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By John Helmer, Moscow

In the US, UK, and Germany –  leaders of the worldwide campaign to attack Russia  and overthrow President Vladimir Putin – the taste for Russian vodka jumped in 2016 after falling sharply during 2014 and 2015. Russian vodka drinkers, too, started to recover their taste in September, October and November of last year. According to a report from one of the leading Russian vodka brand-name producers, the September-November time period was also when the volume of vodka sold domestically showed the first signs of growth since 2014. Overall, the volume of vodka sold in Russia grew by 6% in that interval; by 8%,  if the cheapest vodka brands are excluded.

The Russian vodka taste test doesn’t mean, however, that those who have been losing their war against Russia are drowning their sorrows, as Hillary Clinton (lead image) did on election night in November, when Donald Trump defeated her for the US presidency, and Clinton became paralytically drunk.   For one thing, according to reporting from the Moscow Centre for Federal and Regional Alcohol Markets (TsIFRRA), the greater volume of vodka consumed abroad reflects a recovery from the fall in vodka exports which started in 2014, particularly in Ukraine. It is also a sign of demand from the larger numbers of affluent Russians who have fled the homeland, along with their cash, in the past two years.  

The reason for the increase in domestic shipments of vodka and consumer sales, according to TsIFFRA, is the shift in consumption from illegal vodka to legal vodka, as government control of vodka sales gets tighter. Russians aren’t drinking more vodka these days, TsIFFRA says — they are drinking better quality vodka, paying more, but are no happier, nor drunker,  than they were in 2013, before the war against life in Russia began in earnest.  

The latest reports from TsIFFRA and other market sources indicate that last year the volume of vodka produced in Russia reached 73.2 million decalitres; that’s a jump of  16% compared to 2015. The volume of vodka exported from Russia jumped by 14%. But in US dollar equivalent, reflecting the effect of the cheap rouble, the value of vodka exports rose by just 1.7% in the 11 months to November 30, 2016 – for a total of $106.1 million.  

According to TsIFFRA, the biggest consuming markets for Russian vodka abroad were Germany (6.9 million litres), Ukraine (6.4 million litres), UK (3.5 million litres), US (2.5 million litres),  and Latvia (1.7 million litres). The highest revenue-earning Russian vodka brand-names in the export market were Russian Standard and Parliament – both products of the Roust group – and Beluga from the Mariinsky distillery.  Pictured below, that’s not the State Duma on the Parliament bottle, but the British Houses of Parliament in London, with the Union flag flying.



In million litres per annum

Source: TsIFFRA, as reported by Izvestia: http://izvestia.ru/news/661429#ixzz4XzYCgN7S

Notwithstanding, the share of Russian vodka in the worldwide vodka quaffing market is still in single digits – just 6.5%. This, according to western alcohol market experts, is a pre-war phenomenon — the result of much greater investment in brand marketing and distribution by western corporations like Diageo (Smirnoff, the global brand leader) and Pernod Ricard (Absolut).

There are two Ukrainian vodka brand-names which rank well ahead of the Russians in the global market, Khortytsa and Khlibny Dar; they are produced by Global Spirits (eastern Ukraine distilleries) and Bayadera (central Ukraine).  On the current global vodka brand rankings, the two western and two Ukrainian vodkas are rated first through fourth. Fifth is Zubrowka, owned by the Russian alcohol oligarch Roustam Tariko through the Roustam group of companies, but marketed in the US, UK and Europe for its American bison grass ingredient and “its Polish roots”. 

The top made-in-Russia Russian vodka brand appears at Number 8 – Pyat Ozer of the Alcohol Siberian Group. Tariko’s Russian Standard comes in at No. 16, trailing Stolichnaya at No. 15. Ownership of Stolichnaya is disputed between the state-owned  Soyuzplodoimport and Yury Shefler’s Luxemburg entity, SPI.  Tariko’s Parliament is well-known inside Russia, but not outside – it doesn’t reach the worldwide Top-30.   

