Jim Beam out to keep Russia off wagon

Jim Reid, a Beam Inc. employee, loads barrels of Jim Beam bourbon whiskey onto a truck headed for a rack house to be aged in Clermont, Ky. Beam is trying to develop a market for its whiskey in Russia, where the government is working to cut down alcohol consumption.
Jim Reid, a Beam Inc. employee, loads barrels of Jim Beam bourbon whiskey onto a truck headed for a rack house to be aged in Clermont, Ky. Beam is trying to develop a market for its whiskey in Russia, where the government is working to cut down alcohol consumption.

— The distiller of Jim Beam and Maker’s Mark whiskey want vodka-imbibing Russians to drink more of their product even as Russian President Vladimir Putin is pushing the biggest crackdown on alcohol since the Cold War.

Russians looking to show off burgeoning prosperity have helped make imported whiskey the fastest-growing spirit in Russia as vodka sales fall. The trend figures into Beam Inc.’s goal to get 25 percent of its annual sales growth from emerging markets and double sales in Russia in three years.

The surge in whiskey consumption comes amid government bans on late-night alcohol sales, drinking in public places and alcohol ads on TV, radio and billboards. Russia also has put in place new taxes in an attempt to restrain alcohol consumption that’s the world’s fourth-highest per capita.

Such measures may require even more agility on the part of exporters such as Beam, Jack Daniel’s-maker Brown-Forman Corp. and Johnnie Walker-maker Diageo Plc as they seek to quench Russians’ thirst for dark spirits, said Spiros Malandrakis, a global alcohol drinks analyst for researcher Euromonitor Plc.

“There has been a massive series of legislative attacks,” Malandrakis said. “You have to take slow steps so you don’t gather the wrath of the Kremlin on your head.”

Still, vodka is king, making up almost four-fifths of spirits consumption in the country. Whiskey didn’t even register 1 percent, making it less of a threat to regulators fighting overconsumption.

Carlsberg A/S, owner of Russia’s leading brewer, Baltika, knows all too well how volatile Russia can be. After investing billions in a country that accounts for almost 40 percent of its global profit, the company has struggled against a declining beer market amid the government crackdown. Consumption fell 2.4 percent from 2007 to 2011, according to International Wine & Spirit Research.

“Part of the ability to compete in markets like Russia is to understand that reality,” said Beam’s chief executive officer, Matt Shattock. “We have to play by the rules established in each market, and sometimes in environments like this, those rules move.” Beam is based in Deerfield, Ill.

For Russians, American spirits are as much about status as inebriation. At Globus Gourmet, a high-end food store in the heart of Moscow — where conspicuous consumption fuels two Rolls-Royce dealerships — the liquor boutique looks like a diamond store. Showcase lighting transforms bottles of bourbon, cognac and scotch into shimmering displays of amber and caramel hues.

In a Russian spirits market that fell 4.6 percent last year, including 4.9 percent for vodka, whiskey consumption grew 48 percent, according to the London-based ISWR. Russians’ love affair with Western spirits showed up in tequila consumption as well, which jumped 45 percent. Beam is concentrating its Russia marketing and distribution efforts on Sauza tequila, Courvoisier cognac and Teacher’s scotch in addition to Jim Beam.

“Russians are a spiritsdrinking nation and they are extremely bored of vodka,” Malandrakis said. “As they try to shed all the associations with a Soviet past and move into a Western direction, premium whiskeys and tequila make sense.”

Russia has seen per-capita alcohol consumption drop from 4.6 gallons to 3.9 gallons in the past two years, Deputy Prime Minister Viktor Zubkov said in December. The government wants to reduce it to 2 gallons by 2020.

To help, Russia banned sales in stores between 11 p.m. and 8 a.m. Late last year, the Russian government adopted a plan to raise alcohol excise taxes 30 percent by the end of next year, following a 2010 beer tax increase of 200 percent.

Much of the regulatory attention so far has had a greater effect on low-cost spirits, rather than premium brands such as Jim Beam. A 0.7-liter bottle of Jim Beam can cost 1,660 rubles — about $53 at the high end. Jack Daniel’s can go for 2,470 rubles, or $79. By contrast, Green Mark, the best-selling vodka in Russia, sells for about 181 rubles, or $6, for a half-liter bottle.

Since spinning off from Fortune Brands last year to become a stand-alone spirits maker, Beam is horning in on an import whiskey market in Russia dominated by global behemoths such as Diageo and Pernod Ricard SA, maker of the Glenlivet single-malt Scotch whisky and Jameson Irish Whiskey.

After years of work to expand distribution nationally through hubs in 28 cities, Beam has turned its attention to brand building, Mateo said.

Beam boosted its share of the American-made whiskey market in Russia to 25 percent last year from 14 percent in 2009, according to Euromonitor. Market leader Jack Daniel’s now controls 72 percent of the segment, down from 80 percent in 2009. In whiskey overall, Beam is still a bit player in Russia, with 1 percent of the market compared with Diageo’s 41 percent share.

Information for this report was contributed by Henry Meyer of Bloomberg News.

Business, Pages 72 on 11/11/2012

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