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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).



The function of vodka consumption volume (V) with incremental change of the argument (where х - is time period beginning with 1998) can be adequately described by the sextic function (R² = 0.922) as follows:

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


In this case, the annual growth rate of the analyzed indicator was 3.65%. This, of course, produces an adverse impact on the quality of life of Russian citizens and aggravates national health statistics. Overall Russian market tendency is symmetrically reflected in the regions (Fig. 2) and Table 1.

Table 1 – Vodka Assortment Indicators in the Retail Market

Indicators of extent of assortment of vodka

Average for all merchandise flow channels

Average on the integrated channels

Average value

117,32

273,00

The maximum value

2100

522

The minimum value

26

120

Often meeting value

102

102

Correlation with the size of the trading area

0,60

0,58

Correlation with size of the average check

0,66

0,45

 

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)

The name of commodity mark /The producer

Mark estimation

Quality estimation

Strategist/ Mariinsky Likero-vodka distillery, the Kemerovo area

9,3+0,15

perfectly

Beluga/ Mariinsky Likero-vodka distillery, the Kemerovo area

9,2+0,14

perfectly

Card an as. Games are ended/ Mariinsky Likero-vodka distillery, the Kemerovo area

9,2+0,13

perfectly

Putinka/Crystal, Moscow

9,0+0,16

good

The Russian Standard. Original/LIVIZ, S-peterburg

8,9+0,12

good

White. Lux/Tradition of quality, Krasnoznamensk

8,8+0,14

good

Stolichnaya/ Crystal, Moscow

8,8+0,14

good

The kind. Hang-over Off. Lux / Ladoga, S.-Petersburg

8,8+0,15

good

Lake Tanaj. Lux/SVC, Mariinsk

8,7+0,17

good

Governor's Kuzbass/ Mariinsky Likero-vodka distillery, the Kemerovo area

8,6+0,16

good

Accent/ Novokuznetsk

8,5+0,18

good

ХХI a century/ Mariinsky Likero-vodka distillery, the Kemerovo area

8,4+0,15

good

Myagkov. Amber/ First LVM, Odessa, Ukraine

8,4+0,17

good

Gzhelka/ LIVIZ, S-peterburg

8,3+0,16

good

Side/ Novokuznetsk

8,2+0,18

good

Five lakes/ Omskvinprom

8,0+0,19

good

42-RUS/ Novokuznetsk

7,6+0,23

satisfactory

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

Наименование товарной марки

Mass concentra-tion of alcohol, %

Alkali[1]

Mass concentration, mg/dm3

Volume fraction of methyl spirit, %

Aldehydes

The higher spirits

Aethers

Strategist

39,9+0,1

1,9+0,1

1,2+0,2

<1,0

<1,0

0,0024+0,0004

Beluga

39,9+0,1

1,9+0,1

1,7+0,3

<1,0

<1,0

<0,001

Card an as. Games Over

39,8+0,1

1,9+0,1

1,3+0,2

<1,0

<1,0

0,0068+0,0010

Putinka

39,9+0,1

0,7+0,1

1,9+0,3

<1,0

<1,0

0,0078+0,0012

The Russian Standard. Original

40,0+0,1

0,2+0,1

1,7+0,3

<1,0

<1,0

<0,001

White. Lux

40,0+0,1

<0,1

2,2+0,3

<1,0

<1,0

0,0011+0,0002

Stolichnaya

39,9+0,1

0,9+0,1

1,5+0,2

<1,0

<1,0

0,0018+0,0003

The kind. Hang-over Off. Lux

40,0+0,1

<0,1

1,3+0,2

<1,0

<1,0

0,0034+0,0005

Lake Tanaj. Lux

40,0+0,1

0,3+0,1

1,8+0,3

<1,0

<1,0

0,0042+0,0006

Governor's Kuzbass

39,8+0,1

1,9+0,1

2,8+0,4

<1,0

<1,0

<0,001

Accent

39,9+0,1

0,2+0,1

2,7+0,4

<1,0

<1,0

0,0038+0,0006

ХХI a century

39,8+0,1

1,9+0,1

1,8+0,3

<1,0

<1,0

0,0038+0,0006

Myagkov. Amber

39,9+0,1

1,2+0,1

1,4+0,2

<1,0

<1,0

0,0025+0,0004

Gzhelka

40,0+0,1

<0,1

1,1+0,2

<1,0

<1,0

<0,001

Side

39,9+0,1

<0,1

1,8+0,2

<1,0

1,0+0,2

0,0031+0,0005

Five lakes

40,0+0,1

0,4+0,1

1,3+0,2

<1,0

<1,0

0,0030+0,0004

42-RUS

39,9+0,1

0,2+0,1

2,7+0,4

<1,0

<1,0

0,0035+0,0005

 

