HISTORY

(Information from http://www.spimport.ru/english.php )

History of Vodka, its export and struggles for traditional brands in modern Russia

 
Speaking of vodka exports, it appears convenient to make a short history tour. Etymologically, the word vodka, a national Russian drink, comes from “voda” meaning water. Russians began making Vodka in the tenth century, while in the eleventh they started building special distilleries, “vinokurniays” in Russian. One of these, Khlynovsky one, is mentioned in Vyatskaya chronicles from as long ago as 1184. Russian folk tales, epics as well as testimonies of some foreign residents in Russia (D. Fletcher, an English XIV century poet living in Russia at that time, S. Gerberstein, an Austrian XVI ambassador) - all talk of vodka. As long ago as in 1427 first export excises were imposed on Vodka exports, and 1505 records the first export operations with vodkas. It is from the very beginning that vodka starts to be viewed as a source of money to finance military expeditions and other affairs of the state. The year 1590 saw a decree of the Czar come out, ordaining that “vodka shall be sold in pubs only”. All over the country and even in villages one could see special taverns owned by the State. A lot was done by Peter the Great in order to improve quality of vodka on the basis of some ancient Russian recipes. It is by Peter’s decree of 1721 that soldiers started to be issued two glasses of vodka a day.

By the end of XIX century Russia was exporting up to 7mn vedros (an old Russian measure equaling some 2-3 liters) of vodka alcohol.

Before the 1917 revolution state monopoly on alcohol (conceived by Count Vitte) had existed since 1894, but only became a nationwide system by as late as 1902 

The basic principles of the monopoly were:  

• Private businesses are not allowed to make or sell vodka. Special conditions are created to ensure that production of homemade (moonshine) spirits is economically not viable.

• The State ensures high quality of the product based on latest state-of-the-art technologies combined with traditional Russian recipes.

• A special drinking culture is introduced with no restrictions on sales but with special measures designed to curb excessive drinking by Russians.

The Soviet state had basically taken the old system unchanged, channeling the vodka and other liquors sales proceeds to various areas of need (sometimes amounting to as high as 20% of the state budget).

The first years of the young Soviet state saw emergence of a state owned foreign trade company Exportkhleb that was supposed to deal with most important issues of imports and exports of agricultural products. In 1951 this company gave birth to a foreign trade company Prodintorg, which in turn split in 1966 into two other companies, one of them being Soyuzplodoimport. The latter’s range of products on offer contained over 200 vegetable based foodstuffs and products, as well as various raw materials required for their manufacture.

Over lengthy periods of time V/O Soyuzplodoimport catered for the country’s needs in exotic commodities unavailable locally due to unsuitable climatic conditions (coco beans, coffee, bananas and other exotic fruit and spices), or to insufficient production (citreous, teas, nuts, canned food etc.). Besides, depending on demand other goods were brought in, such as wines and wine materials, brandy spirits, grapes honey, fresh vegetables and berries, as well as juices etc. 

V/О Soyuzplodoimport held worldwide monopoly on white and colored vodkas, sparkling wines, brandy and other beverages. It is only natural that priority was vodka, which started to be exported massively in the late fifties after V/O Prodintorg established a special department specifically designed to deal with vodka sales.

For nearly 40 years a great number of experts in foreign trade and production were engaged in marketing, advertising and promotion activities for the benefit of Russian vodkas in Europe, America and elsewhere. Annual fairs and specialized exhibitions the company took part in numbered dozens all over the world. Promotion vodka testing actions were being held in many countries, as well as barmen’s contests for a best vodka cocktail along with various retail actions etc.

Not on a single occasion did we refrain from our central motto that “The only genuine Russian vodka comes from Russia.

The distributor companies of Russian vodkas were being granted appreciable price discounts on vodka advertisements, while at the same time joint plans were being made as to how best promote the drink on various markets.

They did not have to wait long and already the first stage of the campaign brought Russian Vodkas international recognition with Stolichnaya getting golden medals at the Brussels exhibition (1958), followed by Leipzig, Pardubiz and Plowdiw, while Moskovskaya brand achieved the same in Bern (1954), Brussels (1958) and Pardubiz.

Up until 1992, the had State spent over 100mn dollars on international advertising.

The result was that Russian genuine vodkas had acquired reputation of a first-class, original, high quality drink made of picked Russian wheat, possessing unsurpassable qualities such as being strong and smooth at the same time, and having special and unique flavor and crystal clarity.

