Russia’s brewers are hit by restrictions in ads and shortage of cans

Russia's brewers
Russia’s brewers

by Nicolay Dombrovsky
(On the materials of the press)

Judging on the TV ads beer is ranked among most demanded goods in Russia. Only oil is being produced and consumed in bigger amounts in the country Beer is regarded as a special drink – not fully strong but rather a kind of soft one. Beer is a kind of all-national drink because no age restrictions are specified for its sale. This is why the ads of beer are permitted for airing on TV in difference from ones of wine and vodka. At the same time the Russian business never recognized any self-restrictions. In result too much poor quality TV beer ads are aired in the country.
Two months ago President Vladimir Putin himself pointed out apparent excessiveness of beer ads on TV.
And so the State Duma deputies adopted amendments to the Law “On Advertising” imposing strict restriction on the beer ads last Saturday. Henceforth it is prohibited to use human and animals characters in the beer ads as well as any suggestions that beer relieve the thrust and plays an important role in promotion of drinkers in their way to the top.
The draft restricts ads of strong drinks and beer containing more than 8.6 per cent alk.volume and introduces additional requirements to the ads of beer with alk.content of 1.21 to 8.6 per cent. The draft prohibits strong drinks advertising on behalf of public and political figures, well-known actors, and figures of culture and sportsmen.
In addition the ads should not targeting teenagers. The ads should not be placed in printed publications, radio and TV programs for teenagers as well as within 100 m. range of secondary schools.
One could expect that advertising companies have to stop airing poor quality ads. The restriction will force them to create more sophisticated ads while making customers more discriminating.
There are no evidences though that excessive advertisement of beer leads neither to decrease in consumption of vodka nor to increased beer consumption among teenagers.
Some Russian major brewery companies took part in the working out of the draft while those who didn’t express their indignation now.
Deputies in the first hearing had approved the draft. The document had been worked out in collaboration with the Russia Brewers Union and major breweries “Baltica”, “Ochacovo”, “Krasny Vostok” and other companies. The breweries themselves have set to lobbying some restrictions on beer ads. It should be remained that six months ago the Legislative Assembly of Omsk has submitted a proposal on total prohibition of the beer ads on TV and has presented the draft of law to the Duma consideration. The hearing was scheduled on March 13 but the draft had been revoked in the last instant.
However, the amendments need some additional finishing, the Vice-President of Sun Interbrew Mrs. Irina Kibina believes that otherwise the draft if adopted would have resulted in banal war of logotypes. According to Mrs. Kibina the proposed restrictions on ads ranked second in the world in toughness after French ones. The restrictions if approved would have induced brewers to abandon their ads campaigns, the President of Russian Advertising Bodies Association Vladimir Evstafiev believes. Amendments in fact represent total prohibition of beer ads because these may be applicable to any kind of advertising, said the Director General of the Lowe Company, which advertises brands of Tolstiak and Klinskoye beers.
The big losses would result due to restrictions on the beer ads. According to the Russia Advertising Association just TV ads alone amounted for $60 millions in 2001 in Russia.
At the same time the prices for canned beer are bound to rise.
Viktor Pyatko, the head of Bravo International brewery, wrote a letter of complaint late last week to the Ministry of Economic Development, calling for lower custom taxes on the import of aluminum cans. If the government does not hear his request, Bravo International will have to introduce higher prices on its canned alcoholic beverages, something Baltika already did a week ago.
Pyatko’s letter comes a few weeks after the government decided to increase almost twofold the customs taxes on imported aluminum cans. The tax increase, designed to protect the can-manufacturing industry, has heavily penalized the beverages industry and resulted in huge loses for the biggest Russian breweries.
“We lose $1 million every month because of this tax raise,” said Gennady Gushchin, Baltika director of raw materials. “The government’s decision is absolutely inconsistent and does not serve anyone, either the government or the can industry,” he added.
Rostar and Reksam, the only two factories in Russia that produce aluminum cans, are indeed unable to cover the breweries’ growing demand for cans. As the factories’ combined production amounts to 1 billion cans a year, Baltika, which buys 1.8 billion cans a year, is forced to import a large volume of cans from Poland-based Can Pack.
Baltika already had to introduce a 10 percent price increase on its canned beverages, which include some of Baltika’s beer and Party Mix alcoholic beverages. Bravo, which releases brands such as Bochkarev, Okhota, Lowenbrau and other alcoholic beverages, is likely to follow. “Our budget will greatly suffer from the government’s decision. To compensate for the losses induced by the tax raise, we will also have to increase prices,” Pyatko said.
Large Russian breweries have been promoting cans as a new, fashionable type of packaging, releasing beer in half-liter cans. “The demand for canned beer has been increasing rapidly, and we have recently invested over $4 million in a new line of cans.
“Cans are more ecological, more hygienic, and more progressive than bottles. They present fewer difficulties in production and packaging, and generally are more appealing than the heavy glass bottles used in Russia,” Pyatko said. Besides Baltika and Bravo International, other breweries such as Vena and Stepan Razin have also started focusing on canned beer.
The price increase is now likely to affect the popularity of canned beer, still relatively new on the Russian market of alcoholic beverages, and freeze the demand for this type of packaging. “The tax raise will definitely paralyze the development of canned alcoholic beverages. The Russian population has a low purchasing power, and even a two-ruble increase affects the demand for a product,” Pyatko said.
With the government now under fire from breweries and Pyatko’s letter likely to be followed by others, some still hope that the tax raise, precisely because it is inconsistent, will be only temporary.
“From experience, I can describe the typical procedure in this type of situation: the government makes a decision, then we write a letter of complaint. After a period ranging from six months to a year, the government understands that the decision was a mistake and cancels it. The problem lies in the fact that our government refuses to listen to the comments of the industries concerned by its decisions. It prefers to learn from its own mistakes,” Pyatko said.

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