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Stoli stand-off continues

19-Aug-2002

There are two perceptions of Russian vodka. The one which is more likely to be recognised by the vast majority of Russians is that of an inexpensive liquor of dubious quality available on every street corner; the rest of the world, meanwhile, sees Russian vodka as a premium spirit which merits a premium price.

This international image has not, of course, been created overnight; it has taken decades of expensive brand marketing by the likes of Smirnoff and Stolichnaya to create the image of vodka as the preferred spirit of the Russian court and to push sales of the drink into markets the world over.

 

But all this expensive marketing could be for nothing if a current move by the Russian government to re-nationalise the country's vodka industry and take back the rights to leading brands is successful.

 

SPI International, the company which owns the rights to the Stolichnaya and Moskovskaya brands and which has invested heavily in their promotion, is the principal target of the Russian authorities. But SPI will not go down without a fight, and has begun legal action in the Netherlands to prevent the Russian government and a number of state-owned companies from interfering with its business in the EU, as well as damages of €5 million for each attempt to break what it claims are legitimate business partnerships.

 

SPI distributes its vodka worldwide through partnerships with some of the leading drinks groups such as Allied Domecq and Pernod Ricard, but these partnerships have been jeopardised by the Russian government's refusal to allow shipment of the vodka.

 

Deliberate interference

 

SPI, which has held the trademark for Stolichnaya for decades, claims that the Russian government and in particular Vladimir Loginov, former deputy agriculture minister and head of the state-owned Soyuzplodoimport, the company which now claims the vodka rights, have deliberately attempted to interfere with SPI's existing relationships with distributors throughout the European Union.

 

SPI said that the blocking of exports of Stolichnaya to the US and other international markets by the Russian government was an illegal act, especially since the Russian courts had already ruled that the authorities had no legal right to the trademarks.

 

"This case represents a gross interference with SPI's legitimate ownership rights by certain Russian authorities who are continuously ignoring and undermining the rule of law, and participating in what is nothing more than a naked grab of assets from SPI which has well-established ownership rights to one of the most popular brands of vodka in the world," said Richard Edlin, SPI's lawyer. "There is no legal justification for such egregious action and SPI will remain committed to defending its rights in every market where it has registered the Stolichnaya trademark."

 

Long-running battle

 

Although this is the first action in the Stolichnaya stand-off to take place outside Russia, the battle for control of the vodka business within Russia itself has sometimes been just that - a battle. The latest development is the alleged (and almost certainly invented) death threat against Loginov by Yuriy Shefler, the businessman who bought the company in 1996 and turned it into the successful company it is today.

 

The dispute stems from the original privatisation 1992, when the old state-run Soyuzplodoimport was officially granted the rights to the brands by the Russian ministry. This company was then sold in 1997 to Shefler, who changed the name to Soyuzplodimport or SPI and invested more than $20 million (€20.4m) in improving production and expanding distribution.

 

Now, however, the Russian authorities are claiming that the old Soyuzplodoimport, the state-owned firm to which the brand rights were awarded in 1992, in fact had no right to sell these rights to SPI, and that it had paid substantially under the odds for the brands - as little as $61,000 according to some sources - which it estimates to be worth $400m but which have also been valued at nearer $1.4 billion. The fact that much of this value has been generated in the last 10 years by the marketing efforts of SPI seems to have passed the government by.

 

Rival product

 

So the state-owned Soyuzplodoimport has been resurrected by the government and has already begun producing its own Stolichnaya vodka which is identical to that produced by SPI apart from a slight label change. Quite what this is likely to achieve is unclear, since the majority of SPI's Stoli sales come from the lucrative distribution deals with the likes of Allied and Pernod, and these companies have no such agreement with the state-owned Stoli.

 

Shefler, meanwhile, is being sought by the police to face questioning over the alleged death threat, and the battle for control of the brands is likely to continue for some time. All this, of course, does nothing to improve Russia's chances of gaining entry to the World Trade Organisation, and highlights the dramatic shortcomings of the country's legal system.

 

SPI's claim to the trademarks seems solid enough, but this is scant consolation if its vodka cannot be exported. One alternative solution of course is to produce the vodka elsewhere, as Smirnoff does, but SPI argues that this would damage one of the brand's key marketing points - its Russian nationality.

 

It will be interesting to see whether the legal action in the EU has any impact on the Russian government's actions, but one thing seems clear - Stoli is going to be harder to find on the supermarket shelves in the immediate future.