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by John Helmer, Moscow 
  @bears_with

It’s an old tsarist ploy. When government officials grow fearful of public protests, attacks on the authorities, and rioting, they increase the volume of alcohol for sale but decrease the number of places where drinkers can gather in public.

Vodka is the opium of the people: this has been the Russian adaptation of Karl Marx’s observation about religion; that was in 1843, long before Marx got acquainted with how things worked in Russia. The way things now work, starting in St Petersburg this month, the opium of the people is banned by a new law from being sold in establishments of less than 50 square metres in floor space; the legal space is even smaller in other regions. This control measure may suit police and priests. But the real benefit will be earned by the large retailers of take-away alcohol, and the large bar and restaurant chains.  

“This law will have low influence on the amount of alcohol sales in St. Petersburg, because alcohol sold in bars is only 5% of the total sold,” observes Vadim Drobiz, director of the Centre for Federal and Regional Alcohol Markets (TsIFRRA). “But it will have a great influence on the culture of drinking. In Europe, the US and other Western countries, pubs and bars are usually places for meetings of friends, and the bar culture has a unique history. That’s why the [corona virus] pandemic is a big blow for them there. In Russia the number of pubs and bars is five times less than abroad. But instead of increasing the number of such places, St. Petersburg is now aiming to decrease it.  That’s some kind of retrogression.”

“The United Russia party in St. Petersburg insists on the new restrictions in order to increase  public order. But if people aren’t drinking in pubs, they will move to homes, yards, parks, so the situation with public order will become even worse. The police didn’t want to control the situation with pubs. Now they’ll have to control it in other places, and it will be more difficult.

Who will profit?  “Large business,” responds Drobiz, “especially the retailers who focus on alcohol, and the big bars. St. Petersburg won’t lose much in tax income, because the consumers will shift to other sources of alcohol, but lots of small and medium businesses will be closed.”

Kirill Maistrov, who owns and runs the Docker Pub in St. Petersburg, says: “Everyone is trying to make money out of the pandemic before the controls are lifted. This is nothing more than a market-share grab by the big retailers.”   

Politically and administratively, the attack on the St. Petersburg bars started in April when the federal parliament in Moscow, the State Duma and the Federation Council,  passed Federal Law 145-FZ “on state regulation of production and turnover of ethyl alcohol, alcoholic and alcohol-containing products and on restriction of consumption (drinking) of alcoholic products.” This amended earlier legislation to say: “Retail sale of alcoholic beverages in the provision of public catering services in public catering facilities located in apartment buildings and (or) in the territories adjacent to them is allowed only in the specified public catering facilities which  have a customer service hall with a total area of at least 20 square metres.”

The new measure also delegated to municipalities and regional administrations the power to “establish by the law of the subject of the Russian Federation additional restrictions on the retail sale of alcoholic products when providing public catering services in public catering facilities located in apartment buildings and (or) in adjacent territories (in terms of increasing the size of the area of the customer service hall in public catering facilities), including a complete ban on the retail sale of alcoholic products when providing public catering services in public catering facilities, located in apartment buildings and (or) adjacent territories.”

St. Petersburg and several other regions followed swiftly with restriction of public alcohol sales of their own. St. Petersburg cut the minimum floor space of bars to 50 square metres; neighbouring Leningrad region to 40 square metres; Kirov region to 30 square metres.

According to the initiator of the St. Petersburg Duma law, Denis Chetirbok from the United Russia party majority, there are “tens of thousands” of city residents in favour of the measure, mainly to reduce noise and drunkenness in residential neighbourhoods. A party-line vote early this month resulted in 42 votes for enactment, 6 against. The St Petersburg governor, Alexander Beglov, a St. Petersburg career bureaucrat with a stretch in the Kremlin during Dmitry Medvedev’s presidency, was in favour of the law.

Opposition to the cutback in bars came from the bar owners and related small business owners.  They have dominated the press coverage and local opinion polls. “The proposed changes to the law will not only cause harm,” said a petition to the governor from the business owners and their patrons, “destroying along with nalivayki [dive, boozer, boîte], a significant part of the socially responsible and useful small businesses of the city, Also, it will be frankly ineffective.” Fontanka.ru, a city news website, estimated Chetirbok’s law “will lead to the closure of 60% of St. Petersburg cafes and 95% of bars; will deprive six thousand people of work; the state and city treasury will lose one and a half billion rubles of taxes a year.”    