Step by step, year after year our vodkas were gained ground, making themselves prominent internationally.

By 1992 vodkas had been sold in nearly 90 countries, while in 50 their brand names acquired official recognition.

The international public today is familiar with some 15 brands of traditional Russian vodkas and liquors, most prominent among them being Stolichnaya and Moskovskaya with some 90% of total sales.

By the early nineties, Soyuzplodoimport was exporting annually some 3mn decaliters of vodkas predominantly to US, Germany, Greece, France, UK, Italy, Spain, Canada, Columbia, Australia and other countries.

Export supplies were covered by the best and most renowned distilleries of Leningrad, Kuibyshev, Moscow and Kaluga.

In the first years following the collapse of the Soviet Union, the markets experienced total freedom in both production and distribution of alcohol.

This made production and markets anarchic in nature and led to a sharp decline in legal production volumes and consequently in state budget revenues.

Naturally, the State took steps to rectify the situation but failed to do so in full measure, which is still being felt in the present.

January 1992 saw GP VVO Soyuzplodoimport become a shareholder of a newly created VAO Soyuzplodoimport (comprising some 50 companies at the time), whose charter had an illegal entry of this company’s being GP VVO Soyuz successor.

In June 1993 a VAO Soyuzplodoimport shareholders’ meeting decided to remove from lists of shareholders GP VVO Soyuzplodoimport. Later on the latter’s property was transferred to VAO Soyuzplodoimport books, without any valuation being made or any government permission obtained.

April 1997 saw VAO Soyuzplodoimport become property of a number of Russian businessmen with Yu. V. Shefler at the lead, who by various means had managed to acquire the company’s controlling stake of shares by buying them out from VAO employees and some other companies.

Realizing precariousness of their legal standing, the new proprietors started to remove assets from VAO Soyuzplodoimport, trying to gradually bring the company’s activities to a stop.

In no time at all the following happened:

 - June 1997 - VAO Soyuzplodoimport transforms into ZAO Soyuzplodoimport, which later becomes OAO “Plodovaya Kompaniya”. This was retained as an alleged successor of GP VVO Soyuzplodoimport. -

- October 1997 - a private company is registered under essentially the same name - ZAO Soyuzplodimport with just one letter “O” missing. The latter, currently headed by A. V. Skurikhin, takes legal care of the Group’s interests in Russia, representing it in courts, mass media and other agencies.

- December 1997 - VZAO Soyuzplodoimport assigns its rights on brand names to ZAO Soyuzplodimport in exchange for 1.7mn rubles (some 300 000 dollars at the time).

- July 1998 - the building, which still houses ZAO Soyuzplodoimport, is sold at less than a fair price, along with a real estate in Hamburg, at the time priced at 8-10mn DM.

- All sales transactions and financial accounts are transferred outside Russia.

- Most of vodka shipments from Russia come from a single Russian distillery: ОАО SPI-RVVK in Kaliningrad, actually owned by SPI group with Yu.V. Shefler at the top). The export price tends to be set at a minimum: 8-10 dollars per decaliter FOB, the aim being to minimize Russian tax.

- Once oversees, all vodka brands are reregistered to a Dutch Spirits International, which it turn gets them reregistered in the west.

- Within 2-3 years the SPI group manages to set up a working system, which enables it to take practically all revenues from the State it used to receive from this formerly profitable business. 

This Group’s activities, frequently balancing between law and crime, are repeatedly attracting attention of law enforcement and certain ather ministries and agencies.  

As early as in May 1999 the first criminal investigation is instigated, followed by another two, while the activities of the group becomes target of various inspections and investigations constantly attracting attention of mass media.

Taking advantage of their ample connections in various governmental, parliamentary and business circles, Shefler’s team long manages to remain on top of the situation.

At the end of the day, however, the unlawful activities of the Group arouse attention at the Presidential administration, General Procecutors’s office, Interior ministry and the Central chamber of Inspection. These agencies, after a thorough review of the situation, submitted their proposals.

Following instructions received from the government, for over two years now the Ministry of Agriculture of Russia in conjunction with other ministries and agencies has been working, trying to restore various brands, such as Stolichnaya, other traditional vodkas and bitter liquors, in state property.

In 2000 the Central chamber of Inspection reviewed the legality and advisability of share issue and privatization of GP VVO Soyuzplodoimport. In its report to the government the Chamber stated that as a result of creation of VAO Soyuzplodoimport and GP VVO Soyuzplodoimport property transfer to the former, an alienation of state property had taken place, among other things of vodka brand names, while a total disregard to relevant laws current at that juncture had been evident.

