Alcohol Research in Ukraine will tell you what is happening in the industry after the devaluation of the hryvnia and what difficulties producers are coping with. You can read about the beer industry here. We also wrote an overview of the vodka, wine and cognac market for 2008-2014.
Alcohol market in Ukraine
Ukrainian products account foralmost87% of thedomestic market. For example, in the segment of strong liqueurs Ukrainian products account for more than 76% and their sales amount to UAH 11.8 bln. Ukrainian vodka and liquor are most actively sold in Khmelnytskyi, Ivano-Frankivsk and Ternopil regions. The domestic cognac market is 81% domestically produced, and it is consumed most of all in Ivano-Frankivsk, Zakarpattia and Chernivtsi regions.
Compared to the pre-crisis year of 2008, the alcoholic beverage industry has shrunk by 40%. Sales volumes in 2014 were affected by the annexation of Crimea, i.e. loss of market and capacity, while figures for 2015 and 2016 were declining due to tax pressure and excise tax increases.
At the beginning of 2015, major alcohol companies commented on the decline in sales, recording a 20% drop compared to 2014.Hopes were for export growth, with large holdings intending to conquer the markets of America, China and other countries.
Sales of imported vodka brands have seriously lost their positions in the Ukrainian market. The demand for foreign alcohol fell due to the devaluation of the hryvnya, so its price was unaffordable for the majority of Ukrainians.
Production of vodka in Ukraine in December 2016 decreased by 5.3% compared to the same period of 2015 (according to the State Statistics Committee).The decrease in volumes is observed in all segments of alcoholic production.
Companies producing author’s wine suffer losses. Their production volume, as well as their revenue, is smaller, so their development can go two ways. The companies will eitherpay thesame amountfor the licenseas the market leaders, and thus give all the profits to the state, or they will selltheir products in a roundabout way. About 40 companies in Ukraine bottle their own wine (for comparison, in France and Italy the number of such wineries reaches tens of thousands).
Imports and exports
Alcohol companies are trying toexpand their assortmentand find new sales channels. In 2014, Global Spirits added China and Thailand to its list, while Chabot started exporting products to the United States. The national wine holding intends to develop the market of Hong Kong, Singapore, Vietnam, as well as to increase sales in Germany and China. Such an initiative may save their business.
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“Ukrspirt intends to increase thevolume of products for exportand take over the market of Asia Minor. Currently, it is dominated by alcohol from Russia and Belarus, but due to price dumping by Ukrspirt, the situation may change.
Imports of Georgian wines increased in 2016. The 2016 figures are 70% higher than in 2015 and amount to 5.8 million bottles.
Alcohol in Ukraine: consumption pattern
Every year more than 350 million dal of vodka is consumed in the world, and half of this volume goes to Ukraine, Russia, Belarus and Kazakhstan. According to the International Wine & Spirit Research company, the average Ukrainian drinks 7.7 liters of vodka per year. In 2015, for the first time in the last 15 years, alcohol consumption worldwide decreased by 0.7% (according to Euromonitor International) and amounted to 248 billion liters. In Ukraine, alcohol was consumed 17% less.
In developed countries, there is a noticeable decrease in the use of alcoholic beverages. This is understandable, as the number of people leading a healthy lifestyle increases every year. In Ukraine there is also a noticeable decline in alcohol sales, which, unfortunately, is not based on a positive trend. This speaks not about citizens’ concern for their health, but about the prosperity of the shadow market. Igor Tovkach, an analyst of the alcoholic beverages market, comments that more than 60% of strong alcohol is in the shadow.
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Conflict between alcohol producers and the Ukrspirt company
“Ukrspirt” announced a two-stage increase in alcohol prices in 2017. In January, the cost of raw materials will increase by 10.6% in March – by another 8%. The commentary of the press service of the enterprise explains that the growth is due to economic circumstances. “Ukrspirt” intends to increase the price not only for alcohol, but also for all products in which it is included.
The Association of Legal Alcohol Producers and the Ukrvodka association, which includes all legal producers, have appealed to Ukrainian Minister of Agrarian Policy and Food Taras Kutovyy to solve the problem with price hikes by the Ukrspirt company.
According to them, Ukrspirt has no justification for raising the purchase price of alcohol for producers. The report, the essence of which was published on the resource “Interfax-Ukraine”, says that the company makes non-transparent purchases of raw materials, at high prices, which is evidence of corruption schemes inside the company. If the market of counterfeit alcohol increases, the second increase in alcohol prices will lead to unfortunate consequences.
Taras Kutovoy instructed Ukrspirt to check the validity of the alcohol price increase. He noted that he could not miss the heated discussions on pricing. Kutovoy has no right to interfere in the economic activities of state-owned enterprises. Therefore, he asked Ukrspirt to hold a discussion with producers and buyers of liqueur and vodka drinks.
The last time alcohol prices were increased in April 2016 (by 18%). At that time, the price of raw materials rose by 14%, electricity and fuel – by 24%.
From April to December 2016, the price for premium alcohol was 285 UAH/dal. The price for a bottle of vodka averaged UAH 75-80 per half liter. Andriy Matuzko, director of the department of development, innovation and marketing of the alcohol company Olimp, gave a comment that the cost of a bottle should have stopped at 69 hryvnias. But the increase in prices for alcohol, glassware, logistics and other things brought the cost of the product to higher positions. Naturally, the reaction of consumers was negative, which led to the growth of the shadow market, where the cost of a bottle of vodka fluctuates between 25 and 35 UAH.
