Russian Wine Industry and Millennials' Wine Consumption Characteristics

The researchers noticed that since the industry was struggling significantly at times, many wineries could not afford chemical additives, which meant that some Russian wines have historically been produced organic (Wineterroirs, 2010). In the 2000s wine industry became a contradictory subject to talk about. The market was segmented into two niches. The low-priced segment was invaded by cheap Moldavian and Georgian wines. In contrast, the high-priced segment was thoroughly taken by the global wine-producing leaders such as France or Italy. Russian wine had no marketplace to capitalize on (Judich, 2016). The luck of the wine industry was partially back in 2013, when wine was officially recognized as an agricultural product (REGNUM, 2013). This resulted in a more loyal attitude towards the industry on the part of its consumer. Also, in 2014, amendments were introduced to the fundamental alcohol law, which regulated the geographical indications on bottles, thereby clearly indicating the authentic Russian wines produced in the Russian Federation (Rosiiskaya Gazeta, 2019). The last domestic industry breakthrough happened in 2016 when the licenses for the sale of wine and the right to obtain brands for small wine producers began to cost 65 thousand rubles, while before that reform, the general licensing was the same in cost for any size of wine production and amounted to about 800 thousand rubles (Judich, 2016).

At the moment, even though more than half of Russian wines are made from imported wine materials (Wikipedia contributors, 2019), domestic wine-making is gradually gaining momentum. Marketers believe: «Russian wines have won awards and received good scores at international competitions; more and more reputable restaurants are starting to include them in their wine lists, and they are beginning to appear in retail» (Londonwinecompetition.com, 2019). Wine expert Jurii Judich claims the Russian wine industry to be at the beginning of its «rebirth»: «the growth of the exchange rate and the changing political situation forced our wine missionaries to turn their eyes to Russian wine-makers.» Last but not least, in 2019, President Putin approved the law on subsidizing vineyards. At the moment, the subsidy determines about 132 thousand rubles per hectare of vines. The Ministry of Agriculture of Russia is confident that by 2025 the area of vineyards will be no less than 125.7 thousand hectares, while in 2015, there were approximately 81 thousand hectares of vineyards in the Russian Federation (The State Duma, 2019).

The modern Russian wine regions, wine brands, and weather conditions.

There are five Russian regions to be called the main focus of modern Russian wine production. Even though the areas are located close to each other, they differ significantly in climatic conditions. Besides, the volume and range of products often also vary dramatically. These regions are Krasnodar Territory, Rostov Region, Stavropol Territory, Republics of Dagestan, and Crimea (Wikipedia contributors, 2019; Provinamira.ru,2012). Figure 1 shows the location of these regions on the map of the Russian Federation.

Krasnodar Territory provides 60% of all the wine production all around the country (Provinamira.ru,2012), which explains the abundance of famous wine brands that exist on these lands. The climate here is warm and compelling for such kind of business. Moreover, the region is considered to be very attractive in terms of general tourism and wine tourism as well, which increases the awareness about the local wine product among consumers (Russianvine.ru, n. d.). Wineries are mainly focused on the cultivation of red grape varieties, for example, “Sapervi,” “Cabernet,” “Pomegranate,” “Sauvignon ” White grapes are usually represented by the following types of wine: "Riesling," "Aligote," "Gift of Magarach," "Rkatsiteli," "Chardonnay" (Longus, n. d.; Provinamira.ru,2012). About 65 wineries are industrially operating in the region. Also, more than 100 small private farm wineries produce wines of different varieties and tastes (Russianvine.ru, n. d.). The most known wine brands in the region are represented by the following names:

Besides, small, but already quite successful and gaining popularity wineries are developing. The brands representing the industry in this segment are Villa Victoria, Lefkadia, Gunko Winery, Sikora Estate, Uzunov Winery, Divnomorskoye, Old Greek Wine Compound. It is worth noting that wine experts, who participated in this study by being interviewed respondents, mentioned many of those names speaking of the most promising wine brands in today's market.