The Chamber also stated that the decisive step in appropriation of the state property had been the unlawful entry into the VAO Soyuzplodoimport and other companies’ charters (including even OAO Plodovaya Kompaniya) to the effect that these were to be considered GP VVO Soyuzplodoimport successors.

In April 2001 the Russian Ministry of Agriculture decides that GP VVO Soyuzplodoimport should resume its work in spite of its already having been legally dismantled. In July 2001 the company, all in strict accordance with current law, is transformed into Soyuzplodoimport, a Federal state owned company (FGUP Soyuzplodoimport).

In July 2001 the Russian government decides that the Russian ministry of agriculture should, on behalf of the Russian Federation, be owner of brand names on alcoholic and alcohol containing beverages.

In 2000, in an attempt to protect state interests, the General prosecutor’s office of the Russian Federation files a claim against OAO Plodovaya Kompaniya, demanding that the part of its Charter claiming the Company to be GP VVO Soyuzplodoimport successor be recognized as void.

Following many months of trials in courts of various levels, the Presidium of the Supreme arbitration gives its final legal assessment of the case, accepting resolution that recognizes as null and void the OAO Plodovaya Kompaniya Charter entry claiming this company to be GP VVO Soyuzplodoimport successor

On October 26, 2001, based on the decision of the Supreme Arbitration of the Russian Federation, Rospatent, the Russian Patenting Agency, issues registration certificates on Stolichnaya and other brand names to the Russian Federation represented by the Russian Ministry of agriculture.

Accordingly, and based on the Russian law on “Brand names, service names and names of places of origin of goods”, on November 26 2001 the Russian Ministry of Agriculture advises ZAO Soyuzplodimport on the ban on all sorts of use of Stolichnaya and other traditional brands, warning the company that an illegal use of brand names may entail civil (payment of damages) and criminal liability (Art. 180 of the Penal Code).

The Kaliningrad OAO SPI-RVVK receives the same notification on February 11.

The General Prosecutor’s office of the Russian Federation also appeals to the Arbitration court of Moscow with a claim to recognize the contract between ZAO Soyuzplodimport and VZAO Soyuzplodoimport (currently Plodovaya Kompaniya) on “Cession of rights on brand names” of December 26, 1997, transferring the formerly state owned brand names to ZAO Soyuzplodimport, as null and void.

On January 30, 2002, the Moscow Arbitration allows the General Prosecutor office claim, and on March 28, 2000 the Moscow Arbitration court of appellate jurisdiction declines to change the award.

Over the first months of this year, despite the aforesaid ban by the Ministry of Agriculture of the Russian Federation, the SPI Group and its Kaliningrad SPI-RVVK distillery persisted in the unlawful production and export of Stolichnaya vodka and other brands. Given the circumstances, the Russian Ministry of Agriculture in order to protect their legal rights had no option but to appeal to law enforcement and customs agencies.

Due to an illegal use by ОАО SPI-RVVK of Stolichnaya and Moskovskaya brand names, a criminal investigation under Art. 180 of Penal Code of Russian Federation was initiated in March this year, while 175 000 decaliters of export ready vodka was impounded.

This criminal case is still under investigation. Realizing the inescapable failure in struggle against Russian State and owing to legal precariousness of their situation, the SPI Group undertakes early steps in order to transfer production into other countries. In so doing, in 2001 the Group becomes proprietor of the Latvia’s largest Latviyas Balsams distillery in Riga.

Currently this distillery is bottling for export vodkas based on spirits and vodkas that are still supplied from Russia.

It appears, however, that shortly alcohol shipments from Russia will be stopped and, once the still available stocks of Russian origin are exhausted, the Latvian product will cease to be genuine vodka bottled in Russia.

The SPI Group, therefore, in spite of desperate struggle it is putting up is forced to abandon Russia, while the focal point of legal, commercial and information battle for vodka brand names is shifting to USA, Germany, Australia, France, Greece, Japan, UK and others, i.e. to the main markets of Russian vodkas.

One should bear in mind that the Group’s main revenue comes from vodka exports as it gets supplies from Russia at a below than fair price without paying virtually any tax. All transactions take place in off-shore areas, which 1997-2001 are reported to have caused the State losses estimated at 40mn dollars mainly due to lost income tax and revenues of at least 120mn dollars in hard currency that stayed outside the country.

