The minimum cost of vodka may rise to 301 rubles. for half a liter

Growing excise taxes, rising prices for imported materials and logistics are putting pressure on the business of the largest alcohol companies. They ask the Ministry of Finance to raise the minimum price for vodka by 7%, to 301 rubles, from 2024. per 0.5 liter bottle at retail. Overcoming the 300 rub. mark. may be noticeable to some consumers and lead to market stagnation, experts say.

The Union of Alcohol Producers (SPAP; includes Novabev Group, Siberian Alcohol Group, Rust Group of Companies, Ladoga and others) in September proposed to Finance Minister Anton Siluanov to increase the minimum prices for vodka from 2024 by 7%. Kommersant has a copy of the appeal. It is proposed to increase the minimum selling prices from 229 rubles. up to 243 rubles, in the wholesale segment – from 238 rubles. up to 253 rubles, in retail – from 281 rubles. up to 301 rub. per bottle 0.5 l.

As SPAP notes, according to the plan, the excise tax on vodka will increase by 5% from 2024, to 128.6 rubles. per bottle 0.5 l. And companies are already affected by the rise in prices of imported closures, containers and ingredients due to the devaluation of the ruble and rising logistics costs, the appeal said.

According to SPAP estimates, this year the costs of production and circulation of alcohol may increase by at least 10%, and increasing the minimum prices will avoid selling below cost and reducing production.

The Ministry of Finance told Kommersant that SPAP’s appeal is being considered. Two Kommersant sources in the industry say that the proposal will be supported.

The head of WineRetail, Alexander Stavtsev, notes that vodka in the minimum retail price (MRP) category occupies about 35% of the market. Similar brands are available in almost all stores and almost all major players, with the exception of Novabev Group (brands Beluga, Myagkov, Belenkaya), whose presence in the MRC segment is insignificant, he notes. According to the expert, alcohol companies do not want to give up their niche to competitors, but margins are constantly shrinking, and it is endlessly impossible to optimize costs.

SPAP President Igor Kosarev says that the 7% increase in the MRP does not reflect the increase in all costs of producers, even if we focus on the official inflation figures of 7.5% this year, to which the increase in excise tax is added. According to him, indexation of the MRP is also necessary to reduce the risks of unfair competition from companies that can sell vodka below cost, using tax evasion schemes or using the support of regional budgets.

The Alcohol Siberian Group (ASG; “Five Lakes”, “White Birch”) says that the profitability of the business is already “extremely low” and without increasing the MRP, it would be unprofitable for legal players to operate, which threatens the development of the gray market. This year, the ASG notes, the cost of vodka increased by 4.9%, including due to the devaluation of the ruble, since labels, for example, are purchased only in foreign currency. President of Ladoga (Tsarskaya) Veniamin Grabar also notes the dependence of the low price segment on imports and says that increasing the MRP will bring the price a little closer to the real cost. And Tatspirtprom (Tundra, Russian Currency) considers it optimal to increase the MRP to 290 rubles. for 0.5 liters so that the increase for buyers is insignificant. The Novabev Group and the Rust Group of Companies (Russian Standard, Green Mark) did not comment.

CIFRRA director Vadim Drobiz is confident that increasing the MRP will not affect demand. According to him, vodka production decreases only towards the high base of 2022, but remains above 2021, which, taking into account the reduction in exports, indicates an increase in the volume of the domestic market. In January-September, 54.87 million decaliters of vodka were produced against 58.21 million decaliters a year earlier and 53.48 million decaliters for the same period in 2021, such data is provided by EGAIS. Alexander Stavtsev notes that overcoming the psychologically significant mark of 300 rubles. per bottle may be noticeable for some consumers, but ultimately the market will adapt.

The owner of the Kaufman brand agency, Stanislav Kaufman, points out that a significant increase in the MRP can lead to market stagnation. For the largest players, according to him, a 7% increase in MRP is unlikely to allow them to make money, but it may provide an opportunity to squeeze out competitors in this segment. A Kommersant source on the market adds that with an increase in the MRP, the cheapest vodka may displace mid-price brands from the market. In August, Rosstat estimated the average cost of vodka at 698.49 rubles. per 1 liter, which is 2.11% higher than a year earlier.

Anatoly Kostyrev