“We should not think that the restrictions will have any effect on the city’s drunkards. Small cafes and bars are not the cheapest places. To make ends meet with a relatively small flow of visitors, prices [in the small bars] have to be kept quite high. It is much easier for a city dweller to go to a large-chain wine and vodka store, where they will pour him a drink in the big hall, and even give him a snack. Or get drunk on beer straight out of the bottle. The easiest way is to buy a bottle, glasses, a pack of beer, and sit on a bench in the park or use the granite fence on the embankment as a table. This even has a certain historical tie – just so our fathers, grandfathers, and we used to drink in our youth. Since public toilets have disappeared as a class, the flavour of the early 1980s will return to the city.”

The St. Petersburg branch of the Communists of Russia were also against, led by party leader Sergei Malinkovich.   “Peter’s [the Great] small shot glasses are an integral part of the city’s culture and mentality — this is our thing and we can’t allow it to be destroyed!”

In Moscow the federal Ministry of Industry and Trade warned regional governments against new restrictions on the sale of alcohol, arguing that bans on the legal sale of alcohol would only lead to an increase in the illegal trade.

Officials like Alexei Kudrin, the advocate of the oligarch interests in the economy, has consistently supported the big drinking establishments and the expansion of the legal trade. In 2010, for example, when Kudrin was finance minister, he told Interfax  that by raising taxes on alcohol and cigarettes “you are giving more to help solve social problems such as boosting demographics, developing other social services and upholding birth rates. People should understand: Those who drink, those who smoke are doing more to help the state.”

Left to right: St. Petersburg city deputy, Denis Chetirbok; Vadim Drobiz, Director of TsIFFRA; Sergei Malinkovich, head of the St. Petersburg branch of Communists of Russia; Alexei Kudrin, Chairman of the Accounting Chamber. Follow the archive of TsIFFRA reports on the Russian alcohol market here.

Kudrin is now head of the Accounting Chamber, the state auditor in Moscow. Last week the Chamber issued a press release criticizing both the new federal law on bars, and also regional and city government restrictions. “The implementation of the proposed solution may lead to a reduction in the number of economic entities in this sector, a decrease in the level of competition, and, as a result, a drop in the quality of alcohol products or its rise in price.”

“The reduction in the number of such places of public catering,” claimed the Chamber, “especially in small rural and urban settlements, entail downside risks for entrepreneurial activity, which in turn may adversely affect the revenues of budgets of the budgetary system of the Russian Federation. This also carries risks of increased black market sales of alcohol and alcohol-containing products, including life and health-threatening surrogate alcoholic beverages.”

Kudrin’s approach has been traditional Russian policy for centuries. In “Vodka Politics”, (right) a history of Russian vodka, American academic Mark Schrad  reported “the rapid expansion of the early Muscovite state occurred simultaneously with the harnessing of vodka’s unmatched revenue potential… vodka has been the keystone of state finance.”   In the 18th and 19th centuries, alcohol revenues constituted a third of state revenues, according to Schrad; in the Soviet period, about one-quarter. The privatization of the state vodka monopoly by the Yeltsin administration failed to collect tax, stimulating instead a black market producing more than half of all the vodka sold.

The revival of Russian consumer incomes since 2000 has diminished the role of vodka as a source of state finance; consumption of vodka has also been dropping compared to other alcoholic drinks. When the corona virus control measures began in March, the Nielsen consumer research company reported a surge in alcohol sales at the supermarket chains.  Vodka sales jumped in late March by more than 30% compared to the same period of 2019; whiskey sales grew by 47%; beer by 25%; sparkling wine by 5%. Imports of gin, rum and tequila also grew at a faster rate than domestic vodka.  But this was not followed by binge consumption at home, market analysts report; it was stocking at home  by consumers anticipating shortages and price hikes at the shops. In April the rate of sales growth subsided.

For the three-month period of lockdown, March through May, press reporting of sales data indicates there was an overall decline in the turnover of alcohol compared to a year ago. Sales of champagne decreased by 33%, tequila by 30%, vodka by 26%, according to this report. Then in June, as the pandemic restrictions were relaxed, TsIFFRA has reported a surge in fresh demand for beer and other alcohol, pushing the sales volume for the month well above the level of June 2019.

