Moscow plans Stolichnaya sale, as Poland proposes Wyborowa restrictions

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Related tags: Pernod ricard

The ownership of two of the best-known vodkas from Eastern Europe
could be under threat. The Russian government has announced that it
plans to sell licences to produce Stolichnaya to the highest
bidders, while Poland is proposing making the name Wyborowa a
generic designation of origin term. Both cases are being challenged
by the companies which claim the rights to the vodka brands.

Two of the best-known vodkas from the former Soviet block are under serious threat. Both Stolichnaya, made in Russia, and Wyborowa, Poland's leading vodka brand, have already seen their fair share of controversy, but their future became even more uncertain this week following government announcements in their respective countries.

The Russian authorities this week announced that they were planning to sell licences to produce Stolichnaya to Russian distillers, the latest twist in the battle for control of the famous brand. The Stolichnaya business was privatised in 1992 and subsequently sold to a private company, SPI, in the early 1990s, and has flourished since then thanks to investment in production and marketing. But the government argues that the original sale of the business in 1992 was illegal and has - arbitrarily, SPI argues - taken back the production rights.

Reports suggest there are more than 50 Russian alcohol producers interested in acquiring the production licences, not surprisingly given the international success of Stolichnaya and its sister brands such as Moskovskaya and Limonnaya. SPI has worked hard to expand distribution of the vodkas, signing partnerships with major spirit groups such as Allied Domecq, which is the US distributor.

SPI is still contesting the Russian Agriculture Ministry's claim that it has the right to take back the production rights to the brands, and has filed a complaint with the international court in Rotterdam. But a Moscow court has already come out in support of the Ministry, and Russian President Vladimir Putin has been noticeable in his failure to support SPI's claim, and SPI is facing a difficult task to win back its rights.

Wyborowa name under threat

In Poland, meanwhile, Pernod Ricard's flagship vodka brand Wyborowa is also facing an uncertain future, and not for the first time. The French company has had to fight hard to support its claim to the vodka brand, acquired when the group bought the Agros company in the mid 1990s.

Agros had the export rights to all of Poland's vodkas, at the time produced by the state-controlled Polmos distilleries. But the Warsaw government decided to privatise all the Polmos distilleries, assigning the production rights - both export and domestic - to all Polish vodkas to the various distilleries in a bid to attract bidders.

Pernod argued that the government did not have the right to assign the export rights as they had legally been acquired as part of the Agros deal, but an agreement was finally reached whereby all the export rights were returned to the various distilleries and Pernod Ricard became the sole owner of Polmos Poznan, the producer of Wyborowa.

Things have been relatively calm for a year or so, with the French group putting a great deal of time and money into promoting Wyborowa on international markets, but now all this could be in jeopardy following the Polish government's proposal that the names Wyborowa ('select' in Polish) and Luksusowa (another brand owned by Pernod and whose name means 'luxury') be designated as generic terms which can be used by other producers to describe their vodkas.

Not surprisingly, Pernod has condemned the proposed move, calling it an effective renationalisation of the brands, and has lodged complaints with both the French and European authorities, as well as with officials in Warsaw. The government there introduced the ruling as part of a draft law designed to ensure that all the raw materials used to make the vodka are sourced locally, effectively turning the names into designations of origin and obliging producers to make them within a specific area.

But Pernod argues that it already uses local materials to make the vodka, and that it has pledged to keep the brand there for at least 12 years, and that as such the new rules are both draconian and unnecessary. The brand has been heavily marketed as a Polish vodka, and in a market where the origins of products are increasingly important, this is unlikely to change.

Pernod said it would take legal action against the Polish government if the proposal becomes law, and there will certainly be considerable political pressure on the Poles at a time when they are trying to finalise the country's admission to the European Union. The ruling would not be allowed under EU law.

Both these cases show that while companies in the West have been quick to see the potential of brands produced in the former Soviet block, the actual process of acquiring and maintaining these brands is a long and arduous one. Many of the countries in Eastern Europe have had difficulty embracing the market economy in its entirety, and with such emblematic products as vodka and other national drinks this is to a certain extent understandable.

Scant consolation for the companies concerned, of course. At least the threat of political pressure might help Pernod win its case in Poland, but SPI's situation looks bleak indeed, with the Russian government proving completely intractable and not subject to the same political pressure, as it is not aspiring to join the EU. The future of both these increasingly international brands is still very much in the balance.

Related topics: R&D

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