Stolichnaya vodka ‘concerned’ by Ukraine crisis

Val Mendeleev, CEO of SPI Group, claims that while he is concerned about the affect of the Ukrainian crisis on the drinks industry, this won’t keep him from his bullish plans for Stolichnaya vodka.

Val Mendeleev, CEO of SPI Group, says that he is concerned by Russia’s annexation of Crimea, which could further the recession in some countries

As I spoke with Val Mendeleev on the phone, I couldn’t help feeling a sense of déjà vu. The CEO of SPI Group, owner of Stolichnaya vodka, was refusing to comment on rumours that his company was bidding for United Spirits’ Scotch whisky castoff Whyte & Mackay.

In April last year, he let slip to The Spirits Business news of his plans to lead a consortium to play for the embattled Central European Distribution Corporation (CEDC), a group with a mammoth footprint in the Eastern European market and a rather attractive vodka portfolio.

“It’s pure coincidence that March and April are months with lots of M&A projects happening,” he laughs down the phone, adding that SPI is working on several possible mergers and acquisitions at this very moment. The purchase of CEDC didn’t come off last year – SPI withdrew its offer after three days – but how about Whyte & Mackay? “Unfortunately, I cannot comment on this particular one,” he says disappointingly, although Mendeleev admits that the Luxembourg-based group does have its sights set on “a couple of brown spirits projects”. (NB: Philippines group Emperador was ultimately the successful bidder for Whyte & Mackay, purchasing the group for £430m in May 2014.)

It’s no secret that SPI is on the buying trail. The group has made 15 acquisitions of beverage producers, importers, distributors and retailers in its time, but for a spirits group present in 168 markets and with aspirations to compete globally, its spirits portfolio is limited to a smattering of regional vodka brands and one international headliner: Stoli.

Star portfolio member

“Our regional brand portfolio is diverse, but the only major global brand we have is Stoli,” Mendeleev says. “We already have a few vodka brands, but now we have a desire to expand into other categories and are on the lookout for brands of a decent size that we can expand globally, particularly in rum, gin, Tequila, Scotch and American whiskey. I’ve been waiting a long time for the right moment, until we have our own platform in the US, because that is typically the most premium and important market in the world for spirits.”

That moment came on 1 January this year when SPI Group established its own import and distribution arm for Stoli in the US, taking the reins back from William Grant & Sons USA that had fostered the brand since 2009. Mendeleev, along with Stoli USA president John Esposito, who joined the group in February last year, have spent the past 12 months recruiting a solid, 92-strong team to lead the US operation and ensure a smooth transition from William Grant.

“But still, every time you change your distributor, you change the importer, the wholesaler and have all these issues,” Mendeleev sighs. Stoli USA is four months into its new regime and has already made a series of alterations, including the replacement of two wholesaler networks. Southern Wine & Spirits has replaced Wirtz in the north and Young in the west, and now distributes Stoli across 12 states.

“Now the challenge is how our focus changes in the US, and today it is to get back to basics with improved distribution, visibility and brand promotions,” says Mendeleev. “This is something that hasn’t been done for the past few years when we worked with another importer, when the emphasis was on price discount.”

Stolichnaya plans to increase its marketing efforts over the next few years

Price undercutting is damaging

The US vodka market is ridiculously saturated, resulting in hordes of brands resorting to undercutting each other’s prices to compete against value products and maintain market share. But this strategy, Mendeleev believes, can be extremely damaging when consumers are slowly but surely trading up to more premium brands. “This is very important to us, to change the trend and the way we operate in the US,” he explains.

To kick-start its new line of attack on the Americans, SPI will launch its first marketing campaign in April, named Start With Stoli. “The main focus is to remind bartenders why they have chosen Stoli over the years, although the campaign will also serve as a retail and consumer call to action. We recognise Stoli is an iconic brand that hasn’t been so well promoted for the past couple of years,” Mendeleev says.

