INNOVATION MODEL OF THE STATE MANAGEMENT OF ALCOHOL PRODUCTS DISTRIBUTION IN RUSSIAN REGIONAL CONSUMER

INNOVATION MODEL OF THE STATE MANAGEMENT OF ALCOHOL PRODUСTS DISTRIBUTION IN RUSSIAN REGIONAL CONSUMER MARKETS

Reference: Mazanko, E.I. Innovation model of the state management of alcohol products distribution in Russian regional consumer markets/ E.I. Mazanko, V.M. Kiselev, V.M. Poznyakovsky // Economic crisis: reorganizing food, fiber and bioenergy chains: VII International Pensa conference at Brazil.- University of San Paulo, November 26-28, 2009

Key words: alcohol market, modeling, state regulation, conflict of interests, parity or requirements

Abstract. The article describes author’s innovation model of the state management of alcohol products distribution in Russian regional consumer markets based on the identification, systematization and study of regional specific factors which form product quality of this product group, as well as contemporary methodological management approaches. Introduction of principles and methods of the state involvement in the regulation of alcohol products distribution in consumer markets will result in the improved quality of life and will increase life expectancy of the population. Regional aspects of alcohol products distribution at the Russian consumer market constitute fundamental factors that largely determine the range and nature of other processes that impact and ensure the quality of alcohol products, methods of its evaluation, structure of the selling proposition, properties and SKU indicators. These issues greatly affect consumer perception of the quality of alcohol products. Ultimately, identification of such regional issues, their systematization and understanding would not only improve economic efficiency of the merchandize flow, but will also produce a significant social impact, thus, helping maintain life and health of Russian consumers through assurance of adequate product assortment and quality. Innovative regional initiative may become the most useful tool of state regulation of alcoholic beverages distribution in Russian regional consumer markets. This initiative implies regulation of the quality and consumption of alcohol products, reflecting, on the one hand, the priority of the increased volume of alcohol products with a low concentration of ethyl alcohol (less than 20% vol.), and reducing the volume of per capita average consumption of other alcohol products, on the other hand.

Practical implementation of this initiative will require the development of basic principles and methods of the state regulation of sales proposition in the regional alcohol markets based on the methodology of quality function deployment, which is related to the parity of requirements between the participants of integrated channels of merchandize flow (from producers to consumers), as well as the principles of identification and traceability of supply chains (ISO 9001; 15394:2000; 2742:2005).          Such combination of methodological approaches through information support of the merchandise flow from the manufacturer to the consumer will not only address the social problem of high mortality due to the poor quality and counterfeit alcoholic beverages, but will also to ensure the economic efficiency of the process.

The article describes author’s innovation model of the state regulation of alcohol products distribution in Russian regional consumer markets based on the identification, systematization and study of regional specific factors which form product quality of this group, as well as contemporary methodological management approaches.

Studies of product distribution factors revealed the following trends in the development of alcohol sales proposition throughout Russia: change of the consumer preferences from vodka to low-alcohol drinks (wine, beer, low-alcohol carbonated beverages), distrust for vodka quality, increased consumer demand for reputable and expensive brands.

Over the last decade (Fig. 1) per capita consumption vodka’s volume in Russia has been rapidly growing, considerably increasing safe per capita norm (up to 5 liters per year).

V = -0.017x⁶ + 0.645x⁵ – 9.455x⁴ + 68.57x³ – 256.1x² + 461.6x – 179.5   (1)

Table 1 – Vodka Assortment Indicators in the Retail Market

The need to reconsider the importance of vodka in the live of Russian citizens is obvious. In order to address this issue, adequate public policies regulating the volume and structure of vodka production and consumption should be developed. The model proposed by the author is illustrated in Figure 3 and Table 2.

The most important indicator influencing consumer perceptions of vodka sales proposition quality (value) is the assortment indicators (Table 1). The correlation between the assortment saturation and the average sales receipt value (r = 0.66) illustrates its affect on the consumer behavior at points of sale, while the correlation of this indicator with the number of buyers (r = 0.6) illustrates the attractiveness of rich vodka assortment for buyers, which is a significant factor that impacts customer evaluation of vodka quality.