Source: http://drinksint.com/news/fullstory.php/aid/6251/Millionaires__Club:_The_Vodka_List.html

Russian Customs figures showing the US dollar value of exports of vodka also include other spirits and vinegar. As the table illustrates, the volume of exports to all countries accelerated sharply in the second quarter of last year. The momentum slowed down in the third quarter.


In million US dollars

Source: Russian Customs -- http://en.russian-trade.com/statistics/by-product/beverages-spirits-vinegar/export/2016q1/ and http://en.russian-trade.com/statistics/by-product/beverages-spirits-vinegar/export/2016q2/

Market reports in Moscow indicate that the year 2015 was the worst for Russian vodka in more than a decade. In decalitres, case shipments,  and cash receipts the overall decline was more than 40%. Part of the reason was the collapse of demand in Ukraine as a result of the putsch in Kiev and the war in the Donbass.  In 2013, Ukraine imported Russian vodka for almost $39 million in value declared on the Ukrainian side of the border; in 2014, $12.2 million; in 2015, $4 million. These numbers can’t be relied on for precision, because of the extent of cross-border smuggling. But they are a reliable indicator of the sharp downward trend, as Russian vodka lost its largest foreign market. But as the export table (above) shows, exports to the Ukraine are on the rebound again. The collapse of the rouble in November 2014 and its recovery in 2016 have also impacted the US dollar equivalent value downwards, then upwards again in all foreign export markets.

In parallel, TsIFFRA reports that Russian demand for home-made vodka has been on the decline. Over the past decade, Russian consumption of vodka and other spirits has fallen twofold in volume. It seems paradoxical, therefore,  that production of vodka has been growing at the same time. More Russian vodka is moving abroad for export —  this is one reason. Another, according to Vadim Drobiz, director of TSIFFRA (right), is that since July 1, 2016, the Russian government has imposed electronic monitoring of every bottle sold. Known as the EGAIS system, this has removed the illegal vodka supplies on the domestic market, and correspondingly increased the recorded output being sold.

The trend for legal vodka to drive illegal out of the market is the exact opposite of the trend in sparkling wine and fake champagne. For that story, read this. For the flight of investment capital out of the Russian beer market, read the story of Yevgeny Kashper, click

As for the export of Russian vodka, Drobiz says that “in order to take a significant chunk of  export markets, large long-term investments are required. But Russian producers simply do not have such funds.” For lack of cash he cites the bankruptcy of the Roust group and Russian Standard, announced in New York two months ago.

The Roust group, named after himself by Roustam Tariko (right), was acquired by putting the assets into bankruptcy twice in three years; liquidating small shareholders and writing down more than $1billion in debt; ignoring insider dealer warnings; and converting the debt to shares Tariko fully controls. Roust – aka Reorganized Roust or Russian Standard Vodka (RSV) – claims it now has the financial capability to invest whichTariko hasn’t demonstrated in Roust’s predecessor, the Central European Distribution Corporation (CEDC). Missing from the two prospectuses and reorganization plans which were prepared for Tariko in the US bankruptcy courts by the Skadden Arps  law firm, is how the billion-dollar debts of CEDC and Roust were spent, or misspent, between 2013 and 2016.  US court endorsement of Tariko’s latest reorganization plans – scheduled for next week — relieves Tariko from having to explain.

“The Exculpated Parties”, according to Roust’s New York court papers,   “shall be exculpated from any claim related to any act or omission in connection with, relating to or arising out of, among other things, the Existing Notes, the Debtors’ restructuring efforts, the Restructuring Support Agreement, the Chapter 11 cases, the Plan of Reorganization and the Share Placement (other than in the case of willful misconduct or fraud, to the extent imposed by applicable non-bankruptcy law), and upon Bankruptcy Court approval of the Plan of Reorganization shall be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code with regard to the solicitation and distribution of securities pursuant to the Plan of Reorganization.”

After the implementation of the reorganization plan next week, Tariko will control between 57%  and 64% of the shares of Reorganized Roust/Russian Standard Vodka (RSV). Going into bankruptcy last December, the Roust accounts revealed assets of $819.7 million; liabilities of $1.3 billion; and a profit on the bottom-line for 2013 of $66.7 million. That was followed by losses for 2014 of $156.2 million; losses for 2015 of $67.8 million; and for 9 months to September 30, 2016, a loss of $41.2 million.

