Russian Vodka May Win From Economic Crisis, Renaissance Says

Russian vodka consumption will rise this year as consumers choose domestic brands and inexpensive spirits amid falling incomes, a declining ruble and higher import duties, Renaissance Capital said.

Per capita consumption, including illicit vodka, may increase 1 percent to 16.2 liters this year, halting a decline that began in 2006, Natasha Zagvozdina and Ulyana Tipsina, Moscow-based retail analysts at Renaissance Capital, said in a report today.

Sales will probably reach 228 million dekaliters in the world’s biggest market for the spirit this year, of which 53 percent will be legal, the analysts said. Official output may slide 4 percent, while output of counterfeit and illicit spirits will probably increase 6 percent, they said.

“Taking into account cultural reasons, we expect vodka consumption and, therefore, market volume to increase during the crisis,” Zagvozdina and Tipsina said.

OAO Synergy (SYNG), Russia’s only publicly traded distiller, and U.S.-based Central European Distribution Corp. (CEDC), which owns the country’s largest vodka producer, may benefit, the analysts said. Synergy and CEDC gained customers last year from smaller distillers that were squeezed as credit markets seized up and some distributors failed. Renaissance rates the stocks “buy.”

Russia’s official vodka production slid 7.6 percent last year after consumers switched to imported alcohol and more expensive spirits, wine and beer as incomes rose amid economic growth, the analysts said.

Real disposable incomes, which grew 7 percent in the first half of last year before the economic crisis hit, will probably decline 3.3 percent in 2009 in ruble terms and 21 percent in dollar terms, Renaissance said.

To contact the reporter on this story: Torrey Clark in Moscow at tclark8@bloomberg.net

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net

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