Nemiroff to direct vodka flows to Russia

The increase in domestic sales of beer and low-alcohol beverages has led to a decline in consumption of hard liquor, pushing the country’s biggest vodka producer to step up its foreign sales efforts. In April, vodka-producer Nemiroff announced plans to switch its focus from the domestic to the export market, with vodka-thirsty Russians becoming the company’s prime target.

“The Ukrainian market has changed. Consumption of hard alcohol is dropping due to the increase of low-alcohol beverages and beer consumption,” said Nemiroff President Jakiv Gribov. “Selling our products on foreign markets is very important.”

Well-established at home, the company is now trying to boost its profile abroad. The company’s management hopes to strengthen its position in Russia, and build its business in Poland and Mexico in particular. Nemiroff spokesman Pavlo Kucher said he hopes the company’s foreign sales will reach $4 million per month by the end of this year, about the same as its sales at home. Nemiroff currently exports its products to 40 countries.

But as the Vinnytsya Oblast-based vodka manufacturer sets its sights on Poland, the third-largest alcohol market in the world after Russia and Ukraine, the company knows there will be challenges. Gribov said it won’t be easy to compete with Polish vodka producers like Wyborova, which also exports brands known worldwide.

Nemiroff shipped two container-loads of vodka to Poland in April and is evaluating Polish consumers reactions to its products.

“It’s not easy to set up [in Poland] because their import duties for non-EU members’ products are very high. It’s tough to promote ourselves because Polish laws forbid advertising of alcohol producers or alcohol,” Gribov said. Ukrainian and Russian legislation is less strict than Poland’s, he said.

Proximity to the Polish border has also played a positive role in getting products across. Ironically, smugglers have contributed to promoting Nemiroff on the other side of Ukraine’s Western frontier.

“Western Ukrainians have already helped export our products. According to our estimates, vodka smugglers deliver a truckload of our products to Poland every week,” Gribov said.

Nemiroff is ready to expand into Mexico as well.

“It’s too early to estimate the volume of sales,” Gribov said, “but the Mexican market has great potential and we’re currently negotiating issues of supply.”

The first shipping container of honey-pepper vodka will be shipped to Mexico in April. “Traditionally, the level of hard alcohol consumption [in Mexico] is very high,” Gribov said. “A lot of Mexicans think that our honey-pepper vodka is created especially for the Latin market; they eat very spicy foods and like our spicy vodka.”

Honey-pepper vodka could occupy a niche in Mexico in the same way that Mexican tequila has on the Ukrainian market for the last five years.

“The first reaction when it [tequila] appeared in Ukraine was [that it is] not so simple, but now nobody is surprised by the ritual of drinking it with salt and lemon,” he said. “It’s the same concept with our honey-pepper vodka; I can’t see why it won’t succeed in Mexico.”

In 2002, according to Russian customs office statistics, Nemiroff became the number-one vodka exporter to Russia. “It was not easy, though,” Gribov said. “The Russian market is very lucrative, but it’s also very demanding. We came there after gaining experience by exporting our products to 30 other countries. We wanted to go there prepared.”

The Russian market is five times larger than the Ukrainian, boasting between 130 million and 150 million deciliters of consumption annually. To compare, Ukraine’s annual consumption is about 35 million deciliters.

Nemiroff’s expansion into Russia was slow until it introduced its honey-pepper vodka to the market last fall. Now honey-pepper vodka accounts for about 50 percent of the company’s sales in Russia.

What started with shipments of 50,000 bottles per month in 1997 has now developed to exports of 3 million bottles a month of straight vodka and its pepper, cranberry and honey-pepper varieties. Soon, Nemiroff plans to roll out its rye and honey vodka on the Russian market. In a year, the company hopes to claim up to 4 percent of Russia’s vodka market.

Kucher said that the Russian market is Nemiroff’s prime target. “Even 2 percent of the Russian market is a huge increase for us,” he said. “That means we’ll export there some 3 million deciliters, almost the same amount we produced during all of last year.”

Some 20 brands are battling for a piece of Russia’s vodka market. Two of them, Gzhelka, from the Moscow-based Crystal factory, and Flagman, from the Russian Wine and Vodka Company, are positioned in the same market niche as Nemiroff. German Klimovsky, vice-president of the Russian Wine and Vodka Company, said that he regards Nemiroff as a strategic competitor. Despite praising Nemiroff’s management, Klimovsky is skeptical about the company’s ability to tap the Russian market.

“Nemiroff is a very dynamic company. They know how to promote and sell a brand,” he said. “But they are not targeting regions. More than 60 percent of their sales are in Moscow. There is a gap between their sales in the capital and the regions.”

He also said that Nemiroff’s market evaluation was inaccurate.

“To get 4 percent of the market in a year means that they have to push away our two leading brands and increase sales 20 times. That’s not realistic,” he said. He said that Nemiroff might capture a 4 percent market share in 3 years.

Nemiroff officials are hoping that vodka for export will flow from a new $10 million plant in Vinnytsya Oblast that is scheduled to open in November. The factory will raise Nemiroff’s annual capacity from 8 million deciliters to 12 million deciliters.

The company has also announced a tender for a $3 million bottling line for low-alcohol beverages to be installed at the new facility. The competitors in the tender are Germany’s Krones and KHS. Krones supplied Nemiroff’s first plant with equipment valued at $1.5 million.