Ukrspirt’s net loss amounted to UAH 500 mln in 2014 and UAH 13.89 mln in 2015. The production of alcohol also decreased.
Ukrspirt mainly sold its products to the domestic market in 2015. The company sold about 140,000 dal of ethyl alcohol on foreign markets.
Ukrspirt is now concluding agreements with the main companies-consumers of ethylalcohol at the new cost. Since the beginning of 2017, 521 thousand decaliters of edible alcohol have been shipped for distillery, pharmaceutical and technical needs.
Ukrainian alcohol market: counterfeiting
Igor Tovkach claims that the state of the alcohol industry is deplorable, as both consumption and production are decreasing. In 2015, the production of vodka decreased by 12.6%, beer – by 19.6%. Along with the rise in prices for legal alcohol, sales of counterfeit products have increased. The growth of shadow sales has been steadily observed since 2008.
Ukraine is among the top ten drinking countries in the world. Ukraine and Russia consume the most strong alcohol in a short period of time, i.e. they are the countries with the most risky way of drinking. Consumption of counterfeit alcohol means poisoning and death, and increased sales mean that this situation is worsening.
Several dozens of people die every month because of surrogate alcohol, and only a special expertise can show how much quality alcohol is poured into a glass. According to a comment by Volodymyr Ostapyuk, director-general of the Ukrvodka association, the problem of surrogate alcohol has become even more acute recently.
According to Olga Ivushkina, CEO of Eastern Beverage Trading, shadow turnover of vodka at the end of 2016 is 60% of the total market. Due to non-payment of taxes, the state loses about 10 billion hryvnias.
Alcohol market analysis: 10 largest alcoholic beverage companies
Global Spirits
Global Spirits Holding took the first place. The crisis had little impact on the company’s production and sales volumes. Approximately 70% of the holding’s profit is exported to 87 countries. The company’s share in the alcohol market in Ukraine exceeds 26%. The rating of the British magazine Drinks International indicated the brand “Khortytsa”, owned by Global Spirits, as the Ukrainian vodka with the highest sales volume. In IWSR’s research Khortytsa is included in the top three largest brands in the world (by sales volume). The total volume of the distillery’s alcohol storage is 1 million liters.
“La Bayadera.”
In 2014, Bayadera became the leader in vodka production (market share – 26.8%). Champagne Marengo ranked second in the sparkling wine ranking by sales volume. The company accounts for more than 15% of all spirits imports. Entering the Russian market is one of the company’s main benchmarks. In 2015, Bayadera bought Velikoustyug Distillery, where Celsius and Perepelka vodka are to be produced. Khlebnyi Dar” is produced in Belarus. Overall, Bayadera’s products are exported to 40+ countries. Two new brands of rum and gin Real Rum and Genuine Gin, development of cognac production, increase in grape processing – everything suggests that the crisis did not affect the company.
Obolon took the third place in the rating, followed by Carlsberg Ukraine. The fifth place is also occupied by beer producer SUN InBev Ukraine.
Nemiroff
The sixth position in the rating with revenue of UAH 1.949 bln is occupied by Nemiroff. The company has undergone a period of long legal proceedings between the company’s shareholders, but continues to develop actively. In 2015, its market share increased to 13.6%. Nemiroff products are sold in 80 countries, licensed production is in Russia and Belarus, and increasing exports is among the company’s top plans. Ukrspirt data claims that every second bottle from the export segment belongs to Nemiroff.
“Eastern Beverage Trading Ukraine”
“Eastern Beverage Trading Ukraine transferred its production to competitors’ facilities after the annexation of Crimea. The company’s vodka is produced at the Prime and Khortytsa plants, Koktebel cognac is produced at the Odessa Cognac Factory, and low-alcohol products are produced at Nemiroff’s facilities. Enterprises in Crimea continue to operate, for example, wine is still produced at the Koktebel plant, but the situation is unstable.
“New Products.”
The eighth place is occupied by beer beverage producer Efes Ukraine, while Novye Produkty is ranked below. The Group is the largest Ukrainian producer of energy and low-alcohol beverages (market share – 37.9%).
“Olympus.”
The ranking of the 10 largest producers of Ukrainian alcohol is closed by the company Olimp. Pavlo Klimets, the owner of the company, lost one of its plants due to the conflict in Donbas. The same situation befell the Bakhchysaray plant in Crimea. At this stage, the main capacities of Olymp are located in Kharkiv region, and wine under the brand “Bakhchisaray” is bottled at the competitive plants “Tavria” and “Odessavinprom”. Wine sales are growing, while cognac and vodka sales are falling (by 50% and 6% respectively).
Predictions
With the constant rise in the cost of alcohol and products, such brands can survive:
- Category Leaders. Despite the price increase, consumers will take their products off the shelves by habit and taste preferences.
- Prudent companies. Some brands have started preparing for the current state of the market now and have given them a “premium” image.
- Innovative brands emphasizing sustainability, specialty recipe and more.
The bulk of products from the middle and lower price segment, which exploit the theme of national traditions and bread alcohol, may leave the market under the pressure of cheap counterfeit.
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