Beluga Sees Beyond Sanctions to Lead Superpremium Vodkas

About a decade after the first bottle of Beluga vodka was produced in a small Russian town, its owners are seeking global leadership in the superpremium vodka segment. The flare-up in relations between Russia and the West is doing little to dissuade them.

“We are playing long-term and a year or two years don’t make a difference for us,” OAO Synergy Chief Executive Officer Alexander Mechetin said in an interview at the company’s Moscow headquarters. “The current political tensions will be solved sooner or later. Russia will continue integrating into the world and will play a meaningful role there.”

Beluga plans to more than triple output to 1 million cases in the next five years, according to Mechetin, exporting more of the spirit to the U.S. and other countries where people are willing to pay up while the Russian market contracts. The brand would rank third globally among superpremium vodkas, or those that sell for more than $30 a bottle, based on today’s figures.

“Our ambition is to build as strong a reputation in the vodka world as Patek Philippe has among watches or Hermes does in fashion,” Mechetin said.

The label, which means ‘great sturgeon’ in Russian, is named after the fish from the Red List of threatened species whose roe is sold as caviar. First produced in the Russian town of Mariinsk in December 2002, Beluga only entered Europe in 2009. The U.S. and east Asia followed a year later.

Art Exhibitions

To associate with the luxury end of the vodka market, Beluga advertises at events including polo, yachting and Russian art exhibitions. It was featured in Jennifer Lopez and Pitbull’s videoclip ‘Live It Up,’ which has gathered more than 110 million hits on the Web.

Still, the brand is currently a distant competitor to global giants, selling 263,000 cases last year compared with Bacardi’s Grey Goose’s 3.9 million and Diageo Plc’s Ciroc’s 2.4 million, according to researcher IWSR. Belvedere, owned by LVMH Moet Hennessy Louis Vuitton SA, shipped 797,000 cases.

“Russians get very excited about Beluga because they see it as the best premium vodka, but it actually doesn’t have much distribution outside the country and it’s tiny” compared with Grey Goose and Ciroc on a global scale, said Trevor Stirling, an analyst at Sanford C. Bernstein.

Synergy shares have slid 26 percent this year, compared with a 2.8 percent drop in Russia’s benchmark Micex Index, valuing the company at about 13.8 billion rubles ($380 million).

Declining Market

Success for Beluga will depend on making the brand bigger abroad amid a declining market for vodka at home, where consumption of the drink has dropped about 17 percent in the past five years. That may be a more pronounced challenge at the moment, given the escalating tensions between Russia and western countries such as the U.S. or U.K. Russia banned the import of many agricultural products for the U.S. and European countries this month. The embargo doesn’t apply to liquor.

“There is a risk that the West’s negative sentiment towards Russian politics could translate into sentiment toward Russian vodka as well,” said Ivan Kushch, an analyst at VTB Capital in Moscow, whose parent VTB Group was included in the European Union’s sanctions list.

International demand for Beluga is still rising, Mechetin said. Exports increased 35 percent in the first half of this year, following a 17 percent gain last year, which was driven by the U.S. and duty-free segment globally.

Bootlegged Vodka

An excise-tax rise in Russia has boosted vodka prices this year, pushing lower-income customers toward cheaper bootlegged versions and wealthier Russians toward other hard liquor.

While Russian legal alcohol production fell 16 percent in the first half, Synergy’s shipments slid only 8 percent helped by exports and sales of imported drinks.

Mechetin is optimistic about the future. Beluga got a boost when singer Justin Timberlake mentioned it a recent Moscow concert.

“We have different, and sometimes unexpected, customers,” Mechetin said.

Timberlake may have enjoyed it too much. He joked at the concert that a man told him to drink Beluga “and that’s the last thing I remember.”

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