“We believe,” Tariko has told the New York court and his creditors, “that Roust Corporation’s new capital and organizational structure will provide immediately greater value to all stakeholders by positioning Roust Corporation for accelerated revenue and profit growth within the global alcohol market, thereby strengthening Roust Corporation’s position as the number two vodka company by volume worldwide and the number one alcohol company in Central/Eastern Europe and Russia by volume.” Read the full pitch, by clicking on: Offering Memorandum and Disclosure Statement (December 15, 2016).


calculated at constant foreign exchange rate

Source: http://dm.epiq11.com/#/case/Roust/info Click on: Offering Memorandum and Disclosure Statement (December 15, 2016) -- page 87.  

Leaving out the foreign currency effects in Russia and Poland, Tariko and his management put the blame for Roust’s misfortune squarely in Russia. “Sales in the Russian segment decreased by 20.6% on a currency-neutral basis as a result of a reduction in real consumer purchasing power and overall market decline; in the nine-month period ended September 30, 2016 we also suffered from growth in cheap vodka segment,  driven by illegal vodka, that impacted our mainstream vodka sales. These factors were only partially offset by good performance of our premium brands.”

But there is good news, according to Tariko. “Our premium brands continue to grow even faster, at 18%, 9% and 22% for RSV [Russian Standard Vodka], Remy and Jägermeister, respectively, in September through November 2016. As market and economic conditions have improved in the third quarter of 2016, the vodka market has expanded and our Russian results have improved.  Consequently, Russian revenues in the third quarter of 2016 (calculated in Russian rubles) showed an improvement compared to the same period in 2015, and we expect a further improvement in our Russian results in the fourth quarter of 2016.”

The rate of growth for Roust’s exports – both Russian-made and Polish-made – is also significantly faster than the company has reported for last year’s Polish and Russian sales. 

Source: http://dm.epiq11.com/#/case/Roust/info  Click on: Offering Memorandum and Disclosure Statement (December 15, 2016) – page 80.

The prospects for Russian vodka are not so promising that Tariko has calculated he will be able to repay his obligations and return to profit. He’s done this before. In 2013, when he was chairman of the board of Central European Distribution Corporation (CEDC), he proposed a reorganization of $665.2 million in debts with a buyout by Roust, a company he also controlled. The outcome was the incorporation of the Russian Standard vodka brand in a single holding. The scheme was attacked in court at the time as an insider deal which wiped out small investor stakes, but left Tariko in control of a company with a significantly smaller debt load. 

The objections were dismissed by the court, and on May 13, 2013, Tariko authorized this press release,   reporting his takeover plan had “received overwhelming support from creditors”.  A month ago, Tariko received a fresh court order approving his new scheme. Read the details here  and here

Can Russia’s enemies in the US and Europe swallow Russian vodka as easily as US bankruptcy judges and international investors have swallowed Tariko’s Chapter 11 plans? Russian alcohol market experts say this will depend on how much money Tariko and Russia’s other vodka producers plan to spend on marketing their products.

At the operating headquarters of Roust in Moscow, managing director Pavel Markul (right) was asked how he explains the growth of Roust’s liabilities at the same time as the company was reporting growth in business, improving revenues, reduction in costs, shrinking losses, and access to all the bank financing Roust said it needed. Markul, who has been working in Tariko’s vodka businesses since 2009, was also asked: Why was the second bankruptcy reorganization decided after Roust reported that it was performing better than the targets set in the first reorganization? At publication deadline, he had yet to reply.

City of London bankers say that Tariko’s reputation in the market did not improve between the bankruptcy of CEDC in April 2013 and his bankruptcy of Roust in January 2017. “Mr Tariko has gained from two bankruptcies in three years,” said a European source who has refused to participate in loan syndicates Tariko has tried to arrange. “He is much richer. Russian vodka is no better off. Maybe it’s poorer, if you compare it with the Ukrainian vodka competition. How do you think this has come about?”

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