Rostov region is often called a risky and complicated wine-making area (Wikipedia contributors, 2019) since this territory is the northernmost point of wine production in the country. However, this region is considered one of the oldest wine-making spots in Russia, famous for its table and sparkling wines (Longus, n. d). It is here, where the history of wine-making in the times of Peter the Great had begun. Speaking of the grape varieties represented in the region, it is necessary to take into account the complexity of local weather conditions. In this regard, the area mostly focuses on the varieties “`Chardonnay,' `Aligote,' `Rkatsiteli,' as well as `Muscat' and `Bianca'” (Russianvine.ru, n. d.), speaking of white grape varieties. As for the red grape varieties, they are mostly represented by the types “`Cabernet Sauvignon,' `Saperavi,' `Merlot,' `Cabernet Franc'” (Russianvine.ru, n. d.). It is noteworthy that the region is much smaller than the one described before; however, the vineyards represented in the area consider themselves very independent and exclusive (WineStreet, 2015). Six following brands are the major players on the wine market on the territory (Russianvine.ru, n. d.; Provinamira.ru, 2012; Wikipedia contributors, 2019):

Stavropol Territory is considered a very controversial wine region of Russia. Even though the weather and general climatic conditions are highly favorable for this type of activity, the wineries of the new generation are not represented in the vast territory of the region (Russianvine.ru, n. d.). The total area of vineyards consists of more than 6 thousand hectares (Skipchenko, 2019). Speaking about grape varieties grown in these territories, it is essential to mention that the region is famous for the production of high-quality wine materials (Longus, n. d). The variety of grape grown is very large. Here are represented not only the classic varieties, known and famous around the world such as “Saperavi,” “Riesling,” “Abern,” “Rkatsiteli,” “Aligote,” but also in the Stavropol Territory, they often work with grape varieties that were cultivated under the Soviet regime, for example, “Podarok Magarach,” “Amur,” “Levokumsky,” and “Platovsky” (Russianvine.ru, n. d.). It is noteworthy that despite all the favorable historical and climatic conditions, the region is currently not representative in terms of wine production. There are still wineries attempting to conquer the market (e.g., “Levokumskoe,” “Mashuk,” “Stavropol”); however, the big winery in the region (“Georgievsky winery”) in 2010 announced the termination of production of alcoholic beverages (Wikipedia contributors, 2019), and the “Praskoveyskoye cognac factory” is determined to be «local star» in alcoholic beverages production, having its large volumes of output in the strong alcohol market (Russianvine.ru, n. d.). All in all, even though the region is one of the leaders in the lands and resources available for wine production, the wineries are not significantly represented in the area, meaning the grapes grown are cultivated to be used in manufacturing other than wine as well as being transported to other regions for further wine production.

Wine production in Dagestan Region is perspective yet not well-developed (Longus, n. d). The region was one of the major wine production spots in the Soviet times. However, nowadays, the volumes are quite mitigated (Wikipedia contributors, 2019). Dagestan Republic is currently believed to be the most potent cognac manufacturer in the country (Russianvine.ru, n. d.). The potential of the region is underestimated, and it is claimed that it can be doubled if applying decent effort (Kisin, 2013). The climate is considered pretty favorable for grapes growing. The grape type majorly represented is “Rkatsiteli.” It takes over 70% of all grapes' plantations in the region (Provinamira.ru, 2012), while relatively young vineyards tend to be planting and growing “classic European” grapes' sorts such as, for instance, “Riesling,” “Chardonnay,” “Cabernet,” “Sauvignon,” “Aligote,” “Pinot Blanc” (Russianvine.ru, n. d.; Provinamira.ru, 2012). The largest producers of the region are “Izberbash wine and brandy factory,” “Kizlyar Cognac Factory,” and “Derbent Sparkling Wine Factory” (Smirnov & Information Agency Tass, 2017). Thus, although Dagestan is striving for the development of production in the wine and cognac industry, now there is almost no wine represented by this region in the market, except for several vintage dessert wines coming from the existing factories (Russianvine.ru, n. d.).

