SB Interviews… Val Mendeleev, SPI Group

SPI chief Val Mendeleev is clearly not short of ambition as he tells Tom Bruce-Gardyne of his plans to hit three million cases in the States

Val Mendeleev, CEO of SPI Group

When I spoke to Val Mendeleev – the man behind Stolichnaya and chief executive of parent company SPI – he had every reason to be distracted. His company, together with Alfa – Russia’s largest private commercial bank – and the investor Mark Kaufman, were about to up their bid for the ailing Central European Distribution Corp (CEDC), (days later it withdrew its bid).

Not a name that trips off the tongue of your average vodka drinker, but what CEDC lacks in brand recognition, it makes up for in scale. This Polish and Russian-based giant controls a staggering 5.8% of the entire global vodka category, according to the IWSR.

That same day, CEDC had defaulted on its 2013 bonds and was effectively bankrupt. At the time of writing, the story was evolving fast. Suffice to say Val Mendeleev believes SPI could offer “fantastic synergies” to the company’s brands which include Zubrowka, Parliament and Green Mark vodka, given that “SPI products are currently distributed in 167 markets worldwide”. Although he stressed the two companies would be run separately.

Stoli was a powerful export brand long before Mendeleev joined SPI in 2008. Indeed its success in the States dates from the early 1970s when Pepsi broke through the Iron Curtain as the first officially sanctioned foreign brand, in return for importing Stolichnaya back home. In time, distribution passed to Pernod Ricard who gave it up in 2008 for a seductive Swede called Absolut.

Before then “Pernod was basically making all the local decisions and was managing the brand globally,” says Mendeleev who had to build his global sales and marketing team from scratch.

Stoli sold 3,4m cases of vodka in 2012

Field to bottle

“Changes in distribution are always very disruptive, particularly in a large market like the USA and inventory levels were incredibly high at the end of our partnership with Pernod. Also, to be honest, the price positioning was not optimal.”

The States are easily Stoli’s biggest market, and currently accounts for just over 60% of sales. In 2007 it was selling 2.2m cases there according to Impact Databank. Within three years it had shrunk to 1.8m, though Mendeleev insists “the vast majority of the volume decline came from the lower margin business.”

One thing that makes Stoli unique among its peers, is that the company doesn’t just own the brand, it owns the wheat fields to produce the vodka. “The Stoli Group is vertically integrated,” he explains. “The grain is 100% Russian and we have thousands of hectares of land 400 kilometres south of Moscow.” Here it is made into raw alcohol in SPI’s brand new US$100m distillery and then refined into Stoli in Latvia where the company owns a historic distillery in Riga that has been making vodka since 1948. “The system means you really know the cost structure and can ensure consistent high quality standards.”

In its trade communications, “The part ‘Russia’ plays is an essential element in our brand education. It’s where the brand was born and where our grain comes from today.” Under Pernod, this spilled over into consumer advertising where Yuri Gagarin rubbed shoulders with Lenin while bottles of Stolichnaya marched across Red Square, but not anymore.

“The reality is consumers do not choose their vodka brand based on provenance,” says Mendeleev, and today the creative thrust is focused on originality. “We own this territory. Stoli has been original forever,” he declares. “Think which brand created the flavour category – it was Stoli.

Which was the first super-premium vodka? Stoli. Which went into space? Stoli.” He could go on, but instead we talk of the bold decision to go it alone in America. “For all their efforts, no third party distributor can guarantee the same focus and long-term approach.”

“With our own structure, we can probably get to something like three million cases in the US in a few years.” If so, it will be all credit to John Esposito and his team. The former president of Bacardi North America, a man Mendeleev describes as “one of the most respected professionals in the US spirits market”, agreed to run Stoli’s new operation there in January.

SPI’s production facilities in Russia

Stateside transition

“He has so much energy and knowledge and this project suits him as if it were specifically written for him. It’s a big and complex challenge, but John loves it.”

Right now Esposito’s priority is ensuring a smooth transition from William Grant at the end of the year. Although Stoli is currently Grant’s biggest US brand, it must benefit somewhat from being in the same family as premium spirits like Glenfiddich whisky and Hendrick’s gin. In January it will become an only child.

“But sometimes what you lose from not having a large portfolio, you gain from increased focus,” says Mendeleev, who insists that in the short term it will help the US team to have just one brand. After a few years of solid growth, he says “it’s not unreasonable to expect to build in other brands”.

Ideally he would like to separate Stoli from its ultra-premium offshoot – elit by Stolichnaya. “Each would appreciate a brother or sister. The  important thing is we are not in any rush, but we’d be looking for other jewels.” When pushed to elaborate, he suggests maybe a premium rum, a high end Tequila or even a Champagne. For fans of the UK sit-com Absolutely Fabulous, that offers the tantalizing prospect of a tie-up with Bollinger. In the show the dipsomaniac Patsy Stone, played by Joanna Lumley, lived on a high octane diet of Stoli and Bolly. As she once famously exclaimed, “The last mosquito who bit me had to check into the Betty Ford clinic.”

Of course the family-owned Bollinger is not officially for sale, and in any case the main Stoli brand is not completely alone. It is surrounded by Stoli ‘Razberi’, ‘Peachik’, ‘Citros’ and a host of other flavours which collectively account for 35% of US volumes. Last year Stoli Hot and Stoli Sticki (honey) were launched with retro labels to celebrate the pioneering flavours launched by Stolichnaya 50 years ago.

Mendeleev is keen for the innovations team to feel as free and creative as possible. “The team should know they can propose anything.” The one proviso is that they don’t “compromise the premium-ness of the Stoli brand”. There are no plans to join the cupcake-fluffy marshmallow end of the spectrum for instance and like others he feels the category may have been stretched too far in America. As for which flavours have the greatest potential elsewhere, he says, “It’s probably our indulgent range which is currently Chocolat Razberi, Salted Karamel and Chocolat Kokonut. They have been great in markets where flavoured vodkas are not so popular.”

In the long term the greatest potential for Stoli and whatever stablemates it acquires is beyond the US, where the trends are already encouraging. “Last year we were up 20% in value in Asia, 14% in Latin America and 12% in Africa and the Middle East.” Mendeleev sees lots of opportunities in travel retail, particularly for Stoli Elite, and eventually in China. “We have very high expectations, but China is a very longterm game. Today the whole premium vodka category is 200,000 cases. We know it will get to millions one day, we just don’t know when.” Today’s priority however is much closer to home and concerns the fate of CEDC. sb