russia Landscapes 2018 report

Winston Churchill’s famous description of Russia as “a riddle, wrapped in a mystery, inside an enigma” remains apt nearly 80 years after it was uttered. Russia’s economy may be recovering after several years of economic struggle, but it is still subject to both the whims of its autocratic president, Vladimir Putin, and the swings and roundabouts of the global oil and gas market, on which much of its finances depend. Putin and oil both have a strong bearing on the Russian wine market. Russia’s invasion and occupation of Crimea in 2014 coincided with the halving of the price of crude oil, and this, combined with sanctions imposed on Russia by the West, prompted a collapse in the value of the Ruble. Suddenly, imported wine was a lot more expensive, and in some cases harder to obtain because of difficulties in securing credit and stock. At the same time, a very public campaign launched by Putin to buy more Russian-made produce, and the removal of the ban on imports from Georgia, have transformed the fortunes of both domestic and Georgian wines. The recent recovery in the oil price has also led to a mini economic revival in the Russian economy, which has in turn spurred renewed interest in imported still, and especially sparkling wines. Though sparkling wines are still expensive, consumers are showing increased willingness to spend more on a bottle compared to 2014, whilst still trying to find the best quality available for that price. Whilst consumption of domestic sparkling wine continues to grow (Russia is the world’s 5th biggest sparkling consumer), imported sparkling wine is also starting to grow again. Aligning with a global trend, sparkling wine is starting to be consumed more in casual situations at home and in the on-trade. At the same time the demand for lighter wines and rosé wines is increasing – the wine trade sees Russians embracing a new healthier lifestyle. The new view of wine has especially changed with the younger generation. The trade has strongly emphasised that Millennials are very open to try new wine styles and are eager to learn more about the category, which offers interesting opportunities for the industry. Millennials seem to include wine in their everyday lifestyle and they are very keen to explore the category. This offers opportunities also in the on-trade as they are also willing to spend more.

Russia 4 Landscapes Management summary Key trends in the Russian wine market 2018

1. IN THE WAKE OF A RECOVERING ECONOMY, RUSSIA’S WINE MARKET STARTS TO REBOUND, REFLECTED IN THE GROWTH OF VOLUME ▪ Wine volume changes have mirrored the change in GDP: both declined between 2014 and 2015 and started to rebound in 2016. Imported wine volume decreased significantly between 2014 and 2015, but had strong growth between 2016 and 2017. Domestic wine experienced a slight decrease during the same period ▪ Domestic production is concentrated in the south western part of the country, in the North Caucasus, including the disputed Crimea region

2. REBOUND FOR SPARKLING WINE AND TRENDS TOWARDS LIGHTER WINES AND ROSÈ WINE ▪ Domestic sparkling wine – again concentrated in the North Caucasus / Black Sea region, and including the annexed territory of Crimea – continues to dominate the market in the wake of sanctions from Western governments. Similar to imported still wine, imported sparkling decreased significantly between 2014 and 2015, but has started to rebound ▪ Relatively strong potential for sparkling wine in Russia: ranked 9th globally for still wine consumption volume, but 5th by volume of sparkling wine consumed. Volume of sparkling wine consumed in Russia is more than that of the UK or Spain

3. DESPITE DECREASED KNOWLEDGE AND CONFIDENCE WITH WINE, CONSUMERS STILL SHOW A STRONG INTEREST IN THE CATEGORY ▪ There is a decrease in awareness of wine regions and recalled country usage among imported wine drinkers in Russia. Fewer consumers feel competent about their knowledge of wine compared to 2014, and more consumers say they would stick to what they know ▪ However, a higher proportion of drinkers say they have a strong interest in wine and are willing to take their time when purchasing wine compared to 2014

Russia 5 Landscapes Management summary Key trends in the Russian wine market 2018

4. CONSUMERS BECOME MORE VALUE-DRIVEN, AND SEEK PROFESSIONAL RECOMMENDATIONS FROM RETAILERS

▪ Average spend on wine in the off-trade has significantly increased, with more consumers spending 500+ RUB on a bottle of wine across all occasions. More consumers say “imported wine is an expensive drink” than in 2014

5. WINE IS PART OF THE NEW LIFESTYLE ADOPTED BY THE YOUNGER GENERATION IN RUSSIA, WHO ARE OPEN-MINDED AND KEEN TO DEVELOP THEIR KNOWLEDGE

▪ Younger people are more interested in wine and see it as a part of their lifestyle and they are keen to learn about the category. Although they are less knowledgeable about wine countries / regions, they feel competent about their knowledge of wine

