Tatarstan: Emerging Leader In Vodka?   Leave a comment

MAY 8, 2012: To some, Tatarstan may seem like an odd place to launch the next stage of a booming global vodka business, but then again Rustam Tariko (pictured), who made his fortune through an eclectic mix of alcohol and banking, has never been one to do things by the book.

Having successfully turned his high-end vodka business, Russky Standart, into an international name in just over a decade, the Tatar billionaire has returned to his home region, where he hopes his investments in a local spirit distillery will help propel his business even further on the global market.

The company has invested 500 million rubles ($16 million) in modernizing the small spirit plant in Buinsk, some 130 kilometers from Kazan, since purchasing it from the Tatarstan government two years ago. Now the company hopes to use it to produce highquality spirit, which is to be the core ingredient to be used at its St. Petersburg distillery.

Despite the cost of the project, and the logistical matter of the new plant being some 1,600 kilometers of (mostly) bad road away from the old distillery, the company’s management says the investment will give the company a unique edge over other producers of high-end vodka, few of which have facilities to produce their own spirits.

Once the new plant is up and running, they will begin developing facilities to cover the initial stage of the vodka-production process – growing a unique Russky Standart variety of grain – also in Tatarstan.

Although Tatarstan is Tariko’s home region, company management said it chose the plant due to its high-quality technical facilities, rather than due to any emotional attachment to the area. Russky Standart’s technical director, Vladimir Fomin, told The Moscow News the plant was selected in an audit of 40 distilleries across Russia.

The other attraction of the area, he said, is its proximity to highquality grain, which flourishes in the fertile black earth of the lowlands surrounding the nearby Volga River.

There is little doubt that investment from a global company will bring significant benefit to Tatarstan, which has been busy developing its business climate in recent years. The efforts of the autonomous republic’s government to support business activity and enshrine investor privileges in the law led Tatarstan to be named Russia’s best region for doing business in a study conducted by Ernst and Young last year.

In a show of his approval of the Russky Standart project, Tatarstan President Rustam Minnikhanov dropped in on the launch in a helicopter for a quick tour of the modernized factory and some private talks with Tariko.

The St. Petersburg plant currently relies on ingredients bought on the market

For Russky Standart the investment is a fairly bold bet at a time when most producers of high-end goods are cutting back in anticipation of a fresh bout of global recession.

Full vertical integration is very much a luxury in an industry where most big brands buy their primary ingredients relatively cheaply on the market, as Russky Standart has done until now, with seemingly little detriment to its reputation. The brand is growing at a rate of around 25 percent a year on international markets, while sales of others are falling flat.

The company’s management admitted that the new plant was unlikely to bring them any immediate financial gain, and is aimed more at securing their position as a producer of high-quality and authentic vodka in the long run.

Then there is the other issue that is raising alarm bells among Russian vodka producers: a hefty load of excise taxes the government plans to slap on alcohol and cigarettes in a bid to combat Russia’s health problems. The taxes could cause minimum vodka prices to rise by 30 percent this year, Russian media reported this week.

But Tariko said that neither tax hikes nor the state of the global economy worried him. The taxes, he said, target cheap vodka and will have little effect on premium brands like Russky Standart, which usually goes for about 1,000 rubles (about $30) a bottle.

And while the new factory may be a gamble, Tariko has a good track record of pulling off business ventures against the odds. His decision in the late 1990s to name his consumer banking business after his vodka brand raised eyebrows, but it quickly became one of the country’s most profitable banks.

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RADA conducts due diligence and business intelligence investigations in Russia, Ukraine, Belarus, Poland, Romania, Moldova, Latvia, Lithuania, Estonia, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.

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