Over the years I have spent a great deal of time in Russia. In my early twenties I lived in St. Petersburg for six months, where I ran a small property company. A few years later, I worked with a vodka distillery just outside Moscow and traveled all around the country experiencing the lengths they had to go to sell their product. It was a wonderful experience traveling around Russia, and it is a phenomenally beautiful place. Out of the many hundreds of hotels around the world I’ve had the pleasure to stay in, my favorite of all time was a little log cabin themed hotel on the shore of Lake Baikal in Siberia. Now, obviously there are elements that are less than welcoming such a ‘system’ doesn’t tolerate a lot of the “nonsense” that we as westerners are used to dishing out to the authorities, and yes, I have met people who villains in Bond movies could have been based. But at the same time, I have never been welcomed so openly into people’s houses and genuinely felt to have been made feel like part of the family.
I am sure I could write a long and decent exposure of the touristic market in Russia; however, I am also sure that you are more interested in the liquor market, so I will try to concentrate on that.
I first went to Russia in 2001. This was a fantastic period of time for someone who had just graduated from university. Sure there were opportunities all around, and I did eventually buy an apartment for $50,000 that would be worth well in excess of 10 times that now, if I still had it. But far more importantly, beer was priced between 20 US cents for a large bottle, sold on the street corners to certainly no more than $1 in most of the pubs. Vodka was 100ml as a standard ‘shot’ and I would get looked at like I was a little ‘simple’ by the bartender, as I tried to add it to the orange juice I’d had to purchase separately. In one of the city center bars it used to cost $2, and I remember being a little ruffled at that because the vodka they were serving me, ‘Flagman’ , didn’t cost $2 for a whole bottle in the grocery store! And you weren’t a ‘real man’ if you couldn’t knock half a liter back with your lunch and then go back to work.
Stick your arm out into the road, and a little Lada would swerve over to you and take you to the nightclub of your choice for no more than a dollar fifty, which would let you in for free for waving a foreign passport. It was fantastic. I could go out every day of the week for $100 and live like a king. It wasn’t just me by the way. That was the life of the European and American students living in St. Petersburg. We spent most of the day in the internet café and then trailed the bars in the evenings. It was a real little ‘club’ and I made friends for life.
Unfortunately, that was not the life that most of the people were living as $100 was all some people were earning for a fortnight’s work and very few were earning more than two or three hundred a week. It should not come as a surprise that there were very few foreign produced brands on the market and that there could have been hardly any sales volume for the ones that were. Johnny Walker Back Label was around as was Chivas, but these were real luxuries and very expensive even by Western standards. It was almost like a badge of honor for a bar to stock them rather than actually serve them. The height of luxury was Remy XO, and I doubt very much that half of the bottles in bars actually contained that product!
In terms of beer, you could find Heineken in the best places, occasionally Carlsberg, and there was a single Irish pub selling Guinness at an extortionate price. I’m pretty sure that was the only cider I saw for years, and it’s not difficult to imagine why it didn’t take off at that time when you consider it was served as a 125ml measure in a wine glass for about four dollars.
In terms of wine, well I wasn’t a wine drinker at that time, but I can tell you that there was hardly any variety on the market. I did not have the budget to frequent the few 5 star hotels around; that I’m certain would have had a good ‘self-imported’ range to choose from.
In most of the bars and restaurants the choice of wine would been between Georgian and Moldovan varieties, if you were lucky enough to be given any choice. Hat off to some of these Georgian and Moldovan wines though, as some of them are quite exceptional and to this this day are massively under rated on the wine market. If I had the money and I wanted to work in the wine industry, then I would be in Georgia or more probably Moldova building up an international brand as I believe they have so much potential in the global wine industry. Wine is in the blood of the people in these regions more than anywhere else in the world and it has been for 3000 years. Alexander the Great, and we have all heard how he fancied a tipple, sourced his own wine from the South Caucus. It is my opinion, that many of the companies in these regions are failing to find their international markets due to a reluctance to sell and market their products the way we have to in the west. We have to serve and bow to the market. The market will not serve and worship us! When you get used to being the only product on a market, you get complacent, and it often takes a new generation to embrace new sales methods.
Leaping forward to present day Russia, it is a very different place. Good for them, and particularly the people who have done very, very well for themselves since I was first there. The city centers seem to be awash with money, and almost everything that you can buy or experience in any major city can be experienced in Moscow, St. Petersburg, and several other major Russian cities. New brands seem to almost automatically work, and there is an almost childlike fascination with everything that is new or exotic. We have all heard the stories, that there is a certain breed of Russian who bases all their purchasing decisions on cost, and it is a reverse of the principals of western economics in that, in this case the more it costs the more they want it!
Walking around the center of Moscow, you could be forgiven for thinking that you are in Vienna as you stroll past the coffee shops and restaurants with people sat outside sipping the very best international wines and Belgian lagers. There are craft brewers popping up all over, and half the people you bump into consider themselves connoisseurs of wine and fine dining. Walk into the odd upmarket liquor store and you will observe half of what the world has to offer, and if you are not in this market you will really feel as if you have missed the game.