Russia 6 Landscapes Management summary #1. IN THE WAKE OF A RECOVERING ECONOMY, RUSSIA’S WINE MARKET STARTS TO REBOUND, REFLECTED IN THE GROWTH OF VOLUME

▪ Wine volume changes have mirrored the change in GDP: both declined between 2014 and 2015 and started to rebound in 2016. Imported wine volume decreased significantly between 2014 and 2015, but had strong growth between 2016 and 2017. Domestic wine experienced a slight decrease during the same period ▪ Domestic production is concentrated in the south west of the country, in the North Caucasus, including the disputed Crimea region ▪ Volume of imported Moldovan wine dropped from 2.5 million 9L cases in 2013 to only 0.55 million 9L cases in 2017, while Georgian wine grew from 1.9 million 9L cases in 2013 to 5.3 million 9L cases in 2017, becoming the number one country of origin for imported wine. In both cases, politics was the main cause of the change: The Russian government lifted restrictions on the import of Georgian wines in 2013, and reimposed a ban on most Moldovan wines, citing “quality issues” ▪ Per capita consumption of still wine in Russia is relatively small, but exhibited approximately a 6% increase from 2016 to 2017, ranking Russia 51st in terms of consumption per adult ▪ The trade in Russia has noticed wine is becoming a more casual lifestyle beverage that replaces spirits in the everyday lives of consumers Russian wine is also doing very well here Still wine volumes in Russia (total and by country of origin) because of [relatively low] price. Russian and Georgian wine, because of the tradition Retail price per 0.75L Thousands of 9 CAGR CAGR Market Wine Importer 2013 2014 2015 2016 2017 CAGR CAGR litre cases 13-17 16-17 share 2017 (US$) 13-17 16-17 Total 65,958 66,023 60,166 62,078 65,360 0% 5% 100% 4.35 Wine11% is working18% because people do not need Domestic 37,745 38,317 42,685 42,515 40,000 1% -6% 61% 2.22 strong 3%spirits -1%for everyday occasions. They need Imported 28,213 27,706 17,481 19,563 25,360 -3% 30% 39% 7.70 a 17%social, 12%friendly, light and gastronomic Georgian 1,900 2,210 2,570 3,800 5,300 29% 39% 8% 6.94 accompaniment4% -6% to their meetings, events and Spanish 4,125 4,063 3,660 4,210 5,290 6% 26% 8% 7.15 14% 16% food Italian 4,170 3,980 3,000 3,400 4,640 3% 36% 7% 7.66 15% 22%Wine Marketer French 6,115 6,008 2,481 2,700 3,615 -12% 34% 6% 8.80 20% 21% Chilean 1,760 1,654 1,290 1,275 1,620 -2% 27% 2% 9.08 12% 11% Wine is getting more popular among younger South African 280 266 263 386 750 28% 94% 1% 9.00 13% 13% German 1,960 1,835 672 550 720 -22% 31% 1% 8.24 35% and13% middle-aged audiences Moldovan 2,500 2,585 554 400 550 -32% 38% 0.8% 2.74 7% 15%Wine Journalist Portuguese 128 126 293 410 540 43% 32% 0.8% 9.05 5% 18% IWSR 2018 ©Copyright 2018 – The IWSR InternationalRussia 740 770 725 520 491 -10% -6% 0.8% 9.43 9% 5% Source: Wine Intelligence, Vinitrac® Russia, Mar‘18, n=700 and Mar’14, n=713 semi-annual drinkers of imported wine in Moscow and St. Petersburg 7 Landscapes Wine Intelligence, trade interview programme in Russia, September 2018 Management summary #2. REBOUND FOR SPARKLING WINE AND TRENDS TOWARDS LIGHTER WINES AND ROSÈ WINE ▪ Domestic sparkling wine – again concentrated in the North Caucasus / Black Sea I see that people drink sparkling wine more in region, and including the annexed territory of Crimea – continues to dominate the the restaurants. Before sparkling wine in Russia market in the wake of sanctions from Western governments. Similar to imported was occasion-related wine, now I could say that still wine, imported sparkling decreased significantly between 2014 and 2015, but it’s getting to be more casual has started to rebound Wine Importer

