Yesterday, Interfax reported that the government memo on the draft Law on the State Monopoly on Production and Distribution of Ethanol includes a proposal to restrict the retail distribution of ethanol to “organisations in which the government owns over 50% of the charter capital.” Consultations on the draft law between the government agencies have yet to get underway, which means that this proposal is far from being the last word on this matter.
The initiative comes as part of the campaign to decrease the sales of counterfeit alcohol. However, one fresh dimension which has emerged over the last 12 months is the radical increase in the significance of alcohol excise duties as a source of budget revenue. The rationale used by the lobbyists pushing for the state monopoly in retail has now been boosted by the argument that this is the only viable way to ensure adequate collection of the excise.
Were it to be implemented at face value, this measure would represent a nonnegligible risk to the earnings of Russian food retailers as alcohol sales account for about 8% of turnover and an even higher share of EBITDA. In addition, the loss of alcohol sales is unlikely to be offset by other SKUs being substituted (moreover, it might well be that the respective selling spaces could be leased/subleased to the newfound state monopoly).
We judge the chances of such a proposal going through in its current form as low for the moment and, hence, we are not rushing to make changes to our financial forecasts. That said, there are places in the world where an alcohol retail monopoly exists (including Finland, Sweden, Norway, many of Canada’s states, and some states in the US), so ruling out such policy choice would be complacent. Stay tuned for further deliberations on the matter.