In December 2001 the Russian government decided to create a state owned Soyuzplodoimport, whose charter was approved in March of the same year.

The FKP Soyuzplodoimport current responsibility is to export and import all sorts of alcoholic and alcohol free drinks, fresh and processed fruit and vegetables, teas, coffees and spices, other vegetable based products as well as to carry out other foreign trade activities.

We believe that in no time at all this state owned company will turn into a powerful firm with a widely developed infrastructure inside and outside the country

FKP Soyuzplodoimport You are welcome to work together with us
 
The Decree No. 494 of July 4, 2002 issued by the Russian government made the government company Soyuzplodoimport owner of rights on brand names of traditional Russian Vodkas and bitter liquors
 
 

According to this Decree, FKP Soyuzplodoimport, jointly with the Ministry of Agriculture of the Russian Federation and the Ministry of property relations of the Russian Federation, will develop procedures for using these brand names.
 
Therefore, FKP Soyuzplodoimport is currently working in the following directions:
 
Develop a standard license agreement;
Define the list of companies capable of producing high quality products in sufficient quantities;
Determine amount of royalties for using brand names and payment procedures
Develop a quality control system and measures designed to protect brand names in the Russian Federation;  Agree procedures for recording and using proceeds from sale of rights to use brand names.

One of the principal tasks of FKP Soyuzplodoimport is to restore rights of the State on the brand names and ensure their legal protection outside Russia.
 
Besides, it is intended to appreciably strengthen image and reputation of Russian vodkas internationally by means of widening areas of export.
 
Talks have now begun with foreign distributors of these vodkas in various countries of the world. It doing so, one must bear in mind that distributors’ interests will be accorded maximum attention, while all necessary steps designed to restore rights on brand names will be taken strictly within international laws and laws of respective countries.
 
It is clear that SPI, which in the past made illegal use of the above brand names, has begun production of supposedly Russian vodkas outside Russia.
 
Consumers and true connoisseurs of Stolichnaya, Moskovskaya and other vodkas have traditionally associated these products with Russia. True, the genuine Russian vodka can only be one produced and bottled in the Russian Federation, using Russian raw materials (alcohol, water, additives etc) and original recipes and techniques.
 
When determining quality and country of origin of products bearing “RUSSIAN VODKA” on them, FKP Soyuzplodoimport proposes to make use of services of independent international experts equipped with modern methods and instruments, capable of providing a valid answer to all of these issues.
 
Such expert assessments will be made public and will prevent international consumers from being misguided as to the true quality and genuineness of the product.
 
FKP Soyuzplodoimport is in a position to immediately commence exports of original Russian vodka, and therefore extends to all companies concerned an invitation to joint cooperation.
 

History of principal Russian vodka brands

Etymologically, the word “vodka”, a national Russian drink, comes from “voda” meaning water. Russians began making Vodka in the tenth century, while in the eleventh they started building special distilleries, called “vinokurniays” in Russian. One of these, Khlynovsky, is mentioned in Vyatskaya chronicles from as long ago as 1184. At that time vodka was used as a medicine. Russian folk tales, epics as well as testimonies of some foreign residents in Russia (D. Fletcher, an English XIV century poet living in Russia at that time, S. Gerberstein, an Austrian XVI century ambassador) - all talk of vodka. In 1472 Joann III imposes a state monopoly on production and distribution of “grain wine”, making production of alcohol an inclusive state or royal privilege.
 
The year 1505 records the first export operations with vodkas.
 
The year 1590 saw a decree of the Czar come into effect, ordaining that “vodka shall be sold in pubs only”. All over the country and even in villages one could encounter special taverns owned by the State. A lot was done by Peter the Great in order to improve quality of vodka on the basis of some ancient Russian recipes. It is by Peter’s decree of 1721 that soldiers started to be issued two glasses of vodka a day.
 
By the end of XIX century Russia was exporting up to 7 million vedros (an old Russian measure equaling some 2-3 liters) of vodka.
 
In 1865 in his thesis “On water and alcohol compounds”, D. I. Mendeleev managed to give a scientific explanation of vodka strength, proving that optimally is should be 40 degrees.
 
Based on Mendeleev’s research data from 1902 onwards, any finestilled genuine Moscow vodka should only be grain alcohol based, three times finestilled and then diluted with water to 40 degrees. Patented by the Russian government, this vodka was called “Moskovskaya osobennaya” (Moscow special).
 
The year 2002 marks a 100 years since the state monopoly on alcohol was fully introduced in Russia, after having been implemented for 8 years under the distinguished Russian statesman, S. Yu. Vitte.
 