▪ Relatively strong potential for sparkling wine in Russia: ranked 9th globally for still Sparkling is chosen for all occasions, not only wine consumption volume, but 5th by volume of sparkling wine consumed. Volume celebrations. Zero dosage and brut nature are of sparkling wine consumed in Russia is more than that of the UK or Spain in trend among wine lovers. Dry and semi-dry for mass-market ▪ Incidence rates of imported wine drinkers consuming Champagne, domestic Wine Marketer sparkling, Prosecco and Cava have significantly increased since 2014, in spite of the sanctions Among other growing trends are rosé ▪ The trade also suggests that lighter-bodied white and rosé wines have especially in summer season, dry aromatic whites such as dry Muscats, local grapes, light- opportunities in Russia, especially in summer season bodied wines, less oak, sparklings for all occasions not only celebrations Wine Marketer Sparkling wine volumes in Russia (total and by country of origin)

Retail price[Opportunities per 0.75L are] White and lighter wines, Thousands of 9 CAGR CAGR Market 2013 2014 2015 2016 2017 not heavy.CAGR CAGRNice packaging and not expensive litre cases 13-17 16-17 share 2017 (US$) 13-17 16-17Wine Importer Total 26,732 25,009 23,651 24,051 24,940 -2% 4% 100% 8.07 23% 1% Domestic 22,000 20,775 20,985 21,500 22,000 0% 2% 88% 6.78 26% -3% Imported 4,732 4,234 2,666 2,551 2,940 -11% 15% 12% 17.70 There23% is more8% interest in rosé. An explanation Italian 3,640 3,370 2,180 2,000 2,275 -11% 14% 9% 15.01 could23% be climate.11% It’s hotter now. Before we French 444 370 249 291 362 -5% 25% 1% 36.75 had 318% months-6% of summer, now it’s already 4 Spanish 83 92 94 122 160 18% 31% 0.6% 18.80 12% 16% months German 41 47 37 30 32 -6% 8% 0.1% 13.67 28% 31% Wine Retailer Moldovan 165 120 32 25 30 -35% 20% 0.1% 6.34 18% 0%

IWSR 2018 ©Copyright 2018 – The IWSR Russia Source: Wine Intelligence, Vinitrac® Russia, Mar‘18, n=700 and Mar’14, n=713 semi-annual drinkers of imported wine in Moscow and St. Petersburg 8 Landscapes Wine Intelligence, trade interview programme in Russia, September 2018 Management summary #3. DESPITE DECREASED KNOWLEDGE AND CONFIDENCE WITH WINE, CONSUMERS STILL SHOW A STRONG INTEREST IN THE CATEGORY

▪ There is a decrease in awareness of wine regions and recalled country usage among imported wine drinkers in Russia. Fewer consumers feel competent about First of all, wine education is a great trend now, their knowledge of wine compared to 2014, and more consumers say they would both for consumers and traders. Wine tastings stick to what they know and dinners attract many participants Wine Marketer ▪ However, a higher proportion of drinkers say they have a strong interest in wine and are willing to take their time when purchasing wine compared to 2014 ▪ More consumers are drinking wine on a monthly basis in the on-trade compared The interest in wine is part of the gastronomy to 2014. According to the trade, the development of the gastronomy culture in culture and some haut-cuisine. More people Russia has contributed to the growing interest in wine amongst consumers are starting to go outside to eat. The hospitality sector has developed in Russia as well, that has changed Wine Journalist Wine Involvement: Tracking % who agree or strongly agree with the following statements about wine Base = All semi-annual drinkers of imported wine in Moscow and St. Petersburg (n>=700) Rank in Wine involvement statements 2014 2018 Long-term trend 2018 n= 713 700 '14-'18 1 Drinking wine gives me pleasure 77% 78%  2 I like to take my time when I purchase a bottle of wine 47% 68%  3 I always look for the best quality imported wines I can get for my budget 63% 65%  4 Generally speaking, imported wine is an expensive drink 51% 60%  5 Deciding which imported wine to buy is an important decision 60% 59%  6 Generally speaking, wine is reasonably priced 62% 56%  7 I have a strong interest in wine 22% 34%  8 I don’t understand much about imported wine 32% 32%  9 Compared to others, I know less about the subject of wine 32% 31%  10 Wine is important to me in my lifestyle 29% 22%  11 I feel competent about my knowledge of wine 26% 15%  : statistically significantly higher than previous wave(s) at a 95% confidence level : statistically significantly lower than previous wave(s) at a 95% confidence level Russia Source: Wine Intelligence, Vinitrac® Russia, Mar‘18, n=700 and Mar’14, n=713 semi-annual drinkers of imported wine in Moscow and St. Petersburg 9 Landscapes Wine Intelligence, trade interview programme in Russia, September 2018 Management summary #4. CONSUMERS BECOME MORE VALUE-DRIVEN, AND SEEK PROFESSIONAL RECOMMENDATIONS FROM RETAILERS