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

Figure illustrations

Описание элемента

Strategy RF «2020»

Russia’s development strategy before 2020

PNP RF «Health»

Priority national project of the RF  «Health»

«2010» Concept of Kemerovo region

Concept of Kemerovo region consumer market development to 2010

«2008-2010» Regional Policy Concept

Concept of the regional policy of quality assurance of food products sold at the consumer market of Kemerovo region for 2008-2010

QA

Kuzbass alcohol union  «Quality assurance»;

SC

Supply chain tracking program

CM

Simulation of consumer models of alcohol product quality assessment at the point of sale

Ex

Differentiation of the regional element of excise rates

PP

Modelling of parity of requirements of participants of chains of deliveries of alcoholic production

Lic

Licensing of commercial activities in relation to a particular product category

М

Merchandising program of a specific product category

PR

Public relations program to promote the demand for specific product categories

RA

Alcohol products advertisement restrictions

The note: the blacked out colour notes the elements developed personally by the author or at its direct participation

 

These documents define major underlying principles and methods of the state influence exerted on the structure of consumer demand in the considered product category, and its volume based on the per capita consumption of alcohol products.

Output parameters. In accordance with the multi-level model of state regulation of alcohol products distribution in the regional market, output parameters of the process flow chart (factors determining the quality of the product group) are divided into three groups.

The first group includes factors that determine the range of quality indicators of alcoholic beverages, depending on the supply chain level: production — supply (distribution chain) — consumption. According to the study, each of these levels includes its own specific indicators that characterize the quality of alcoholic beverages, products or goods in commodity distribution channels and points of sale. These levels of distribution chain define the hierarchical levels of the range of quality indicators and, eventually, suggested tools for control, monitoring and improvement of these indicators.

Along with the generally accepted tariff methods of regulation of the structure and the volume of commodity production, the sublevel of alcoholic products manufacture includes licensing as a regulatory tool of the sublevel and regional differentiation of excise taxes.

 Among the most important concepts of merchandise knowledge there is a research methodology of product assortment management in integrated distribution systems. Based on this concept, we developed a mathematical parity model of requirements expressed by the participants of the product distribution systems. The calculations are listed in the fourth chapter.

 Establishment of the non-profit organization «Kuzbass Aclcohol Union — Quality assurance» was based on the modern concept of quality management, involving identification and traceability of supply chains (ISO 9001; 15394:2000; 2742:2005). The goal of this concept is to proof the legality, and thus, assure quality of all alcohol products sold in the consumer market of Kemerovo region. The functions of the organization involve core principles of quality control in the supply chain of alcohol products: product identification based on the monitoring and study of documents which accompany the delivery of alcoholic beverages from authorized suppliers, the division of product flows following various trade channels in each critical control point (in compliance with the product quality control HACCP; ISO 22000:2005); documenting product flows in order to provide information that adequately reflects the full path of alcohol drinks from raw materials to finished products, the timing and geography of this flow; applied technologies and materials, timing and results of the independent quality peer review of samples from the specific product batch (physical, chemical and organoleptic properties).

In order to provide a label reflecting all of the procedures, each package of alcohol product is given an identification mark, as well as an identifier of a hidden latent image, as shown in Fig. 10. The result of the practical application of this concept is the reduced number of counterfeit or poor quality alcohol products in the legitimate trade channels and increased loyalty of regional consumers to alcohol products, controlled within the supply chain.

Establishment and operations of Kuzbass Alcohol Union «Quality assurance» resulted in significant reduction of rejected shipments of imported alcohol products, as well as the increase of production and sales of local alcoholic drinks, and reduction of fatality caused by alcohol poisoning (Table 5).

According to the Bureau of Forensic Medicine, deaths from alcohol poisoning in Kuzbass declined by 28% as compared to 2005 (1314 persons). This indicates that cooperation of the government authorities on the regional level with autonomous industry associations specializing in quality control of alcohol products has proved the effectiveness of the measures designed to protect residents from counterfeit and poor quality products.

Table 5 – Performance efficiency indicators of Kuzbass alcohol union «Quality Assurance»

               Показатели

2006

2007

2008

Alcohol poisoning fatalities (persons)

1093

959

952

Number of rejected batches of alcohol products (batches)

30

25

17

Manufacture, dl

1395

1896

2577

In order to build the confidence of the distribution chain participants represented by the local alcohol product manufacturers and ensure the transparency of the supply chain, a public relations program has been developed, which constitutes one of the functions of the abovementioned organization

 Based on the suggested multi-attribute model of consumer assessment of vodka quality, members of the integrated shopping channels have an opportunity to control product properties of the selected commercial brands of alcoholic beverages on the production level, as well influence holistic perception of these properties by buyers at the points of sale.