The basic principles of the monopoly were:
Private businesses are not allowed to make or sell vodka. Special conditions are created to ensure that production of homemade (moonshine) spirits is economically unviable.
 
The State ensures high quality of the product based on latest state-of-the-art technologies combined with traditional Russian recipes.
 
A special drinking culture is introduced with no restrictions on sales but with special measures designed to curb excessive drinking by the population.
 
The Soviet state had basically taken the old system unchanged, with proceeds from sales sometimes amounting to as high as 20% of the state budget.
 
Up until 1917 the only legal Russian vodka manufacturers were Russian “Vdova M. A. Popova”, “Peter Smirnoff”, “I. A. Smirnov”, “Brothers Varaksin & Co.», “I. V. Aleksandrov” (Kazan) and A. V. Dolgov (Nizhniy Novgorod) firms.
 
In 1929-1939, the British national encyclopedia defined VODKA as “Russian national drink made in Russia”.
 
Manufacturers of allegedly Russian vodka first started to appear outside Russia in 1918 - 1921 in the wake of the first wave of the Russian emigration.
 
In the thirties, various firms, and above all “Peter Smirnoff”, “Eristov, Keglevich” and others, began a campaign to prove that their Russian vodka was better that vodka made by Soviets, claiming to have started production before the Soviets.
 
Sure enough, you can make use of ancient recipes, techniques, experienced experts but you cannot copy a true Russian drink without best Russian grain grown on local soils, without Russian water, air, unique additives, i.e. without all those things that make this high quality product genuine Russian vodka. Nonetheless, over many years the pseudo-Russian vodkas, having nothing to do with Russia, were dominating the global markets.
 
In the USSR, production of vodka resumed in 1924. At this juncture, numerous famous chemists, involved in study of Russian vodka, began their research that greatly contributed to a further improvement of Russian vodka made by Soviets. Before the revolution, professor M. Kucherov, for example, after having found that Smirnoff vodka being made at Moscow at that time contained potash and acetic kali, which were rather unhealthy, suggested adding baking soda that made vodka “more drinkable”, was not only harmless but even healthy.
 
Professor A. Verigo implemented a reliable and precise method of measuring fusel-oil content in rectified alcohol and invented a double charcoal filtering technique.
 
Professor A. Shustov suggested using “nortite” activated carbon in production of vodka.
 
In 1937 all Soviet distilleries adopted a single series of recipes of Russian vodkas, considerably enlarging the range of vodkas produced.
 
The “Moskovskaya osobaya” launched in 1936 by F. Vikhman, M. Rupnevskaya, S. Trusova, went into mass production in 1938.
 
vodka “Stolichnaya” was invented by a famous alcohol expert V. Sviridov in 1938, launched in the besieged Leningrad in 1941 by the Leningrad distillery and first mass produced in 1943.
 
“Stolavaya” and “Krepkaya” vodkas first appeared in 1935, while “Russkaya” - in 1968.
 
Colored vodkas and strong bitter liquors, such as “Starka”, “Okhotnichya”, “Pertsovka”, “Zubrovka”, “Limonnaya”, “Kubanskaya” first appeared before the revolution, their authors are unknown. Their production was re-launched in the USSR in 1931.
 
In 1969 the State inventions committee of the USSR issued in the name of V/О Soyuzplodoimport first registration certificates on “Stolichnaya”, “Moskovskaya”, “Starka”, “Yubileynaya”, “Kubanskaya”, “Zubrovka”, “Russkaya”, “Okhotnichya” and “Baltiyskaya”. Some time later “Pertsovka”, “Limonnaya”, “Krepkaya”, “Stolovaya”, and then “Sibirskaya” were registered.
 
From mid seventies onward, after the traditional Russian vodkas “Stolichnaya” and “Moskovskaya” received a loud acclaim, they started to be treated by experts, and later on by business circles, and what is more important, by consumers, as original Russian vodkas. It was at that time that “The only genuine Russian vodka is vodka from Russia” commercial slogan made its appearance, and the first suit against American Hubeline company, the owner of “Smirnoff” brand, took place in Germany, eventually leading to an amicable agreement. The manufacturers had to remove from the label of the bottle the “year 1818” inscription (the year first vodka was produced in Russia), and the picture of the imperial crown.
 
In the seventies, V/О Soyuzplodoimport registered brand names on traditional Russian vodkas and bitter liquors in the majority of countries of the world.

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