Armenian wine and brandy market prospects

After mining products, alcohol (brandy for the most part) stably occupies second place in the structure of Armenian exports. However, after the 2008 economic crisis the volume of alcohol exports dropped considerably, although 2011-2012 saw a tendency towards expansion of this sector of production and export.

However, due to global market trends, several sectors of Armenian alcohol production have undergone reductions, for example, the sector of inexpensive wines ($2.5-8 per bottle). On the other hand, the emergence of new rivals on the global market as well as price growth due to the increase in excise duty caused the Armenian wine producers to raise the quality of their product. This increase in quality makes the Armenian wine competitive to the high-quality import wines on the local market.

All the abovementioned factors influence only the Armenian domestic market, but there’s still the issue of conformity of Armenian alcohol products to international standards. The Armenian market is rather narrow, so the realization of the full potential of the Armenian wine industry depends on Armenian products being promoted on the foreign markets. However, Armenian wines still can’t compete with their main rivals on the international market. Of course, Armenian 2.5 Euro wines could have conquered their segment of the European market, but such a low-price export is impossible due to the transport blockade. That is why today only high-price wine production is growing in Armenia: for example, a new alcohol plant, the Golden Grape Armas, is being constructed in the Aragatsotnsk district. The company received a three-year delay in the VAT payments for the imported equipment from the country’s government. Italian colleagues will help Armenian specialists to produce high-quality wines. The plant will be launched this summer, and its products are supposed to be exported to Russia and the USA.

The situation with brandy production is quite the opposite: the last 20 years saw a gradual drop in its quality. Some of the producers lost their export markets due to the world financial crisis and some of the vineyards were destroyed. However, the drop in quality didn’t affect brandy exports to Russia due to its relatively low price. Today, however, due to the increase in the wine prices, this price policy will no longer be possible to maintain. And if the price difference between Armenian brandy and French cognac drops to less then 100 rubles, Russian consumers will prefer the French product.

Another problem of the Armenian alcohol production is the same wine base for both wines and brandies. Even though the grapes for wine and for brandy should be collected at different stages of ripeness, the producers are often unable to observe this condition and collect all the grapes at the same time.

Armenia produces a lot of brandy, but the local market consumes only the tiniest portion of it, so this production is export-oriented. In order to coordinate the producers’ efforts, as well as to promote the ‘Armenian brandy’ brand on the global market, the Association of Armenian Brandy Producers was created. The major brandy producer in the republic is the Yerevan Brandy Factory, privatized by the French Pernod Ricard group in 1998, and its CEO, Ara Grigoryan, is also the chairman of the Association. The Association creates special laboratories to control the quality of its members’ products and will award its certificates from 2013.

Brandy production grew by 21.5% in 2011 as compared to 2010, thus taking the lead over the growth of all other alcohol production in Armenia. However, Ara Grigoryan explains that it is due to the restoration of the Russian market after the crisis (and Armenian brandy was affected by the crisis more than any other Armenian alcohol product on the Russian market), and not by some major changes in the Armenian production process. However, experts abstain from making forecasts for 2012.

Nevertheless, the Armenian government has grandiose plans for this promising branch of national industry. In 2015 Armenia plans to increase the volume of brandy exports to $150-180 million, and in 2020 to $250-300 million (in 2010 the figure was $95.2 million). Some experts are rather skeptical about these plans, as the growth isn’t backed by a proper raw material base. However, the government is taking certain steps towards diversification of brandy exports. Experts say that Chinese and other Asian markets could prove to possess good potential for that. It is noteworthy that this governmental program also implies a decrease of export share to Russia (from the current 90% to 65% in 2020).

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