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. Last Updated: 07/27/2016

Russian Liquor Goes International With SPI

VedomostiAndrei Skurikhin is ready to turn Soyuzplodimport into a major international company.
Soyuzplodimport owns the rights to Stolichnaya vodka, the best-selling vodka brand worldwide last year with sales of $1.96 billion, according to marketing agency Impact Databank. In Russia, Stolichnaya is produced by more than 100 factories under licenses issued by Soyuzplodimport, which owns another 40 formerly state-owned alcohol brands.

In July, a special commission that was set up by secret decree was charged with returning a number of brands to the state. Furthermore, a new law setting up an excise stamp system on alcohol took effect earlier this year. The system requires that two excise stamps -- one federal and the other regional -- be slapped on each bottle of vodka.

Nonetheless, the SPI Group of international companies, of which Soyuzplodimport is the Russian representative, continues to develop its business. The company recently acquired the biggest distillery in Latvia -- Latvijas Balzams.

Soyuzplodimport general director Andrei Skurikhin talks about the company's plans.

Q: What data did you submit to the Impact Databank rating? Did it include Stolichnaya's sales in Russia?
A: I suspect that they calculated volume of sales in Russia based on Western retail prices; therefore, the figures are a little high. Overall, the ranking doesn't change. The rating is pretty close to reality.

Q: Do you plan to buy any other companies abroad other than LB? Several vodka distilleries have gone up for sale in Poland.
A: We have received offers from them, which we are presently analyzing. The task is not simply to buy something, but to buy something that fits our growth concept.

Q: And what is your strategy?
A: SPI's strategy is to create a broad portfolio of multinational alcohol brands.

Q: So you want to become an international alcohol company like Allied Domecq or Guinness-UDV?
A: I wouldn't want to make comparisons at the moment, but why not?

Our choice of a direction in which to develop is well-founded, and we know what needs to be done to achieve this. As well as producing international brands, we will also work on international markets, including Russia. The first step is to return an export version of Stolichnaya to our market. But we won't stop there. We have very strong brands like Sibirskaya, Starka and Zubrovka. They have been untouched in terms of marketing for many years.

Q: What is SPI made up of now?
A: It is a group of companies linked by a general ideology or a general owner. It includes the SPI-RVVK factories in Kaliningrad and LB in Riga, as well as Soyuzplodimport. Possibly in the near future, several other factories may be added. The group is not yet fully formed. Incidentally, we control 50 percent of the hard-liquor market in Australia and 80 percent in Chile. We have quite a strong position in the United States, Germany, Spain and other European countries.

Q: What is the function of SPI Spirits, another part of the group?
A: This is the worldwide distributor of our products, which works with regional distributors such as Allied Domecq in the United States.

Q: Based on the data of the Moscow Registration Chamber, there was an ownership change at Soyuzplodimport this year. What is this connected with?
A: Actually, the ownership of SPI Group changed a year and a half ago. On the recommendations of our financial consultants, we won't disclose who exactly owns the group before we enter international stock markets.

Q: It has been said that the company was owned by Boris Berezovsky.
A: Berezovsky never had and does not have any connection to Soyuzplodimport.

Q: Recently you announced your company had plans to sell Stolichnaya vodka in Russia. What are your plans for promoting this brand?
A: Chaos now rules on the Russian market. About 100 enterprises produce Stolichnaya under license, while another 400 do so illegally with no license at all. It is impossible to control the quality of the product over such a huge number of distilleries, so we decided to sell Stolichnaya in Russia independently. Before Jan. 1, 2002, all factories will have their licenses revoked. In October this year, we will begin selling the very same Stolichnaya that goes on sale abroad, which is bottled in the SPI-RVVK factory in Kaliningrad. We will invest about $2 million promoting the brand, and after three years, we plan to get our total sales up to 50 million liters.

Q: Returning to Latvijas Balzams, what is your present share in this company?
A: Just under 50 percent.

Q: What is the company's turnover?
A: $100 million per year. This may not be much for Russia, but for Latvia, this is a huge figure. LB is the No. 1 taxpayer in the republic. Of course, the government gives the company the kind of attention that, say, Gazprom gets over here.