Republic of Crimea is historically a wine-making region, and its history had been rooted for centuries. The development of the industry was not stable all the time; starting from the ancient times, it was fluctuating significantly. As was mentioned above, the region was struggling the most after the implementation of the “Dry Law” in 1985. However, despite these difficulties, now the Republic being the part of the Russian Federation, is striving for rapid development (Localway, 2016). Moreover, local wine-makers have recently been focusing on crowdfunding opportunities, as well as on subsidizing financial governmental support (Wikipedia contributors, 2020). Experts say that Crimea is the region implementing current trends in modern Russian wine-making (Russianvine.ru, n. d.). It is also noteworthy that the area is immensely attractive in terms of wine-tourism, which increases the awareness of the product and significantly raises profits in the end (Girenko, n.d.). Even though the whole region is split into three main spots in terms of wine production, the climate in all the areas is quite calm and favorable for wine-making, yet different, which leads to growing various, but still grapes of equally good quality (Wikipedia contributors, 2020). However, the difference that majorly determines the cultivation of different grape varieties is the soil. It identifies the varietal composition of wines. The range of the grapes grown in the region is enormous. The most frequent sorts, though, are “`Muscat,' `Saperavi,' `Pinot Gris' and `Noir,' `Chardonnay,' `Semillon,' `Cabernet,' `Merlot,' autochthonous `Kokur,' `Traminer,' `Tokaysky,' `Rkatsiteli'” grown on the south coast of the peninsula; “`Sylvaner,' `Aligote,' `Riesling,' `Rkatsiteli,' `Merlot' and `Chardonnay'” in the steppe regions; “`Aligote,' `Bastardo,' `Riesling,'' `Pinot Fran,' although `Saperavi,' `Aligote' and `Cabernet'” in the foothills (Russianvine.ru, n. d.). The biggest wine-makers in Crimea today are the well-known wineries "Massandra," "Inkerman," "Solar Valley," "Zolotaya Balka" (Localway, 2016):

What is more, one of the trends mentioned above and rapidly developing in the region is the trend for producing organic wines, which is being bravely supported by the new ambitious project as «UPPA Winery» by Pavel Shvets, which is the only winery in Russia producing wine in the biodynamic method.

Young and promising wineries are what the region is proud of. These ambitious projects are “Oleg Repin Winery,” “Satera,” “Alma Valley”:

Last but not least, it is essential to mention the «Novyi Svet» winery, which is now the one having probably the most extended history in the whole region. The brand label is represented in Figure 22.

It is noteworthy that each winery mentioned as the one belonging to the Crimea region has its unique history and its distinctive and recognizable features (Localway, 2016). The region has recently become one of the most promising places in the whole country to produce self-sufficient wine which can compete with the world-famous foreign brands (Girenko, n.d.). Crimean brands are the brands positioning themselves as the unique and unrepeatable ones. Hence, the horizons for the future development of the wine industry in the Republic of Crimea are very promising.

All things considered, as can be seen from the data provided above, the Russian wine industry not only exists, but we may also say it prospers in some regions. Krasnodar Territory, Rostov Region, and the Republic of Crimea are the most perspective regions. They have a long and fascinating history, they are striving for the uniqueness of their brands and wine tastes, and they work on proper positioning on the market. Also, there are two regions full of yet unrealized potential. These are the Stavropol Territory and the Republic of Dagestan. Both of them were historically significant wine-making spots;

however, some struggles had led them to lag from the other wine-producing regions. The variety of brands represented on the Russian wine market proves that the industry is developing and has its potential.

Financing in the modern Russian wine industry.

In most European states, investments in wine business tend to consist of two main parts: governmental subsidizing and private funding. In Russia, the government has recently started implementing policies focused on the wine industry growth and development. Currently, the Ministry of Agriculture of Russia allocates subsidies for planting vineyards, which amount to more than 130 thousand rubles per hectare (Judich, 2016). At the same time, the state program for the development of agriculture in the field of wine-making involves the placement of 1.5 billion rubles annually to support the industry. Moreover, the Ministry of Agriculture plans to take control of excise taxes on wines produced exclusively on the territory of the Russian Federation, and, besides, to allocate about 3.5 billion rubles per year to the industry by controlling these excise taxes (Pertseva, 2018). However, the wine industry representatives believe that this support is not very helpful and not enough for the business field development (e.g., Burlakova, 2019). Also, small wineries are actively developing in Russia; however, they cannot use the status of a small enterprise and work under a simplified taxation system, since Russian legislation obliges all companies working with excisable goods to be on a standard taxation system. This means that, for example, as a result, small wineries are forced to pay more than 88% of income tax, and this is a figure other than excise taxes (Malik, 2019). It becomes evident that entering the wine market is a tough challenge; however, keeping the profits flow is even more challenging for small and medium-sized wineries. They can keep running, but on the condition of producing wine of an extraordinary type and positioning and targeting their products correctly (Pertseva, 2018). In other words, since the beginning of the 2000s, the government has been taking several measures that were supposed to help wine-makers to set new plantations and develop the industry. However, there are still significant complications, such as, for example, difficulties with the formal allocation of wine to a separate sector (not as a part of the whole alcoholic beverages industry) or lack of funding. All these factors show that even though some measures are being taken to support the industry, at the present stage, they can be sufficient neither from the point of view of the national wine culture development nor from the point of view of adequate industry financing.