Before the pandemic controls of March, and also before the July strike against small bars, Nielsen had been reporting that Russian drinking habits, especially among the young, were changing significantly. “Russians are not only more discerning in the matter of choice,” reported Alla Petrosyan of Nielsen in February,  “but  they are also not afraid to experiment with new drinks and flavours;  under the influence of this  manufacturers are  expanding their range by launching new products, trying to attract customers… In 2019, [sales of] all alcohol categories grew with the exception of vodka, whose sales are stagnating at the level of minus-1.7% [year-on-year] in terms of volume, minus-0.1% in money terms. But as in the previous year, the highest growth rates have been demonstrated by the more modest sales categories. Gin and whiskey continue to actively conquer the market: in monetary terms, sales of gin increased by a record 26%, whiskey by 15.8%.”

“In these types, there are more affordable alternatives for consumers; local players are developing, and this has a positive impact on the product range and attracts more and more customers to the category. In addition, players in these categories were able to successfully contain the growth of prices, which has also had a positive impact on demand: the cost of a litre  of whiskey in 2019 changed only by +0.2%, while gin fell by 1.5%.”

The whiskies are Scotch blends produced and bottled at Russian factories; the Barrister and Green Stone gins are also Russian produced. According to Nielsen, they are gaining rapidly in market share at the expense of vodka.

Nielsen analysts call gin the growth leader in the market: its sales for the year increased by 27% in physical terms and 26% in value. Whiskey and tequila also showed significant growth — by 15% and 11% in volume and by 15% and 9% in money,  respectively. Sales of vodka, on the contrary, have decreased by 1.7% in volume and by 0.1% in money.”

In this market who will lose, who will benefit most from the small bar ban?

According to Max Chernihiv, general director of the Club of Professionals of the Alcohol Market, in St. Petersburg between 700 and 800 bars may close, with a loss of up to 4,000 jobs. “If to speak about the volume of alcohol sales in these small catering enterprises, then in St. Petersburg this is 2% of the total alcohol consumption without beer. This segment is insignificant to the alcohol market and to the government, and that’s why the bill is proposed in this version: it does not affect the commercial activities of retail stores which sell alcohol in huge quantities and are located in the very same apartment buildings as the bars to be shut down.”

Shops selling draught beer, cider and other types of cheap alcohol – more literally, the nalivayki, because they do nothing else but pour – will not be affected because they do not have seats, tables, or catering service. The term “catering” in the federal law, as well as in the new St. Petersburg and other regulations, is the loophole through which many boozers may slip through in order to survive. The big gainers will be the alcohol departments of the big grocery stores and supermarkets; and the big bar chains in St. Petersburg, such as Tokyo City, Contact Bar, and SPB.

Kirill Maistrov, owner of the Docker Pub in St. Petersburg.

Kirill Maistrov is the owner of one of the small St. Petersburg bars under attack from Chetirbok. His establishment’s floor space is 54 square metres, just over the new regulation threshold. There are 25 seats, no kitchen or food service; beer is the only alcohol for drinking, plus snacks. There are 12 taps for draught and more 180 varieties of bottled beer. He and his wife both work in the bar, plus a bartender and another employee. He describes the ambiance as a “living-room pub. We have been developing rapidly for a year, starting to hold presentations of breweries with free tastings for guests; inviting musicians for autograph sessions;  organizing gatherings of subscribers for bloggers, and some other events. Slowly but surely that was leading to the fact that on Fridays there was nowhere to put all the guests. They had to stand, or wait, or leave.”

The pandemic restrictions put a stop to this. The municipal and federal government assistance promised for small businesses like Maistrov’s has been patchy. Support for employee wages is well below the going rates; tax relief varies with the local tax inspectors; rent holidays depend on the landlord; bank loans are available at discount rates but they are protracted in the negotiation and end up with costly conditions. “We are obliged to open an account with these banks and pay their account operating charges. In other words, we are being tied to this bank whose conditions aren’t the most favourable ones when we will be able to re-open and start working again. Hello! Hello Antimonopoly Service! – where and what are you looking at, if anything at all?”

Although Chetirbok agreed to postpone the starting date of the new 50-square metre restriction until January 1, the law will prevent many of the bars which had been hoping to re-open after the lockdown from doing so. “The income of small bars in St. Petersburg,” Maistrov expects, “will be reduced by 60% if they are obliged to stop selling alcohol but continue to make and sell food from a kitchen. If there is no kitchen for food, then income will be almost wiped out. There is a panic now among the bar owners. It’s difficult to predict what will happen next.”



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