▪ Prices of imported wine have risen dramatically due to the sharp devaluation of the Ruble in 2014, precipitated by western sanctions resulting from Russia’s invasion and occupation of the Ukranian territory of Crimea. ▪ Average spend on wine in the off-trade has significantly increased, with more People spend more and more time and money consumers spending 500+ RUB on a bottle of wine across all occasions. More in the restaurants, food festivals and culinary classes. It is a kind of fashionable to be well consumers say “imported wine is an expensive drink” than 2014 oriented in local and international gastronomic ▪ A higher proportion of drinkers are buying wine from discounters than 2014, and trends and personalities more consumers consider promotional offers as important when buying wine Wine Marketer ▪ Despite being more price-sensitive, Russian consumers still look for the best quality wine they can get for their budget. The number of consumers who have bought wine from specialised wine retailers has increased since 2014, more consumers consider recommendation from shop staff important in the wine buying process Channel usage for wine purchase % who have bought wine through the following channels in the past 6 months Base = All semi-annual drinkers of imported wine in Moscow and St. Petersburg (n>=700)

Rank in Channel 2014 2018 Long-term 2018 n= 713 700 trend '14-'18 1 In a hypermarket 61% 62%  2 In the Wine shop / shop specialized in alcohol 49% 59%  3 In a supermarket 61% 56%  4 From Duty Free (e.g. airports) 37% 27%  5 In the supermarkets discounters (offering products at lower prices) 8% 12%  7 In a corner/convenience shop 2% 3%  8 Pavilions / kiosks 2% 2%  9 Others 2% 1%  10 I don't purchase wine to drink at home 0% 1% 

: statistically significantly higher than previous wave(s) at a 95% confidence level : statistically significantly lower than previous wave(s) at a 95% confidence level Russia Source: Wine Intelligence, Vinitrac® Russia, Mar‘18, n=700 and Mar’14, n=713 semi-annual drinkers of imported wine in Moscow and St. Petersburg 10 Landscapes Wine Intelligence, trade interview programme in Russia, September 2018 Management summary #5. WINE IS PART OF THE NEW LIFESTYLE ADOPTED BY THE YOUNGER GENERATION IN RUSSIA, WHO ARE OPEN-MINDED AND KEEN TO DEVELOP THEIR KNOWLEDGE

▪ Those aged between 18 and 34 make up 40% of the imported wine drinking population in Moscow and St. Petersburg, and have very different behaviour and attitudes in the wine category compared to older consumers ▪ A higher proportion of consumers between 18 and 34 years enjoy trying new and different styles of wine on a regular basis compared to all imported wine drinkers ▪ Younger people are more interested in wine and see it as a part of their lifestyle and they are keen to learn about the category. Although they are less knowledgeable about wine countries / regions, they feel competent about their knowledge of wine Young consumers are very active, keen to learn, play, compete and demonstrate their ▪ Compared to other age groups, imported wine drinkers under age 35 are more knowledge likely to buy wine from specialised wine retailers, drink wine in the on-trade, and Wine Journalist spend more on wine As it’s a new category, it’s popular amongst the Attitudes towards wine by age young people. It is not the drink consumed by % who agree with the following statements about wine their fathers and grandfathers Base = All semi-annual drinkers of imported wine in Moscow and St. Petersburg (n=700) Wine Importer Russian semi- annual 18-34 35-49 50-64 imported wine Wine education is very important for them. drinkers They really have questions and they would like n= 700 278 247 175 to understand more about wine. Maybe they don’t have enough information about wine I enjoy trying new and different styles of wine on 39% 47% 42% 23% Wine Importer a regular basis

I don't mind what I buy so long as the price is 7% 6% 9% 6% right

I know what I like and I tend to stick to what I 54% 46% 50% 72% know

%: statistically significantly higher than all semi-annual drinkers of imported wine at a 95% confidence level %: statistically significantly lower than all semi-annual drinkers of imported wine at a 95% confidence level Russia Source: Wine Intelligence, Vinitrac® Russia, Mar‘18, n=700 and Mar’14, n=713 semi-annual drinkers of imported wine in Moscow and St. Petersburg 11 Landscapes Wine Intelligence, trade interview programme in Russia, September 2018 Wine Intelligence Ltd Terms and Conditions of Licence for Syndicated Research 2.. Copyright Products – key sections 2.1 The Copyright in the Syndicated Research Report(s) shall at all times vest with WI. The copyright in all artwork, data and copy for each element of the report created and assembled by WI shall at all times Definitions and Interpretation remain the property of WI. 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