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A store worker stacks shelves with alcohol in the Lenta superstore in St. Petersburg. In a bid to reduce alcoholism, Russia has raised liquor taxes.

Distiller’s push into Russia faces obstacles

Bloomberg News photos
Men drink vodka in a cafe in Moscow. Russians, the world’s biggest vodka consumers, are being wooed by the maker of Jim Beam whiskey.

Beam Inc. wants more vodka-imbibing Russians to drink Jim Beam and Maker’s Mark whiskey.

But in a campaign to help his people live longer, Russian President Vladimir Putin is pushing the biggest crackdown on alcohol since the Cold War. That could complicate Beam’s efforts in a nation that’s a cornerstone of its emerging-market strategy.

Russians looking to show off burgeoning prosperity have helped make imported whiskey the fastest-growing spirit in Russia as vodka sales fall.

The trend figures into Beam’s goal to get 25 percent of its annual sales growth from emerging markets and double sales in Russia in three years.

The surge in whiskey consumption comes amid government bans on late-night alcohol sales, drinking in public places and alcohol ads on TV, radio and billboards. Russia also has added taxes in an attempt to restrain alcohol consumption that’s the world’s fourth-highest per capita.

Such measures may require even more agility on the part of importers such as Beam, Jack Daniel’s-maker Brown-Forman Corp. and Johnnie Walker-maker Diageo Plc as they seek to quench Russians’ thirst for dark spirits, said Spiros Malandrakis, a global alcohol drinks analyst for researcher Euromonitor.

“There has been a massive series of legislative attacks,” Malandrakis said. “You have to take slow steps so you don’t gather the wrath of the Kremlin on your head.”

Beam, based in Deerfield, Ill., rose 2.8 percent to $57.15 Nov. 2 after reporting third-quarter per-share earnings, excluding some items, of 62 cents, beating the 55-cent average of analyst estimates compiled by Bloomberg. The shares have risen 12 percent this year. Beam has traded, on average, at a 76 percent percent premium on a price-to-earnings basis to the Standard & Poor’s 500 Index during the past year, according to data compiled by Bloomberg.

Carlsberg, owner of Russia’s leading brewer, Baltika, knows all too well how volatile Russia can be. After investing billions in a country that accounts for almost 40 percent of of its global profit, the company has struggled against a declining beer market amid the government crackdown. Consumption fell 2.4 percent from 2007 to 2011, according to International Wine & Spirit Research.

“Part of the ability to compete in markets like Russia is to understand that reality,” Beam Chief Executive Officer Matt Shattock said. “We have to play by the rules established in each market and sometimes in environments like this, those rules move.”

For Russians, American spirits are as much about status as inebriation. At Globus Gourmet, a high-end food store in the heart of Moscow – where conspicuous consumption fuels two Rolls-Royce dealerships - the liquor boutique looks like a diamond store.

Showcase lighting transforms bottles of bourbon, cognac and scotch into shimmering displays of amber and caramel hues.

A bottle of L’Esprit de Courvoisier, with its own decorative carrying case, sells for 226,630 rubles, or 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 features almost all brown spirits. Shelf after shelf of vodka, meanwhile, has been pushed to the sides.

“We’re looking at premium outlets where people with the money go,” said Bill Mateo, who manages Beam’s Russian distribution partnership, called Maxxium.

In a Russian spirits market that fell 4.6 percent last year, including 4.9 percent for vodka, whiskey consumption grew 48 percent, according to the London-based ISWR. Russians’ love affair with Western spirits showed up in tequila consumption as well, which jumped 45 percent. Beam is concentrating its Russia marketing and distribution efforts on Sauza tequila, Courvoisier cognac and Teacher’s scotch in addition to Jim Beam.

“Russians are a spirits-drinking nation and they are extremely bored of vodka,” Malandrakis said. “As they try to shed all the associations with a Soviet past and move into a Western direction, premium whiskeys and tequila make sense.”

If it weren’t in the center of Moscow on the ground floor of a Stalin-era apartment building, the Real McCoy Speakeasy Bootlegger’s Bar & Restaurant could be mistaken for an attraction at Walt Disney World’s Frontierland.

The saloon-like space is adorned with peeling faux cement walls. One corner holds a jail cell. The bar is perched on fake wooden booze barrels. As if to drive home the point, the white outline of a sprawled corpse is painted on the wood plank floor. The drink of choice here: whiskey.

“We’re seeing some exciting growth of Western spirits,” Shattock said. “As Russian incomes grow, there is an opportunity to switch from local to imported brands.”

Still, vodka is king, making up almost four-fifths of spirits consumption in the country. Whiskey didn’t even register one percent, making it less of a threat to regulators fighting overconsumption.