There are three protective and industry supportive measures that J. Malik (2019) mentions in his work. These are the measures government can take to help the industry significantly and stimulate it for profound growth by providing the small wineries with the needed financial support. Firstly, the simplified taxation system would substantially reduce the expenses of small wine companies. Secondly, an essential and necessary measure to support the wineries could be a permit for the full use and processing of waste from wine production. This would include, among other things, the manufacture of distillates and the use of industrial waste in order to later produce other wine products out of them. The third helpful measure would be to provide small wineries with benefits for paying for electricity. Electricity consumption for such productions is very significant, due to the necessity to maintain strict temperatures in all areas during production, and Russia already has experience in providing such benefits to some industrial enterprises. Consequently, if wineries of the small and medium level were to receive such a privilege, this would ease their financial burden greatly. It is noteworthy that for the moment of conducting this study, none of these measures have been implemented yet.

What determines the investment potential in the wine market is the absolute volume of wine produced, as well as revenue in the local and foreign markets (Judich, 2016). In those terms, the Russian wine industry cannot be called attractive when it comes to private investments. “All wine-making has suffered and continues to suffer in Russia,” claims J. Malik (2019), and investors do not usually tend to allocate their funds into risky projects. S. Hatiashvili (2020) believes that the minimum investment in the wine business should be not less than 7 million rubles, because, with a smaller share, the investment simply does not pay off. Also, the expert notes that investments in wine are always of a long-term perspective, not only because the process of wine production itself requires a lot of time, but also because for the investments to pay off, the winery must go through the whole cycle of work with the product from grape planting to final delivery to the market.

Private investment in the Russian wine industry likely exists because, despite all the difficulties and evident financial struggles, many wineries of the small and medium segment still operate in the country; however, official confirmation of this was not found in the public domain. It, therefore, will not be presented in this study.

2.2 Data collection.

This study was designed as an exploratory research aiming to observe the wine industry in Russia with the defined participating parties: Millennials as wine consumers, wine business representatives, and wine experts. This is due to the reason that the issue concerning Russian wine domestic consumption is now on the primary position of its discussion and resolution. This research design will help to establish priorities in business as well as to clarify the research field perspectives and to draw following proper conclusions.

The initial research activity is dedicated to the identification of the main circumstances in which the research is set. During the previous part of the current project, such research set influencers as the history of the wine industry, central wine-producing regions, modern Russian wine brands, climate conditions, and investment potential in the field were studied. This step was particularly useful prior to the primary investigation in the area as it provided the researcher with the necessary background data for the study. However, in order to close the research gap and answer the research questions represented, a further method of data gathering was chosen as conducting semi-structured in-depth interviews with the three industry representing parties involved in the wine ecosystem in accordance with Stakeholder Theory. The number of the interviews used for the research is based on the work of Creswell (2007).

Sample, recruitment, and procedures.

Given the preference for the specific generation, the study was designed in a way to acquire all the possible knowledge about the features and traits Millennials, as a generation of consumers, marketers strive to capitalize on, have. All three interview protocols were developed following the previously gathered secondary data. Face-to-face or phone interviews were semi-structured not to limit the respondents with what they have to say. Moreover, the semi-structured approach of conducting these indepth interviews with a developed guide allowed the interviewer to be prepared, at the same time allowing respondents to express their points of view on their own terms. This was especially important in the current part since it was supposed to reveal the patterns of future research. The process of back-translation was applied to all the interview protocols: the questions were introduced to the respondents in their mother tongue, then they were translated in English and then with the use of professional translator were converted back to the original language. The initial and final versions of the interview questions were compared in order to ensure adequate information correspondence. Before participation in the semi-structured interviews, all the respondents verbally expressed their personal consent for the recording of the interview and its further usage solely for the current study. The interviews were partially transcribed under the needs of the project. Personal names were not agreed to be disclosed during the whole research process.

The whole sample for this study was initially split into three parts, since there were three separate but interconnected interview protocols to follow. The first sample was represented by six independent wine experts. In order to be participants of the research, the respondents had to meet all the following criteria simultaneously:

Table 1: First sample representatives