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Go for Russia, Not China, Wine Experts Say

With domestic consumption of wine halved in France since the 1950s, the world's number one wine producer has turned to emerging market exports as its saviour. But while the Chinese and Indians have been feted at this year's Vinexpo wine trade show, the worlds largest, there are those attending the two-yearly event who warn against both in preference to Russia.

"The margins in China are not there. It is not ready to buy at the price point where wine producers will make money," said David Skalli, a Paris-based wine consultant with family vineyards in France, California and Italy. "You have to be there, but you won't make money for the next 10 years and it is very competitive."

In India, said Skalli, the market is growing by 30 percent, but from a tiny part of the population. "Per head consumption in India is about one teaspoon," he said, but the biggest barriers are duties, about 300 percent, and logistics. Duties are to come down to 150 percent by the end of the year, but distribution and wine understanding remain difficulties.

Local sommelier Magandeep Singh, who flew to Bordeaux from New Delhi for Vinexpo, agrees that the spirit is there, but the logistics are weak. "The question I am most often asked in India is 'where can I get good wine?'," he said, but the supply is just not there. "People want wine in India and they have money - my local BMW salesroom which opened in December is sold out for the next year, some people think nothing of spending 60,000 euros on a car you see. But if you can't get the wine it's no good." The problem, agreed Singh, are the laws, the taxes, the paperwork and the differences between those in the different states.

"At the moment 80 percent of the wine in India is sold by hotels in Bombay and Delhi." All this could change next year however with the opening of Wal-Mart, Carrefour and Tesco outlets in 2008. "And that is because India's next boom is retail," he said. "Even if you are only selling to 10 percent of the Indian population, that equals Europe." Bordeaux winemaker Bernard Magrez agreed about being careful in China, having owned a vineyard there for 10 years. "I have done China," he said. "I was there starting from 1991 and I did not make a profit. It was too soon, and it is still not very developed today."

"Wine is not a priority for the Chinese, they do not have a wine culture," Magrez said. His advice to French winemakers was to beware of diversification and concentrate on business that is an hour and a half away. "Fifty five percent of business is nearby, and French wine businesses are small.

The intelligent strategy is not to disperse resources. I paid for that in China," he warned. "We are doing more business in Spain and Italy now, than in Moscow for example." Magrez, who was in Russia for many years with his wine and spirits business, William Pitters, shut up shop when he sold the business in 2005. Now, despite his reservations, he will soon start again with a new distribution partner. A good partner, he stresses is the key.

Skalli also favours Russia over any other emerging market. "For one thing," he said, "the food is European in style. Shashlik and rice is the Russian steak and chips and there is no spice. Chinese food is not made to go with wine, and nor is Indian at the moment." And whereas in China wine sales are driven by a culture of giving or serving a high status gift, Russians like wine for itself. "Russia is the market of the future. They love the good life," he said. "They are the Italians of eastern Europe. And right now, since the problems with Moldovan and Georgian wines, which were 55 percent of the market, the place is wide open." "I wouldn't disagree about going for Russia at the moment," Singh said.

Levels of imported wines in Russia, which fell to 241 million litres of bottled wine in 2006, from 379 million in 2005 -- due to the banning of Moldova n and Georgian wine and the change in a customs stamp required on bottles -- are predicted to soar in 2007. Official Russian statistics estimate that in 2005 imports totalled 1.2 billion dollars, more than double the amount only two years before. Russian visitors to this year's Vinexpo show are estimated to be about 700 by Anastasia Prokhorova, editor of Russia's Wine News, up from 500 in 2005, out of a total of about 50,000. "We are always warmly welcomed, people know the Russian sales figures," she said. "We feel very comfortable here."


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