Russian alcohol brands seek distinction

Russian government moves to control alcohol consumption have intensified competition on the shelf, spurring the need for more brand differentiation through innovative label design. Danielle Jerschefske reports

When Russia opened up its market 20 years ago, it catalyzed the creation of one of the world’s largest counterfeit markets estimated to be worth 49 billion US dollars compared to the global country average of 21 billion US dollars. The alcohol, tobacco, cosmetics and pharmaceutical markets have been especially hit. Experts estimate that one-third to half of all alcohol sold in Russia is counterfeit.

The country has one of the highest alcohol consumption rates in the world. For this reason, the Russian government has been making legislative moves to reduce this rate while at the same time lowering counterfeit sales and increasing tax revenue. These various government policies related to alcohol also aim to make Russia a global player in product sales as the country looks to raise its profile by exporting more.

In the last few years, most vividly since the establishment of the Federal Service for the Regulation of Alcohol in December 2008, the country has seen visible steps towards state monopolization of alcohol sales. The most recent move has been a bill which will classify beer as alcohol.

Effective in January 2013, the government will ban sales of beer during specific time periods and at outlets like kiosks and airports. With limitations already in place on print and television advertizing for alcoholic products, and a similar ban expected for beer, it is only possible to catch the consumer at retail level.

Many brands have disappeared because of this shift. Since 2008 the number of liquor and wine producers has dropped by 40 percent and distributors by 50 percent. All of these factors point towards a need for more infrastructure in the label supply chain to support more value-add production of labels.

Converter/brand perspective

Imagency Print in Moscow is one of Russia’ s leading label converters. It produces labels for cosmetics and perfumes, food, spirits, industrial and other consumer products and pharmaceuticals. The converter embarked on a partnership with Pago in 2009 to bring international brands label and packaging consistency in the Russian market, particularly in Moscow and St. Petersburg which represent 20 percent of the nation’s FMCG sales.

Armed with nine printing presses, including a handful of Gallus RCS 330 models equipped for offset combination printing with screen and flexography to add the most shelf impact, the converter produces world class work. One machine is a 16-color all UV, which gives its customers extreme color flexibility and opportunities to apply multiple varnishes for depth and interest. Most recently the converter integrated an in-house designed MIS system to manage daily operations.

Imagency Print CEO Ivan Maslov and deputy director Zhanna Suprin explained the complexity of the Russian vodka market with their customer Oleg Glazunov, brand management director of Zolotaya Manufaktura. ‘The recent movements within the government to limit the promotion of alcohol consumption have increased the importance of catching the consumer at the store shelf. With thousands of vodka brands available in the marketplace, it’s becoming more and more difficult to create a long-standing brand awareness.’

The increase in government managed outlets is only in the mass market. Zolotaya Manufaktura produces alcoholic products in the premium/super premium categories, sidestepping sales into state-managed outlets to avoid intrusive limitations. It sells four million liters of alcohol products monthly.

Vodka production is a difficult process and to be a successful brand it is not imperative that you have your own production. And while quality is important, in Russia the brand that prevails has the best supply chain network to navigate sales and distribution across the nine time zones and multiple cities of over one million spread throughout the world’s largest country.

Zolotaya Manufaktura sells into 40,000 shops. It values its relationships with distributors in every Russian and CIS region. It supports brands with offices selling direct into the major retail network in all the nation’s biggest cities.

Both converter and brand are pleased that Avery Dennison and Artmark have invested in the Moscow distribution center (see L&L1 p42), demonstrating that the supplier partners see long-term value in the market. Imagency is excited about the opportunity to deliver more unique material options to local brands as competition intensifies.  Zolotaya is eager to wow consumers and protect their brands’ integrity.

Zolotaya’s Kalinka brand has made a large investment to export into 50 countries around the world. For this reason the brand owner is interested in the newest label and packaging technologies and in what label styles and designs appeal more in foreign markets.

Suprin says, ‘We’ve traditionally avoided using exclusive materials because we know how difficult it is to source. If we can get them reliably and are able to bring exclusivity to our clients, they’re willing to pay for the differentiation.’ When you look at the cost of the majority of vodkas on the shelf with a price point between three and five US dollars there’s room for brands to invest in distinguishing labels that provide counterfeit protection. 

Vodka label design

Uniqa Vodka Design is one of the nation’s leading label design firms specializing in vodka and breaking into the wine market by building on this experience. Uniqa designs labels for the market’s three top vodka brands.

The design firm stresses that it is not just a creative resource for brands. Dmitry Morozov, chief of creative group, says, ‘We hire people from the segment who know the industry inside and out.  In this way we can educate our clients on every step in bringing a vodka brand to market – label material and bottle selection, label application and alcohol production.’The design team believes that the key to a brand’s success is focusing on one specific market segment. With over 3,500 brands already in the marketplace, honing efforts to reach a particular consumer demographic is the best way to win.

Uniqa works with some beer brands, mostly the international labels looking for an edge. Morozov says, ‘Vodka has a three year life cycle, so this is where we see the most interesting innovations. We can see the changes that are happening in the market, particularly as brands try to differentiate. Often the change occurs with a move from wet glue to clear-on-clear PS material.’

Uniqa clients are consulted on the advantages that can be found by choosing pressure sensitive labels for their brand, both by shelf appeal and total applied cost when it comes to labeling efficiencies. The feeling is that the material selection is wider and there’s more opportunity for add-value print effects at the design level.

Wine is currently not as heavily legislated as other alcoholic beverages and therefore the market is experiencing some uptake, although there is little demand at this point for better quality, more impactful labels. The government displayed its support of Russian-made wines by subsidizing a trip for leading producers to attend the London Wine Fair in 2011.

Brand protection and success

Brands will take complex steps to protect their equity. With the Belochka vodka label, producer Zolotaya used glow in the dark ink as an authentication tactic. Demand for security in labels is huge in Russia. Unique and obvious is what brands are looking for when fighting counterfeit producers.

Uniqa management is extremely interested in interactive packaging, specialty films in small quantities and custom materials that will help its clients build market share. Morozov says, ‘The high-end segment has developed quickly and there is a willingness to pay more for material that will enhance the brand.’

It is clear that there is great opportunity to be captured in the Russian label market over the coming years. With premium brands growing quickly, stiffening competition, and Russian government supporting the promotion of national brands globally, the demand for superior labels and international support will increase.

The environment

There are no waste management laws in place right now to govern the Russian packaging industry. This could pose new challenges to Russian brands looking for export growth as adherence to new European and international waste management laws and standards will be difficult. Some converters are currently selling their matrix waste to be upcycled into new products, but this is not widespread.

‘If you have no sense of humor this vodka is not for you’

Russia’s Ministry of Health produced a video in 2010 featuring a squirrel going through alcohol withdrawals. The squirrel video was intended to be a humorous way to educate the population on the problems of excessive alcohol consumption. Nearly half of all deaths between ages 15–54 in Russia are linked to alcohol. Posted on YouTube the video has become widely popular, reaching four and a half million views.

Zolotaya Manufaktura is a large national brand house that produces a handful of alcohol products for various market segments. Coincidentally, Zolotaya launched its successful Belochka brand of vodka featuring a rabid-looking squirrel on the label shortly after the video was released. Belochka vodka is described as ‘a truly Russian spirit of self-irony that helps people to overcome difficulties by laughter’.

Pictured: ‘With thousands of vodka brands available it is becoming more difficult to create a long-standing brand awareness’

This article was published in L&L issue 2, 2012