Russia is a Priority Market for Pernod Ricard

The slowdown of economic growth will alter the behavioral choices of consumers of alcoholic beverages, but will not affect the long-term investment attractiveness of the Russian market, said the Managing Director of Pernod Ricard in Russia and Eastern Europe, Philippe Coutin.

Russia is a dynamic beverage market, but is still quite traditional in some respects, with vodka and cognac dominating the spirits segment. How are you attempting to broaden Russian tastes?

Vodka and Brandy indeed still represent the largest part of the Russian spirit market (95 percent of the volumes). Consumers, however, are drinking less and at the same time are willing to widen their drink repertoire.

Strong restrictions in terms of communication which we have in Russia make it more challenging for us to raise awareness of what we have to offer. We are putting together initiatives where consumers can discover our brands and taste our products, and interact with them directly either off or online.

Russian vodka benefits from a perception — right or wrong — that the unflavored Russian product is more pure and healthy. In many Western markets, spirits are marketed as edgy, mysterious and foreign. How do you overcome these different perceptions?

Investment in a Bottle

France is beyond question the world leader in winemaking. Each year, the volume of wine produced in the country outstrips that of close competitors Italy and Spain. The prestige and popularity of elite brands make buying certain French wines a lucrative investment, with practically guaranteed returns.

Indeed, French wines often receive the highest bids at major international auctions. The top bid recorded was at a Sotheby's wine auction in Hong Kong last year. The lot of 114 bottles of Burgundy Romanée-Conti went under the hammer for $1.6 million. The auction price puts a single bottle at just over $14,000, and a single glass at $1,700. The deal surpasses a previous record from 2006. At another Sotheby's auction, a lot of 50 cases of Bordeaux Château Mouton Rothschild 1982 had gone for $1.05 million.

For rare wines and those with "unusual histories," the prices go even higher.

At a recent Sotheby's auction, a bottle of "Victory" Château Mouton Rothschild wine was sold for $310,700. The 1945 vintage commemorates the victory of the Allies in World War II, and a "V" is etched into each bottle.

A French auction closed one of its most expensive deals for 12 bottles of rare wine, Cheval Blanc 1947. The French collector, who asked not to be named, acquired the lot for over $181,000. This put the price at $15,000 per bottle.

Then again, the most expensive drink per bottle is considered to be Hеidsieck & Co. Monopole Champagne bottled in 1907. According to experts, the cost of just one bottle of bubbly stands at about $257,000. The price reflects the wine's uniqueness. A Swedish ship carrying an order of the Champagne (destined for the court of Russian Tsar Nicholas II) was sunk by a German submarine during World War I. Bottles were salvaged from the bottom of the Baltic Sea only in 1998.

For comparison, an equally rare bottle of Vin Jaune ("yellow wine") from 1773 was bought at a 2011 auction in Arbois, France, for the "modest" price of $77,000. Pierre Chevrier, who secured the bargain on the bottle, said he intended to drink it.

]Several stories are connected to the wine collection of none other than Thomas Jefferson. The future U.S. President bought a bottle of Château Lafite 1787 in France. In 1985, it was auctioned to Christopher Forbes for $160,000. In 1989, one of Thomas Jefferson's wines (this time a 1787 bottle of Château Margaux) was put on display at the restaurant of the Four Seasons Hotel in New York. At the end of the evening, a waiter accidentally caught the edge of the display table, and the wine went crashing down. The bottle had been insured for the sum of $225,000.

One of the most beautiful and expensive sweet white wines is
Château d'Yquem 1811. In 1811, a great comet appeared before the harvest, and it is believed to have had a positive effect on the quality of 
the wine.

However, to try the most prestigious wines, it is not obligatory to bid at an auction. Famous collector Michel-Jack Chasseuil is selling nine places at a dining table this December. He has agreed to uncork eight bottles from his unique stock of wines, including wine once belonging to the collection of Napoleon Bonaparte.
The price of a ticket is around 10,000 euros. Michel-Jack Chasseuil intends to put the proceeds towards the creation of a museum for his collection, a kind of "Louvre museum of wines."

Indeed the vodka category enjoys a very strong image in Russia — with a strong connection to tradition and nature.

Western Style Spirits on their side are driving strong aspirations. Of course because of the fact that they were not available in Russia not so long ago. But also because of their appealing taste and the heritage, legends and crafting which they embody.

Has the state of the economy changed people's drinking habits? How has it affected demand for premium spirits?

It is a bit too early to give a precise answer.

Clearly with the slowdown of the economy and the rising inflation, consumers will become savvier and will watch out more for their expenses. This might strongly reinforce both the Vodka and Brandy categories, which are much more affordable. As for the Western Style Spirits, we do not expect a massive drop in the market due to their relative small share today.

Of course, there could be changing patterns: we are expecting demand to be pulled more by home consumption (vs on-trade), consumers might be willing to do some arbitrage in between segments (from premium to standard). Also consumers will be extremely reactive to price promotions, especially on the brands which they value most.

What is the main challenge on the Russian market? Is it customs, the EGAIS labeling system, or is it distribution?

The main challenge on the Russian market for a wine and spirits company is the EGAIS (Unified State Automated Information System) labelling system.

In effect, this system, which manages and controls excise stamps necessary to sell goods in Russia, is far more complex than any existing Western Europe system. It requires high accuracy in fulfilling the steps of the process — from applications to printing, including the tracking of the status and location of these excise stamps, which must be glued onto bottles prior to their crossing of the Russian border.

Hopefully, this is achievable thanks to highly skilled specialists, who take care of this process of monitoring control measures and checkpoints to ensure the business is done in compliance with Russian rules.

What's the balance between on- and off-trade in Russia? How much of your repeat business comes from alliances with bars, hotels and restaurants?

We estimate the on-trade share at 14 percent of the total market, taking out vodka, brandy and vermouth. For us, though, it is higher (close to 20 percent) due to the fact that our portfolio is focused on premium brands and the strong belief that this is a crucial focus area where consumers can taste and experience our brands.

Emerging markets have shown strong growth, but also volatility. Should we expect greater volatility in emerging markets?

We expect emerging markets to remain volatile in the future. This, however, does not prevent them from being attractive. As for Russia, it is clearly a priority market for Pernod Ricard. The current slow-down will not prevent us from continuing to invest in the long term in this market where we see great opportunities for our brands.

International duty-free operators have signed agreements to open stores at several internal Russian airports. How important is the Russian airport retail market to Pernod Ricard in Russia?

The Russian airport retail market is obviously important as it allows us to showcase our brands in a qualitative way, but also to communicate with consumers while they journey, while they are open to exploration.

Can you tell us about Pernod Ricard's efforts to boost innovation and interaction with customers?

Pernod Ricard in Russia already has a fantastic portfolio of premium brands in a number of categories to address the needs of our consumers. We'll keep enriching our portfolio with the innovations developed by our teams globally. This is indeed a key battleground for the company, illustrated by our ranking in the Forbes "World's Most Innovative Companies" listing.

Can you explain the Digital Acceleration Roadmap? Are any of these efforts at innovation taking place in Russia?

As the border between off and online disappears, there is a strong need to adapt our ways of working to fit new consumer behaviors and ways of living. This is what we mean at Pernod Ricard with our Digital Acceleration Roadmap, which aims at achieving excellence in the way we digitally engage with customers. Of course, we are relaying this challenge with our local teams in Russia.

Interview by Yelena Anisimova

Russia - France 2015
Russia - France 2015
Welcome to Russia-France business supplement, devoted to strengthening bilateral relations between Russia and France.
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