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Billionaire Russian Tariko Aims to Overtake Smirnoff-Maker Diageo

Photographer: Simon Dawson/Bloomberg

Billionaire Roustam Tariko said, “Today, to compete with big giants like Diageo and Pernod Ricard you really need to compete in every segment of the market.” Close

Billionaire Roustam Tariko said, “Today, to compete with big giants like Diageo and... Read More

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Photographer: Simon Dawson/Bloomberg

Billionaire Roustam Tariko said, “Today, to compete with big giants like Diageo and Pernod Ricard you really need to compete in every segment of the market.”

When billionaire Roustam Tariko bought the owner of Zubrowka last year, he catapulted to No. 2 among vodka owners by volume, trailing Diageo Plc. (DGE) He’s now giving himself three years to top the U.K. company, too.

Getting there, he said, will mean a new strategy for his Russian Standard Corp., which for years has marketed its product with the tagline of “Vodka as it should be.”

In Tariko parlance, that used to mean Russian, unflavored and exclusive. With Central European Distribution Corp.’s Polish bison-grass flavored Zubrowka and cheaper Green Mark vodka -- which sells for about $15 a bottle in the U.S. -- the self-made billionaire is focusing on a broader range.

“Today, to compete with big giants like Diageo and Pernod Ricard you really need to compete in every segment of the market,” Tariko, 51, said in a television interview in Davos, Switzerland.

Tariko, who built his fortune importing Martini into post-Communist Russia, started his Russian Standard vodka in 1998, out of a desire to produce a Russian high-end brand. The company claims it’s made purely from winter grain -- wheat planted in the autumn and grown under frost -- and glacial water from Russia’s Ladoga lake. It’s then distilled in St. Petersburg by the country’s best “vodka scientists.”

Helped by marketing that includes traveling Miss Russia contenders, Russian Standard has grown an average 10 percent a year by volume in the past five years versus a 1 percent decline for the global $49 billion vodka market, the biggest category in spirits, Sanford C. Bernstein estimates.

Expensive Marketing

Toppling Diageo is another matter. The world’s biggest spirits maker has overall revenue almost six times that of closely held Russian Standard, giving it more marketing capacity.

“The likes of Pernod and Diageo are not businesses that easily cede their positions in any market or category,” said Matt Woodhams, a director at strategic marketing consultant Added Value. Tariko will have to invest in a distribution platform “which takes time and resources.”

Pernod Ricard (RI) SA and Diageo declined to comment on Russian Standard’s plans.

Distribution is what the billionaire knows best. Born under communism, he worked part-time shoveling snow while studying economics. His interest in consumer goods was piqued when he met representatives of Italian chocolatier Ferrero Rocher, whose treats he began selling for rubles at a time when such delicacies were usually only paid for with hard currencies. The Martini deal, Russian Standard and a consumer-lending bank of the same name followed over the years, ultimately giving him a net worth of more than $1 billion.

Vodka Belt

CEDC is his biggest acquisition yet. Tariko bought the portfolio of 10 vodka brands out of bankruptcy in June, vaulting him from a second-tier vodka brand past Absolut maker Pernod Ricard, Bacardi and others. He spent about $440 million over two years to acquire CEDC and also absorbed $700 million of the company’s debt, according to Vedomosti daily.

Tariko says he aims to dominate the market from “Germany to Vladivostok,” Russia. To do that, he plans to restore a marketing budget that was stripped to save costs as CEDC collapsed under the weight of debt it racked up after a series of Russian acquisitions.

Brand Authenticity

“CEDC is currently very badly positioned -- over-exposed to the super-competitive and shrinking central and Eastern European vodka market and in the wrong segment -- tough-value vodka,” said Jean-Marc Chow, a London-based drinks analyst. “However, I believe Roustam could turn around the portfolio and push through Zubrowka and Green Mark distribution worldwide.”

Russian Standard is doing more to reach out to bars like those owned by the Inception Group, which uses the brand as its house vodka. Its Mr. Fogg’s in London uses the Platinum variant, which is filtered through silver. Mr. Fogg’s bartenders are given training trips to Russia and Russian Standard has also financed “Russian Night” events at the bar, supplying vodka and thematic dancers.

Tariko expects brand authenticity will help him win over consumers that he said are increasingly interested in the origin of their products. Russian Standard also promotes a slew of cocktails -- including the Moscow Mule, a ginger-infused drink served in a trademark copper mug.

Avoiding Acquisitions

One thing he doesn’t expect more of for the time being: big acquisitions. When Tariko refers to the G-5, he doesn’t refer to the world’s biggest economies, but the companies that control the spirits’ supply and are headquartered in Russia, France, the U.K., Japan and the U.S.

And that’s where power will stay, he said. “I believe the global game is practically done,” he said, referring to the division of major alcohol brands between groups.

He may have one country to consider, according to the bar manager at Mr. Fogg’s.

“Russian Standard is the most popular,” said Francesco Medici. “But now we are also using a new vodka from Iceland.”

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Ryan Chilcote in London at rchilcote@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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