State Calls Shots In Stolichnaya Dispute

By Alex Nicholson

Staff Writer

Published: May 31, 2002 (Issue # 773)

MOSCOW - Tempers are flaring in the high-stakes brawl for global control of Russia's best-known brand of vodka.

The government, which recently renationalized the Stolichnaya brand, is now trying to prevent its production abroad. It is also asking Western distributors to boycott Soyuzplodimport (SPI), the private company that bought the rights to Stolichnaya and 42 other vodka brands in 1997 and, instead, buy from Soyuzplodoimport, the former Soviet vodka monopoly that was recreated this year to manage the brands the government has retaken, or intends to retake, from SPI.

"We are asking [distributors] to think about whether or not they're supplying real Russian vodka and proposing cooperation," said SPI deputy director Sergei Kosaryev, adding, "And how SPI can write 'distilled and bottled in Russia' on the label, I don't know."

Having been prohibited by the Agriculture Ministry from producing in Russia, SPI, the local division of Swiss-based international holding company SPI Spirits Group, now exports Stolichnaya out of its Latvijas Balzams distillery in Riga.

The government has argued that Stolichnaya made in Riga cannot be called "Genuine Russian Vodka," as the label claims, for geographical reasons.

SPI head Vladimir Loginov, a former deputy agriculture minister, said last week that, as long as Stolichnaya is being made in Latvia, he expects global sales to fall, and that letters courting foreign distributors had been dispatched.

In February, $40 million worth of SPI vodka was confiscated by Russian customs officials in Kaliningrad, where it languishes to this day.

SPI says that, since the chief raw ingredient - the spirit - comes from Russian factories, its vodka is the real thing.

"We aren't going to name the factories so that Loginov doesn't take administrative measures," SPI spokesperson Sergei Boguslavsky said. This, he added, has already happened.

Kosaryev confirmed that Tulaspirt - a major spirit exporter working with Latvijas Balzams - had recently dissolved its contract with the Riga factory in the light of the present situation.

The dispute has reached the United States, which accounts for the lion's share of Stolichnaya global sales, estimated at some $500 million.

SPI said over the weekend that the dispute had been brought to U.S. President George W. Bush's attention during his summit with President Vladimir Putin. In his presentation to the two presidents, Eugene Lawson, the president of the U.S.-Russia Business Council, told them the Stolichnaya situation demonstrated a clear violation of ownership rights.

Last month, SPI's U.S. lawyers lobbied the case in Congress. The fate of Stolichnaya in Russia, they argued, is proof it is not ready for membership in the World Trade Organization.

SPI appears undaunted by pressure from the government.

Allied Domecq, Stolichnaya's U.S. distributor, has repeatedly said it is happy working with SPI Spirits Group. And, locally, SPI will focus on transforming its trademarks owned by their two Russian distilleries, Talvis and SPI-RVVK, into national brands.