Q: What do you plan to do with their range of products? After all, LB produced Moskovskaya vodka for a long time without your permission. Has this stopped?
A: Why? We will continue making it, but now we'll be doing it legally. We may even make Moskovskaya for export. We are generally restructuring SPI's manufacturing. If we previously did everything in Kaliningrad at the SPI-RVVK distillery, we may now move a part of this production onto LB. This doesn't have much significance for Western markets, because from their point of view, Latvia is a part of the former Soviet Union. From the point of view of quality, LB has very good products, so there won't be a problem.

Q: Why was there a change of director at LB recently?
A: This was done by mutual consent. We had no claims against him; he made the decision to leave himself. Yuris Gulbis, the former financial director of LB, has taken on the position of the general director.

Q: Is the purchase of LB not an attempt by Soyuzplodimport to get out of Russia? Now you have the opportunity to move the production base out of the country.
A: This is only partly the case. It was only one of our considerations when purchasing the plant in Latvia. A form of insurance, if you like, since Russian authorities can be exceptionally irresponsible. Either they privatize everything, or the cry goes up for nationalization. We would like to see sensible actions from the state, but taking into consideration Russia's history, one has to take care of oneself. Our trademarks are already protected by international legislation and will remain ours regardless of what happens in Russia.

This isn't the main thing, though. LB controls 70 percent of the liquor market and 70 percent of the champagne market of Latvia and 35 percent of the champagne market in the Baltics, as well as 15 percent of the wine market there. So at the end of the day, from a business perspective, this is a good purchase.

Q: Will LB produce goods for Russia?
A: How the factory develops will be closely connected to the Russian market. We plan to return the Rizhsky Balzam brand to Russia this fall. This was an important brand that was famous in the Soviet Union and didn't lose its good image. We are certain it is no worse than the large number of balzams that were produced in Russia over the past 10 years. Rizhsky Balzam has a unique recipe that was conceived 300 years ago. During World War II, it was lost, then found again by chance in a village. It includes 24 natural ingredients: herbs, roots, flowers, etc.

Q: Are you planning to bring a claim against the St. Petersburg company Niva, which also produces balzams?
A: It has already been brought. They produce a balzam that hardly differs in appearance from Rizhsky Balzam. They think they can get away with this simply because the factory is far away, but now we have an owner that is close by. Our retribution will be conducted professionally.

We have considerable experience dealing with counterfeiters. In Russia, unfortunately, there is no culture of respect for someone else's intellectual property. The situation is gradually getting better; there are even amendments to the Criminal Code that provide for five years' incarceration for violations of intellectual property legislation.

Q: How big is the market for Rizhsky Balzam?
A: Well, it's not as big as vodka. In 2000, less than 10,000 liters were shipped to Russia. No one has the exclusive rights to supply it. We will change this situation.

The drinking culture is changing in Russia. People are starting to drink cocktails. The market for low-alcohol cocktails is growing by 70 percent per year. And Rizhsky Balzam falls within this trend. It is exceptionally good as a mixer for various cocktails.

Q: What is your relationship with Rosspirtprom like? You did, after all, protest an agreement between Rosspirtprom and the Agriculture Ministry on participation in the process of issuing quotas for liquor.
A: We have no problem with Rosspirtprom. I meet frequently with their general manager, Sergei Zivenko, and we have a normal relationship. But as far as quotas are concerned, I am convinced that this is illegal. The concept of state enterprise has been replaced by the concept of state organ. A state enterprise -- like Rosspirtprom -- cannot perform any administrative or control functions. Despite certain differences over certain issues, we plan to continue working with Rosspirtprom.

Q: What do you think of the new excise system introduced as of June 1?
A: I believe the idea of splitting up excise is correct. It must remove the administrative barriers erected by the governors and permit the volume of illegal alcohol turnover to be reduced. But a good idea always suffers from foolish implementation. The government has been trying since Jan. 1 to sort out the alcohol market, but many problems still remain.