He is certain that the new campaign, brand positioning and routes to market will allow Stoli to build on its 1.6 million cases sold in the US in 2013, with a double-digit growth rate in 2014. “I’m extremely bullish on the US this year; don’t even mention next year,” he says.

Gay backlash

May I bring up 2013, though? Last year, Stolichnaya was embroiled in a very public backlash to Russian president Vladimir Putin’s decision to outlaw the education of “non-traditional sexual relations” among minors in Russia. While many called for gay athletes to boycott February’s Winter Olympic Games in Sochi, others turned to pouring bottle after bottle of Stoli down the drain in a show of solidarity with Russian homosexuals, bisexuals and transsexuals. Such an uprising could have quickly turned very messy for Stoli, the US being its largest core market after all, but Mendeleev and his team sensitively contained the matter with an open letter to the LGBT community.

“At first we were surprised, I must admit, but eventually it became more of an opportunity to tell our story – that we are not backed by the Russian government, and to address specific parts of our heritage and production,” he explains. “It also allowed us the opportunity to clarify and highlight our support for the LGBT community, which existed even before the boycott.”

Mendeleev claims not to have seen any negative effect on Stoli’s volumes, even going so far as to say the situation only made the brand stronger. “When something like that happens, it forces you to take a stand and clarify what you always believed in, what you always stood for, but say it a little louder and clearer.”

Mendeleev predicts sales of elit by Stolichnaya will grow by 30% this year

Ukrainian crisis

But just months after the LGBT waters were calmed, Putin is at it again, this time with his annexation of Crimea, leading some extreme consumers and retailers to commit more Stoli, along with other Russian vodka brands, to the sewers. Mendeleev, however, is not fazed by the ritual dumping of products every time Russia upsets the masses. Yes, the political situation presents SPI with another educational hurdle, but the CEO says he is more concerned with the economic tolls the Russia-Ukraine crisis may present.

“The situation won’t be similar to the Cold War, but the end of the recession may now be delayed in some markets,” he says. “It certainly will have some effect on Europe, less so the US, because the world is so interconnected. This crisis will have a huge effect on the economy and the market and, ultimately, the way people drink, so of course that’s something that concerns me.”

But considering the numerous battles SPI has had with the Russian government over licensing, Mendeleev believes the company is now experienced enough to handle any situation the world can throw at it. “We have been prepared for a long time for any scenario in Russia. Any scenario. Anything,” he insists. “The Russia-Ukraine situation might affect us in the short term, but we are ready and have been for the last 10 years.” The same, he says, is true of North Korea, Venezuela, Cuba and Belarus, all of which are “unpredictable”.

Unpredictable markets

Besides, SPI doesn’t count these volatile nations to be core markets for Stoli, instead favouring the volume potential of emerging markets such as Chile, Mexico, Israel, Lebanon, the Baltics and Ukraine. And even though China continues to be a “nation of baijiu drinkers”, Stoli is working to establish itself there too, ready for when consumers wake up to white Western spirits. And Mendeleev predicts that to happen within the next 20 years.

For now, though, his focus is firmly set on the US and particularly on that premiumisation communication so integral to the new Start With Stoli campaign. Looking at the Stoli portfolio, the ladder of products to enable consumers to trade up is clear, from the Indulgent range of flavours that includes the well-received Stoli Salted Karamel and Chocolat Razberi, to elit by Stolichnaya, the ultra-premium “perfume inspired” expression that Mendeleev predicts will “grow by 30% this year”. With around 50% of elit’s 25,000 annual case sales generated by the US, it is not hard to see why he is taking the market so seriously.

His bullish attitude toward Stoli’s future as a premium brand, free of discounting, is certainly inspiring, and is sure to apply to any new product, Scotch or otherwise, SPI may acquire. Mendeleev is not shy about his plans to expand with a “second or third category”, whatever it may be, but is adamant that premium branding will be at the heart of his strategy.