Record slump in spirits sales shapes new consumer behavior

KLAIPEDA - Though “Eurostat,” the EU Statistics Agency, claims that alcohol retail turnover in Lithuania slumped an EU record-breaking 17.1 percent last year, Lithuanians nonetheless remain on top of alcohol consumption statistics, averaging 11.3 liters of absolute alcohol last year. Lithuania was followed by Latvia, which reported a 13.3 percent drop in alcohol retail turnover, with Bulgaria down 12.4 percent.

According to Department of Lithuania’s Statistics, Lithuania’s alcohol exports reached 283.5 million litas (81 million euros) in 2008, decreasing to 234.8 million litas last year. While the beer export drop was rather insignificant, down to 30.3 million litas in 2009 from 31.4 million litas in 2008, the decline in wine and ethyl alcohol beverage export turnover was considerable, 26 million litas and 61 million litas, respectively.
Alcoholic beverage import turnover has been affected by the crisis as well, putting it at 416 million litas last year, down from 475 million litas in 2008. Comparing the two years, beer import turnover shrank from 49.1 million litas to 43.2 million litas, respectively; wine import increased from 19.3 million litas to 21 million litas, as ethyl alcohol import volume decreased 60 million litas, to 124 million litas from 184 million litas. The current trends in both export and import in 2010 remain in decline.

Laurynas Vilimas, president of Lithuania’s Alcohol Merchandise Enterprise Association, maintains that alcohol import and export was on decline already starting the beginning of 2008. “Unfortunately, we see the declining tendencies up to now. Over two years, the sales of strong alcoholic beverages have dropped nearly 40 percent. However, when we put these data against the data publicized by law enforcement agencies, which claim a sharp increase in consumption of illegally acquired and produced alcohol, to be exact a threefold surge, I can conclude that the real consumption has not decreased a bit. The whole industry has been put in a complicated situation, not as much by the crisis, but by unreasonable state policy. Due to the increased excise tax, the country collected nearly 160 million litas less last year, compared with 2008,” Vilimas asserted.

In Lithuania, the ethyl alcohol excise tax is up 15 percent since 2009. However, the amendment has been highly criticized since then. The president of the association forecasts that the situation in the industry will continue deteriorating, as it will be more and more difficult to police the black market.
As alcoholic beverage industry insiders claim, the import and export slump has mostly affected the retail market. “We have been witnessing significant customer behavior alterations in regards to alcohol consumption. For example, brandy and tequila sales have been affected least, however, vodka, whisky and gin sales have dropped 10 – 15 percent; liqueur and cognac sales have slumped a whopping 30 percent; rum sales have been affected most – down 40 percent, all compared to 2008 sales. We see an increasing trend in consumption of the cheapest strong alcoholic beverages,” V. Lopeta, spokesman for the grocery retail giant IKI, revealed to Delfi.

His notion is upheld by Renata Saulyte, spokeswoman for another grocery retail giant, Maxima. She asserts that alcohol sales slumped approximately 16 percent in Maxima supermarkets. “The drop has been largely affected by the crisis itself. In introducing family austerity measures, consumers cut alcoholic beverages from their must-buy purchase list. However, this does not mean that they stopped consuming alcohol, as there is a sharp increase in illegal alcohol products,” Saulyte maintains.  The trend continues to prevail this year as well.

According to data of the State Tax Inspectorate, in 2009, Lithuania collected 581.8 million litas of excise tax for ethyl alcohol, which was a staggering 22 percent – 160.5 million litas – drop compared to the previous year.
‘Mineraliniai vandenys’ (MV) is one of the leading wine, spirits and tobacco distributors in the Baltic countries. MV imports to Lithuania over 1,500 brands of wine and spirits from all over the world. The company has entered a partnership with world famous producers and works with well known brands such as Hennessy, Camus, Moet & Chandon and Guinness. In 2008, the company’s  annual sales totaled 187 million euros, however, the operator could not withstand the downturn and reported a 7 percent turnover decrease last year. However, the results in Latvia and Estonia produced optimism, with nearly a triple turnover rise in Latvia and nearly a doubling in Estonia. An even larger turnover surge was reported in Poland, up 14 percent.

Lithuania’s activity concerns MV CEO Marijus Cilcius the most. “We are particularly concerned with imported alcohol sales, which went down 20 percent last year. I see it as an outcome of constantly decreasing consumer purchasing power, tightening spirit sales and the increased excise tax. All this has instigated the expansion of the shadow economy and particularly aggravated the status quo of the establishments that do not belong to the large grocery retail chains. Generally, consumers tend to spend much less on liquor in restaurants and bars and prefer sipping at home,” said Cilcius to Market.News.lt.

The entrepreneur has lately been observing an increasing trend of “cultured drinking” in Lithuania.
“Many customers literally discover luxury drinks from undeservedly forgotten liquor categories, such as cognac, whiskey and rum. I witness an increasing interest in foreign wines. That brings a more cultured approach to the spirits market,” the MV CEO concludes.

According to him, the trends in the other Baltic countries, Latvia and Estonia, are slightly different. Alcohol sales in Estonia are largely influenced by the abundant influx of tourists from Scandinavia, while Latvia is singled out in its premium class’ strong alcoholic beverage sales. In that regard, Poland shows stability, little affected by the crisis.
Another alcohol industry giant, Vilniaus degtine, reports production capacity of 15 million liters of alcohol per year, including 12.5 million liters of vodka production per year, liqueur and brandy products – 2.5 million liters , and rectified ethyl alcohol – 20,000 liters per day. The company’s production is distributed in Lithuania and about 18 percent is exported to other countries. In Lithuania two thirds of the production is distributed through a network of distributors. However, the company could not withstand the declining trends in the industry and reported an 18.4 percent turnover drop in 2009.

“The increased excise tax and, therefore, the larger part of the shadow market are the major factors in the slump in our turnover,” Renaldas Barauskas, director general deputy of Vilniaus degtine says.
Despite the general sales decrease, the company recorded a significant increase in premium class sales that involve such known brands as “Sobieski” and “Bajoru.” However, the so-called economy class vodka sales have been rather low.

Algirdas Ciburis, marketing director of Stumbras, another major player in the market, asserts that “Costs of all raw materials and production have increased lately, including bottles, corks, boxes. No doubt that the costs will continue going up, thus, further increasing the costs of final product, spirits.”
Spirits industry lobbyists are constantly bringing their agenda in front of Lithuanian Seimas’ MPs. However, recently, their bids to extend hours for spirits sales in supermarkets have experienced a major blow, as the parliamentarians voted against the proposed law amendment. It suggested prolonging alcohol sales hours from 10 p.m. to midnight, claiming the law change could bring more cash in the state’s coffers and decrease the shadow alcohol sales.

Another law amendment, proposed by a few liberal MPs aimed at slashing the widely considered excessively large alcohol excise tax, is inching its way to the legislative floor; however, the largely conservative-minded Seimas will most likely vote against the proposal.