This is a veneer. It’s a layer of decadence stuck above the real market which is still very much in its infancy. The apparent internationalization is concentrated on the major city centers in a major way. Most brands are endemic to just Moscow and perhaps St. Petersburg. It is almost as if the brand owners or distributors have decided that if their brand is in Moscow then it is in Russia and they can tick that box and concentrate on something else. Pay big money to a distributor in Moscow, then help them sell your brand, and model looking rep to visit the clubs and bars and yes, your product will be in Russia. Will you sell much? Don’t be silly and if it does, you won’t be the one making the money from it. Give one of these distributors a license where they practically own your brand for decades to come in this country, and you’ll do a little better.
This is not real Russia. Visit the regions. Visit the cities in the south or the east and you’ll experience real Russia. I was in Rostov a few years ago which is a few hours’ flight to the south of Moscow, not far from the border with the Ukraine. It must have been 5 years ago actually because the distributor I was talking about was waving a bottle of Trump vodka around with so much enthusiasm about having the next big vodka that was going to take Russia by storm. This was because “Russians love everything American” or so he claimed and I have no doubt the team behind it had promised him a trip to New York if he did particularly well. The same guy showed me his range of vodka which included well over 100 brands of vodka, of which I recognized perhaps a dozen, and I was traveling with the company that made three of them.
One of the issues we had on this journey was the inability to stop competitors imitating our successful brands and then undercutting the price. Vodka is very cheap in Russia there is no question of that; the new legislation has made little difference if I’m honest, a producer has more tools than just the price on the invoice to get their product moving. That said, it is a market which operates on very low competitive margins. If you are making 5% profit then you are doing fairly well. And this is not helped by the massive quantity of illegal product (the same vodka but not having had the Russian tax paid on it) that is the pain of the market. I take all national vodka consumption figures with a pinch of salt such is the huge proportion of illegal product on the market.
Losing money to get the distributors to support a new brand and build market share is a very common tool, which may be one of the reasons for the new minimum price the government is trying to enforce. When you have entered a regional vodka market from a different region at a decent level of expense and come up against an imitation brand (that essentially looks the same as yours) then you have a serious problem. That is a way of doing business in Russia. Watch what is new and successful, copy it and push the original brand out of the market by using the means available to you.
Yes, they have trademarks, and they enforce them through the proper legal system. The main problem is that it takes time to fight your way through that process and the person who has launched that ‘competitive’ product to yours is probably very powerful in that region and very capable of pressuring your distributor. It’s a big problem and basically there are mechanisms in place where market share is negotiated to make sure the existing market players do not have their noses put out of joint. Other than this, I have very little experience other than Europe and the USA, but I suspect most emerging markets are similar to this. Please also take note that another way of ‘business’ in Russia is watching what brands are new and successful in other countries and registering that trademark in Russia with the intention of selling it back to the real producer at an extortionate price when they want to enter the Russian market. So watch out!
In terms of vodka, in addition to a few major national players such as ‘Gelka’, ‘Russky Standart’ and ‘Green Mark’, each region has its own brands for example ‘Baikal’ which was a favorite of Irkutsk, a city near that lovely hotel on Baikal I told you about. It also has many different distributors who operate in their own regions rather like the system that exists in the USA. Make a good contact with these people who have full portfolios of beer, wine, and spirits, and you are on to a winner. Make sure you have a different product to what is currently on the market in that region, not just what is carried by your chosen distributor. There is a big emerging market outside of the major cities and I see a vast potential for the likes of Whiskey, Gin, Bourbon, Tequila, Rum, and quality wine. It will just take a little patience and if you want to make money, forget about your dreams of seeing your product in Moscow and St. Petersburg, at least in the beginning. The volumes are not going to be massive for quality produce, but this will come in time as the market matures. Consider getting in there now, as once the brand has some foundation in a particular region, then it is far more difficult for your close competitors to even consider entering the market, and they will struggle regardless of how well they are known in say downtown Chicago, USA.
In terms of wine, I have been in warehouses that were packed full of very cheap French and Spanish wines, we are talking the cardboard bottled with the plastic screw top variety and no offence to Yellow Tail, but that has been the ‘top end’ wine carried by that distributor who was the largest in the region. Many Russians are well traveled now, and many of these often multimillionaires make their money in the regions I am taking about. They often live there for part of the year too, and their newly acquired luxurious tastes do not suddenly revert. Hence, there is a demand for fine wine just like in the major cities just in smaller volumes. Boutique wine shops are opening up all over the place often run by very enthusiastic intelligent entrepreneurs. I would recommend wine producers to travel to the regions, meet this kind of person who will in turn put you in contact with a good local distributor, and then you should put a sustained wine education program together enabling the top end stores to sell your product and present it to the market. Supporting events and parties is also a very good marketing idea. You will do very well. At this stage it is all about educating people about your product, and this information will spread like a virus, albeit a very desirable virus!
To summarize, if you have a quality, somewhat unique product then Russia is a market that could do very well for you. For value products, I’m sorry, I think you have missed the game; the obstacles you will come up against in terms of regional protectionism and greedy distributors are not worth the effort. Concentrate on the wider market, not just the major cities and there is money to be made for very little marketing outlay other than perhaps some free product. You are not going to take off immediately, it is a very large market but only a small percentage of the population can afford your products. As this develops, so will the appeal of your product and 10 or maybe 20 years down the road, you may very well be the market leader in a particular area. Good luck. I absolutely love this type of market because it’s such a challenge. It’s absolutely not easy and you can chuck your “how to do business” book in the garbage now. Succeed and you deserve to be very proud of your real business sense that can’t be taught on any MBA program. If I can be any help, I am @bevtalk