Russian Standard CEO talks vodka
So it almost seems superfluous for the corporate website to market the Russianness of its premium brands. There we learn that its winter wheat comes from the Steppes; its quartz (used for filtration purposes) is taken from the Ural Mountains; and its spirits are blended with water from Lake Ladoga.
Doubtless Global CEO Grant Winterton (45) would have preferred to have only discussed brand leadership in Mother Russia and the conquest of foreign bars and drinks tables. But even an Australian manager must accept that a business so quintessentially Russian cannot divorce itself entirely from manspreading Uncle Vlad and current West-East relations...
This is a pity because the brand founded in 1998 by Roustam Tariko, the billionaire owner and chairman of Russian Standard Company, has a Soviet-free identity. It also represents one of the big success stories to emerge from the vibrant market of 1990's Russia with a 40 per cent share of the local premium vodka market.
International expansion began in 2000. This was followed by the launch of super-premium brands Russian Standard Platinum in 2001 and Imperia in 2004. The original product has since been re-christened Original.
Together with its sister distribution company Roust Inc., Russian Standard is the largest integrated spirits producer and distributor in Central & Eastern Europe and the second-largest vodka producer in the world. The group sells over 30m cases annually in more than 80 markets, posting net sales in 2014 of $1bn.
Unlike many of the oligarchs who created empires through the privatization of state enterprises, Tariko built his company from scratch. Part of the entrepreneurial folklore surrounding his meteoric rise is a part-time job as a street cleaner during his student days when he was obliged to clear snow at -20°C.
In the late 1980s, Tariko began importing Kinder Surprise and Ferrero Rocher chocolates to the then Soviet Union selling them for roubles. Previously, such 'luxury' goods had only been available in hard-currency stores that were closed to most Russians.
This activity duly led to an exclusive contract to import the Martini brand. Record sales enabled Tariko to grow his company into the country's leading importer of premium spirits.
Apparently, this sprightly chap began to wonder why Russia, the birthplace of vodka and the world's largest vodka market, did not have its own domestically produced premium vodka brand. Hence the launch of Russian Standard Vodka 17 years ago, which became an almost instant success.
Roustam Tariko's holding company, Russian Standard Corporation, which includes Russian Standard Bank, now employs more than 20,000 people. This has put him firmly on the Forbes magazine list of the 'World's Richest People' – so no more street cleaning for him.
The German spirits market is the largest in the European Union, accounting for €3.9bn in sales last year, which equates to around a quarter of all alcohol sold through local retailers.
Per capita consumption (5.4 litres) in 2014 was, however, slightly in decline again (-1.4 per cent). "But spirits remain one of the best-selling categories in food retailing," says Christof Queisser, President of the Federal Association of the German Spirits Industry (BSI).
The effect was also not felt across the board, or should we say bar. Among the winners were, you guessed it, vodka.
"Our brands have taken the market to another level"
It depends on the market. Vodka has a heavily male-dominated image in Poland and Russia as well as in the markets surrounding those countries. A lot of females drink it, but, if you had to assign a sex, one would have to say that it is a 70 to 80 per cent male product.
In Western Europe, however, vodka is far more of a mixed-sex product. It is used primarily in mixed drinks rather than in shots, which then probably reduces the masculine bias to some extent. So in a market like the UK the male-female consumption profile is pretty close to fifty-fifty.
So, logically, in Russia etc. you would be more macho in your marketing and advertising?
It's fair to say that the imagery is male-oriented in Russia, but local advertising laws became much tougher three years ago. So the industry is no longer able to do TV, radio or even outdoor ads. We also had to stop showing live images of people. Therefore, the visual representation of the masculinity of the product only still comes in the packaging.
Do you take a softer, more feminine marketing approach in Europe?
Our advertising still tends to lean towards masculine, and most of our promotions and POS material still primarily features males. Generally, if you skew vodka advertising towards masculine, you probably won't alienate females, but, if you skew it towards females, you are highly likely to alienate the males. That said, you have to be very careful about the imagery because we don't want to alienate either half of our core demographic target market.
Does it annoy you that rivals with Russian-sounding names such as Smirnoff and Moskovskaya are actually distilled in London viz. Latvia?
Firstly, I would prefer to promote the authenticity of our own brands than to talk about other people's brands. Annoyance is probably not the right word; I would say there is a strong misrepresentation and misperception of the authenticity of those brands. There is probably still a high percentage of consumers who think those brands are Russian in origin, but this will gradually fade as they look at the labelling and experience our superior quality.
But, when Russian Standard stresses its Russian authenticity in its marketing, doesn't this make you particularly vulnerable to the current deterioration in East-West relations?
Admittedly, we have a Russian owner, but I would not say that we are a Russian company. Our biggest business is Poland, and Zubrowka Bison Grass Vodka is our most important brand. We are also strongly represented in many other countries across the world.
So you see yourselves as a global company?
Yes, in fact, we have three global core brands: Russian Standard, which is the authentic and, we believe, the highest-quality Russian vodka; Zubrowka, a Polish vodka that is more than 500 years' old; and Gancia, which is the oldest sparkling wine business in Italy. This is complimented by strong local brands such as Green Mark Vodka, which has been the biggest vodka in Russia over the last two years.
The EU and Russia have imposed mutual import embargos on food and drink. Are they affecting your business?
Not really, because consumers are tending to stay away from politics in their purchasing habits. Western consumers are increasingly buying our brand. Of course the impact of the EU embargo on the Russian economy has some overall general effect on our business, as it does for every other business in Russia, but there is nothing specific to us.
