Consumption of spirits in Eastern Europe continued its long-term decline over 2011-2016. The decline was driven by the four major markets of Russia, Poland, Ukraine and Belarus, but in particular Russia. Economic (recession caused by sanctions and falling oil price) and social (declining population) issues continued to hurt Russia. A new taxation system has been introduced limiting the potential for grey market sales. However, in some markets such as Poland there were still opportunities for international spirits brands.
Shifting preferences hurting spirits in Eastern Europe
Eastern Europe is the world’s largest region for per capita consumption of spirits. It has also seen, comfortably, the weakest performance over 2011-2016.
Eastern Europe’s spirits compared to rest of world
Source: Euromonitor International
Spirits, particularly vodka, have been the traditional alcohol of choice for Eastern European consumers, so in part the reason for the decline has been consumers switching away from spirits and into other categories such as beer and wine. However, other factors have come into play, such as the falling population in the region’s largest market, Russia, and also in the same market consumers switching to illegal or grey market products.
Shifting Russian fortunes changes dynamic
Spirits in Eastern Europe saw steep declines throughout most of the review period due to the continued long-term decline in legal spirits consumption in the dominant market, Russia. The full introduction in 2016 of the new EGAIS – the wholesale and retail system of automated control and accounting of alcoholic drinks’ sales in Russia – boosted volumes to the point where regional volumes were close to being static.
Growth in 2016 is stagnant or declining in many markets with the biggest declines in Ukraine. The most dynamic growth was seen in Poland. With Russia likely to be less of a drag on volumes, this gives the opportunity for limited regional growth over the forecast period.