When Beam (BEAM) spun off from Fortune Brands last year, the American whiskey company turned its attention to vodka-soaked Russia, hoping to double sales there by 2015. Its timing is risky: In the past year, President Vladimir Putin has expanded the country’s biggest crackdown on alcohol since the Cold War. Late-night alcohol sales, outdoor drinking in public areas, and booze ads on television, radio, and billboards are banned. That’s on top of a 200 percent increase in beer taxes in 2010. The aim is to improve the health of Russians, who drink 15 liters of alcohol a year—down from 18 two years ago.
Despite all this, Beam’s expansion is going according to plan. That’s mostly because it’s targeted upscale drinkers whose tastes are starting to favor whiskey over vodka. High-rolling drinkers with a penchant for Western culture, and money to burn, have helped make imported whiskey the fastest-growing spirit in Russia, per capita the fourth-hardest-drinking country in the world. Whiskey consumption grew 48 percent last year, according to International Wine and Spirit Research. Tequila sales jumped 45 percent.
“Russians are a spirits-drinking nation, and they are extremely bored of vodka,” says Spiros Malandrakis, an analyst for researcher Euromonitor International. “As they try to shed all the associations with a Soviet past and move into a Western direction, premium whiskeys and tequila make sense.” Sales of vodka, which make up 80 percent of Russian spirits, fell 4.9 percent last year, according to IWSR.
Beam boosted its share of the U.S.-made whiskey market in Russia to 25 percent last year, from 14 percent in 2009, says Euromonitor. It’s now setting its sights on market leader Jack Daniel’s and its 72 percent share. With the recent official ban on alcohol advertising, Beam has turned to more unconventional methods of hyping the brand. Crews of attractive young women are sent into Russian bars to seek out Jack Daniel’s drinkers—and offer them free blind taste tests. Beam also is hosting golf events and tastings at yacht clubs. “It’s about putting luxuries together,” says Bill Mateo, who manages Beam’s Russian distribution partnership.
The focus on the high-end market has helped insulate Beam from the government crackdown. Whiskey accounts for less than 1 percent of alcohol sales in Russia, and much of the government’s attention has been aimed at low-cost spirits rather than premium brands. A 0.7-liter bottle of Jim Beam can cost as much as 1,660 rubles ($53), whereas a half liter of Green Mark, Russia’s best-selling vodka, goes for about 181 rubles. For those used to getting drunk off a cheap bottle of vodka, a 30 percent tax is a lot harder to swallow than for someone buying higher-end imported spirits.
For many wealthy Russians, American-made whiskey is as much about status as inebriation, and buying the product has become part of the experience. Globus Gourmet, an upscale food and liquor store in Moscow, looks more like an elite jewelry shop. Lighting transforms the bottles of bourbon, cognac, and Scotch into shimmering displays of amber and caramel hues. A bottle of Beam’s L’Esprit de Courvoisier, with its own decorative carrying case, sells for almost $7,300. Next to Red Square, in the GUM luxury mall, the centerpiece of a massive spirits display at the Gastronom No. 1 grocery store is featuring almost all brown spirits. Shelves of vodka have been relegated to the sides.
Beer sales also have suffered in the crackdown. After investing billions in Russia over the past two decades, Copenhagen-based Carlsberg Group (CARLB:DC), owner of Russia’s leading brewer, Baltika, has struggled in a declining market. Beer consumption fell 2.4 percent from 2007 to 2011, according to IWSR. Russia accounts for 40 percent of Carlsberg’s profits.
Whiskey importers will have to be nimble as they continue to navigate Russia’s anti-booze policies. “Part of the ability to compete in markets like Russia is to understand that reality,” says Beam Chief Executive Officer Matthew Shattock. “We have to play by the rules established in each market, and sometimes in environments like this, those rules move.”
If whiskey sales continue to rise, importers may have trouble flying under the radar. “There has been a massive series of legislative attacks,” says Malandrakis. “You have to take slow steps so you don’t gather the wrath of the Kremlin on your head.”