How do Russian and western European consumers differ in the way they buy and consume vodka?
Vodka has been the core spirit for hundreds of years in Poland and Russia, so consumers are more discerning on product quality and less price-sensitive than in the West. Therefore less is sold on promotion.
How does business differ when selling to Russian and western European retailers?
The markets in Poland and Russia are far less concentrated, so retailers have less power. In fact, traditional Mom & Pop outlets still make up around half those markets. This is totally different to the West, but we still have good relationships with the retailers across Europe. Probably they enjoy using us as a challenger brand to some of the big historical players in the segment.
But surely you find it difficult to do business with German retailers, given their vast concentration of power and obsession with low-prices?
We don't find them difficult because our local distribution partner, Borco, has done a fantastic job managing our trade relationships. They have been key in doubling our business in Germany over the last couple of years in a category that is essentially not growing. This would have been virtually impossible without the right partner.
All the products we produce are very high quality and are purified to very high standards, but we don't only sell premium brands. Our marketing philosophy is to offer our brands in multiple price tiers to the consumer.
If you look at Germany, we have five tiers in vodka: Yamskaya, a value-for-money brand; Green Mark, which has democratic pricing; Parliament, which is a mid-priced brand; Zubrowka Bison Grass, which is a specialty infusion; and Russian Standard, which is premium. Our portfolio is then rounded off with our Gancia sparkling wines.
How happy are you generally with the way German retailers promote and merchandise your brands on their shelves?
We have good distribution, growth and support from local retailers, but the brand building display opportunities in-store are generally greater in a market like the UK than in Germany where the store format is typically no-frills. You only need to visit a duty-free store at the airport to see what spectacular displays are possible when it comes to driving brand equity.
So I think there are more opportunities for high impact displays that are not being captured.
How suitable are spirits for distribution via the Internet, and how comfortable are you with the growth of online home delivery?
We believe in this sales channel and that it will continue to grow internationally. It is well suited to spirits for several reasons. Firstly, the strike price of a purchase is very high compared with other consumer goods; so online customers hardly have to buy anything other than a bottle of alcohol to justify the home delivery price premium.
Secondly, the household penetration of alcohol is very high in countries such as Germany or Australia, so the category has a broad appeal. Thirdly, there is a very high tendency among online consumers to buy alcohol across categories, which makes for some substantial economies of scale.
How much scope do you see for consolidation on the global vodka market, and will you be a hunter or the prey?
Well, as the no. 2 vodka business in the world I think we would be a pretty big prey! We are also growing very rapidly in western markets, so I think that we are beyond the point of someone acquiring us. As regards the acquisition of other brands, it is not really on our radar screen right now.
We therefore wish to use our current portfolio of vodkas and sparkling wines to grow market share on our core markets and to continue the global expansion of our four main brands, Russian Standard, Green Mark, Zubrowka and Gancia. We see the opportunity of doubling our existing base before we have to consider other opportunities.
So it is unlikely that you would move, say, into whisky?
I don't know if 'unlikely' is the right word, but currently we don't see any relevant opportunities. But should they come, and they were complementary to our business, and the price was right, we would consider them, although we refuse to overpay.
Could you imagine going public?
That is primarily a question for the owner, Roustam Tariko. I am sure he would consider all sensible options that would promote the health of the business long-term. But right now, in view of the political and economic situation, it would not be the right time anyway.
How much of your global growth will be in emerging markets?
Let's put "emerging" in brackets here because our company has reverse thinking to most companies. Poland, Russia, the Ukraine, Kazakhstan, CIS and the Baltic countries are our home, so we don't see any of them as emerging markets.
Your readers will probably be surprised to hear that we regard Germany, France and the UK as emerging markets because we only have an 11 per cent share, or less, of those markets. This is very low compared with, say, Poland or Hungary, where we have 36 and 68 per cent, respectively.
Our first aim is to win on our core markets. Our second one is to be the leader in Western Europe.
Why did a company with such a strong vodka image diversify into sparkling wine?
Our owner had very strong historical links to Italy, so he not only knew the country and culture, but also the brands and the assets there. The Gancia brand is very strong historically and its cellars in the beautiful town of Canelli are on the world heritage list. Gancia was Italy’s first sparkling wine – even before Martini and Cinzano.
To many people's surprise it is the no. 2 in Italy – bigger than Cinzano, and very close to Martini.
Why you haven't followed Pernod Ricard in adding flavours such as citron, grape, berriaçaí, honey or cherry?
They have obviously made a strategic decision to put artificial flavours into their product in order to make it more appealing to their target market – it's their choice. But we are very much into clear vodka or what we call infusions, in order to reinforce the authenticity of our proposition.
But aren't infusions just flavours under a different name?
Not at all; they are recipe-driven, cooked beverages. These brands are distilled in Poland and include Zubrowka Bison Grass, an infusion made from cooking bison grass, and Zawisza, which is made from a fruit or nut base.
The German spirits market is now in slight decline, but vodka is bucking the trend. Why do you think that is?
Vodka is an incredibly versatile product that can be used in a very wide range of long drinks and cocktails, so it has a tremendous ability to penetrate different alcohol consumption occasions
Only around 15 years ago, however, the German market was still fairly traditional and simply structured with only Smirnoff and a few other brands. But, since then, more high-quality propositions have arrived, including our Russian Standard and Green Mark brands.
The increased segmentation within the category means that the drink is appealing to new demographics who appreciate a more differentiated and sophisticated offer.
Media investment in the category has also increased substantially. Last but not least, the overall quality of the products has increased across the category, and I believe that our brands have had a significant role in taking the market to another level.
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