The interests of participants of the product distribution integrated channels do not match in most cases. Vodka sold in the national segment represents a significant share of turnover, estimated in-kind (18.4%). It characterizes a significant buyer interest in the purchase of cheap vodka. However, the share of this price segment in the turnover estimated in monetary terms and the assortment size is substantially lower (4.7 and 3%, respectively). This means that buyer interest is in conflict with economic interests of the participants of the product production and distribution systems.

Premium price segment, on the contrary, has a high turnover share, estimated in monetary terms (12.6%), and low — in physical terms (3.5%). These data support the conflict of economic interests existing between the parties involved in vodka distribution and consumption.

Similar differences have also been noted in the above-the-average price segment. Understanding of the existing conflict of interests suggests a search for solutions since it affects the overall structure of vodka proposal. In other price segments the abovementioned differences are smoothed.

With the growth of vodka retail price, price indifference level declines. The lowest level of consumer indifference in the premium price segment is due to the emotional factors, including brand’s image. Thus, vodka retail price is one of the most important factors influencing consumer assessment.

 Among significant factors impacting consumer assessment of vodka quality are organoleptic properties, as well as the awareness of health damage or benefits arising from product consumption. For this purpose, consumer preferences with regard to the analyzed factors were defined on the basis of statistical research and analysis of organoleptic, physical and chemical properties of those vodka brands, which are leaders in consumer demand within the analyzed channel of merchandise flow (case study: city of Novokuznetsk).

 Consumer demand, as expressed in the structure of regional vodka turnover and calculated in physical terms, showed that in 23% of cases, buyers prefer vodka with artificial flavors and physiologically active additives, whereas monetary expression of these preferences accounts for 19%, and the number of SKUs in vodka assortment  — for 28.4%. These data indicate the high importance of the analyzed factors in buyer evaluation of vodka quality [1].

Organoleptic evaluation of vodka showed that all analyzed samples of popular brands possess high organoleptic properties (Table 2).

Given the fact that analyzed vodka samples occupy a significant share in the overall turnover structure, data contained in Tables 2 and 3 confirm the influence of organoleptic, physical and chemical properties on the consumer assessment of vodka quality.

Safety study of analyzed vodka samples confirmed the compliance of heavy metals and radionuclides content with the sanitary regulations and norms. This confirms the idea that customers prefer to purchase vodka from reputable manufacturers only who, among other things, ensure counterfeit protection of their products. This can also be considered as one of the factors affecting consumer assessment of vodka quality.

Table 2 – Organoleptic evaluation of the analyzed vodka samples (average for all tests)

According to the gas-chromatographic analysis, trace impurities in most popular vodka brands do not exceed specified allowable values.

Physical and chemical properties of analyzed vodka samples also confirm with the state requirements (GOST R 51355-99 — «Vodkas and special vodka types»), which proves manufacturer control over product quality (Table 3).

Table 3- Physical and chemical indicators of analyzed vodka samples

The author developed principles and techniques of introducing innovative initiatives, as well as a model of state regulation of alcohol product distribution in the regional market.

Figure 4 and Table 4 provide a brief illustration of the conceptual process flow chart (model) of the state regulation of alcohol product distribution in the region (Kemerovo region case study).

Input parameters. All input parameters are systematized into three levels depending on their respective predominant influence on factors shaping the quality of alcohol products: factors related directly to the quality of beverages, structure of the sales proposal (assortment properties of drinks), factors affecting consumer assessment of the product quality, and other factors not included in the three mentioned groups.

In addition to various technical norms and specifications pertaining to the production and distribution of alcohol products, the first group of factors includes a regional policy of food quality assurance for products sold at consumer markets of Kemerovo region, including alcoholic beverages.

 Apart from the Russian legislation, the second group of factors includes the regional concept of consumer market development in Kemerovo region, which reflects the essential requirements of public regulation of alcohol products flow from producers to consumers. It finds its place in the process flow chart as tools (factors) that ensure the desired level of process output parameters.

 The third group of factors related to consumer demand for alcoholic products, includes several fundamental documents of the international and federal levels, such as «Framework for alcohol policy in the WHO European Region», WHO Regional Office for Europe: Copenhagen, Denmark, 2006; „What are the most effecient and cost-effective interventions in alcohol control?“, WHO, 2004; WHO Global Status Report: Alcohol Policy, 2004; Alcohol in European regions, WHO consumption, harm and policies, 2001; Russia’s development strategy until 2020; Priority national project of the Russian Federation „Health“ [3-6].

Table 4 — Keys to the Figure 3