 The second group of output parameters of the process flow chart includes factors that determine the quality of alcohol products on the distribution level of the regional consumer market. In accordance with Fig. 3 and Table. 4, these factors are: the structure of sales proposal (saturation and efficiency of product assortment) that determines the quality of alcohol beverages through product assortment indicators. Regulatory role of the government is needed in order to achieve the target levels of the following group of indicators: mass concentration of ethanol in alcoholic drinks; the share of locally manufactured products in the total assortment saturation of the product group; total saturation of the considered assortment.

As an instrument enabling the government to reach the target level of these indicators, tools described in the output parameters group should be used, taking into account the specifics of the area of distribution. Apart from the previously reviewed tools of the state regulation of alcohol products distribution, the methodology of category merchandising should also be used, allowing identification of the most state important quality indicators of products: the abovementioned assortment properties, and social factors of input parameters in the described process flow chart.

The third group of output parameters includes factors which in accordance with Fig. 3 and Table. 4 determine the consumer demand for alcoholic products: price, as the external quality attribute, consumer attitude and motivation for the consumption. The range of instruments of the state regulation of alcohol products flow on this level of the distribution chain consists of five elements of the process described above. However, as it has been previously noted, state control bodies or their authorized representatives should use these tools taking into account  the peculiarities of each level of the distribution chain.

           Resourcing of the process represents a significant element of the considered process flow chart. The owner of this process is the state. Sub-elements are defined as follows: financing of all participants of the process within the above-described activities; methodological support of this activity, designed as a set of tasks that are to be achieved within the framework of the considered process flow chart.

 The last element of this process flow- model of the state regulation of alcohol products distribution at the regional market is monitoring and improvement. In order to ensure alcohol product quality assessment, «Sales Mirror» program was introduced in Kemerovo region, which ensures monthly monitoring of the regional consumer market.

The essence of the program is to collect and analyze information regarding sales dynamics of the regional retailers, including those of the considered product group. Such monitoring began in April 2009. It provides an objective analysis, the results of which are also covered by the mass media. Process improvement is based on the results of the analysis of the abovementioned factors.

The developed model has been tested in practical management of alcohol product distribution in the consumer market of Kemerovo region. According to the consumer survey, as well as performance, efficiency and profitability analysis, this model has been proved to be efficient and effective for consumers and retailers, and accepted for practical application in the merchandise flow.

All research work has been done under the Federal law on «State regulation of production and circulation of ethyl alcohol, and alcohol products», State policy of a healthy diet of the Russian population till 2010, regional Kuzbass program „Achieving health through healthy food“. All of these helped prepare a Concept of the development of the consumer market in Kemerovo region to 2010 (approved by the Administration of Kemerovo region as of 21.12.2005, № 1436-r), Concept of the regional policy of food products quality assurance for consumer markets of Kemerovo region during 2008-2010 (approved by the Administration of Kemerovo region as of 20.01.2008 № 69-r), and also establish a non-profit organization Kuzbass Alcohol Union – „Quality assurance“ (2006). The model has been reviewed by the expert quality assurance committee of the Administration of Kemerovo region, was greatly appreciated by the experts and was further recommended for implementation within the interface between Kuzbass vodka manufacturers and product suppliers, retailers and consumers.

References:

  1. Мазанько, Е.И. Факторы, формирующие потребительскую оценку качества водок/ Е.И. Мазанько, Т.Ф. Киселева, М.А. Иголинская, А.А. Казанцев // Производство спирта и ликероводочных изделий, 2009.- №2.- С.37-39
  2. Программы реализации приоритетных национальных проектов «Образование», „Здоровье“, „Доступное и комфортное жилье – гражданам России“ на 2009-2012 гг. К заседанию Совета при Президенте Российской Федерации по реализации приоритетных национальных проектов и демографической политике// http://www.kremlin.ru/text/appears/2008/02/161159.shtml.- Added 24.12.2008
  3. О стратегии развития России до 2020 года. Из выступления В.В. Путина на расширенном заседании Государственного совета// http://www.vremya.ru/197363.html. — Added 11.02.2008 г.
  4. Framework for alcohol policy in the WHO European Region. WHO Regional Office for Europe: Copenhagen, Denmark.- 42 p.// http://www.euro.who.int.- Accessed 2006
  5. World Health Organization. Global Status Report: Alcohol Policy. Geneva: World Health Organization, 2004.- P. 46-47

 



[1] The alkali indicator is resulted in sm3 of 0,1 M НСl/100 sm3

Киселев Владимир