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Grey trade casts a shadow over spirits consumption

29 April 2014

According to a new Canadean report, there has been a decline in spirits consumption across East Europe. Due to tax increases and more purchases being made on the grey market, this decline is set to continue.

Spirits consumption took another step back throughout most of East Europe during 2013, with the region demonstrating a decline of 1%. A dramatic drop of 12% in the first half year compounded the misery of this category. Much was owing to the performance of the key market players, Russia and Slovak Republic; each of which declined significantly in volume terms.

Grey trade table

The decline comes as a consequence of tax increases, which has resulted in more people turning to the grey trade. The grey trade refers to the trade of a commodity through channels of distribution that are unofficial, unauthorised, or unintended by the original manufacturer. With excise duties for spirits rising, many consumers look towards the competitively priced grey trade products.

In Ukraine, the spirits market has witnessed an increase in excise duty for the past three years, dampening the outlook for the category. Consumers are increasingly searching for a better deal and often stumble across the grey trade. In other countries, such as Lithuania, illegal consumption is estimated to account for up to a third of the total market and continues to affect the business of the main producers and importers of international liquor brands.

Grey trade vodka

Well known brands are losing out to unbranded and grey market products. Ukraine’s “World-Class Vodka”, Nemiroff, recorded a decline in sales between 2009 and 2012.

For other countries, including Slovak Republic and Russia, an increase in the minimum price of vodka has resulted in further migration to the ‘grey market’ vodka as well as home-made spirits. Home-made spirits refers to ‘samogon’ or Russian moonshine, these substances are made illicitly. Ian Browning, Analyst at Canadean, says: “Unless tax burdens ease, many will simply be unable to afford the luxury of buying branded goods. With future tax hikes likely, it is almost impossible to quell the tide of illegal and unauthorised spirits.” 

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