Bacardi reneges on promise to quit Russia, sees profits triple

The Bell

After Russia’s 2022 invasion of Ukraine, alcohol manufacturer Bacardi International announced that it would cease exporting its alcoholic drink range to Russia and would freeze investment and promotion programs. However, the pledge to halt supplies disappeared from the press release soon after and, over the past year, the profits enjoyed by Bacardi’s Russian outfit have tripled. Journalist Sergei Panov, the founder of the @wine_laundry Telegram channel, looked into the company’s Russia operations in an exclusive for The Bell.

What’s going on?

Bacardi International posted a statement on its website in March last year condemning Russia’s attack on Ukraine. The company promised to donate $1 million to the Red Cross and the Mercy Corps, while also halting all exports to Russia and freezing investments and advertising. After this promise was widely reported in the international press, the pledge to halt sales and marketing disappeared from the text of the statement (however, they can still be found in archive versions of the webpage with the announcement).

Instead, over the course of the last year, Bacardi's Russian subsidiary — Bacardi Rus — has enjoyed a financial bonanza. Reports on Russia’s Federal Tax Service website show how, compared with 2021, the fixed assets held by Bacardi Rus in 2022 increased in value from from 57 million rubles to 850 million rubles. The firm’s revenue ticked up from 30.1 billion rubles to 32.6 billion rubles and net profits tripled to almost 4.7 billion rubles.

Bacardi International and Bacardi Rus

Bacardi is the biggest family-owned alcohol manufacturer in the world. Founded in 1862, the company is still managed by the Bacardi family. It owns famous brands including Bacardí rum, Grey Goose vodka, Patrón tequila, Aberfeldy, Dewar’s, and William Lawson’s whiskies, Bombay Sapphire gin, Martini & Rossi and many others.

The group is operated by Bacardi Limited, registered in the Bahamas. Earlier this month, rating agency Fitch forecast the company’s EBITDA in 2023 would hit $1.2 billion.

Bacardi Rus’ website tells us that Bacardi began selling its products in Russia in 1992 and opened its first offices in the country a decade later. The company now employs 350 people and has offices in Moscow, Istra, St. Petersburg, Novosibirsk, Nizhny Novgorod, Rostov-on-Don and Yekaterinburg. The Russian subsidiary is 99% owned by Germany’s Bacardi GMBH. The other 1% is held by the Dutch Bacardi-Martini B.V.

Parallel import or direct supply?

After the start of the war and the imposition of Western sanctions, Russia’s parliament legalized what they called “parallel imports,” which means importers could now bring goods into the country without the permission of the original rights holders. In November, dozens of alcohol brands were granted permission to carry out parallel imports. In reality, though, this is by no means the only way that foreign drinks make it to Russia.

For example, The Bell proved in April that French alcohol-producer Pernod Ricard was continuing to supply premium alcohol to Russia even after it announced it would no longer trade with Russia. After this story broke, Pernod Ricard again promised to halt supplies.

Bacardi is currently exporting its products to Russia via its own subsidiary. Since Russian tanks were ordered over the border into Ukraine, Bacardi Rus has been granted four bills of entry, which guarantee that its products meet the required standards to clear customs. These bills of entry have long validity periods, which means that multiple consignments can be delivered before they need to be renewed. For example, on March 20, the company obtained an EAEU declaration for Martini Bianco Special Edition. This was valid for five years, allowing imports of vermouth until March 19, 2028.

Even more detail about the alcoholic brands legally available in Russia can be obtained from a register kept by industry regulator Rosalkogolregulirovaniya. All alcoholic drinks, whether imported or locally produced, must be on this list — inclusion means the goods are already in Russia and have cleared customs. According to the register, Bacardi Rus has registered 37 new goods since the invasion, including Martini wines and vermouths, Bacardi and Banks rums, Grey Goose vodka, Bombay Sapphire gin and a range of Scotch whiskies including Aberfeldy, Dewar's, Craigellachie, Royal Brackla and Aultmore. The register does not detail the precise volumes of the imported goods.

In addition to its own brands, Bacardi makes money in Russia from a contract to bottle William Lawson’s whisky. In 2016, Bacardi reached an agreement with Beluga group to bottle scotch whisky at the company’s plant. For a long time it was profitable to bottle spirits in Russia because of the country’s excise taxes. The rate for distillates was one fifth of the rate for packaged whisky (now, however, the rates are equal). According to customs data aggregator ImportGenius, as recently as October 2022, Beluga’s plant accepted 227,000 liters of distillate from John Dewar & Sons Limited, with an alcohol level of 65.8%. After diluting to consumer strength (40%), this could amount to 373,400 liters of whisky.

Marketing and Bacardi’s long-term plans in Russia

Despite its announcement that it would be halting marketing and advertising in Russia, Bacardi Rus spent 6.7 billion rubles on commercial expenses last year. That’s only slightly down on 2021 (7 billion rubles). According to the trade press, the company continues to invest in marketing in both drinking venues and retail settings.

One of Bacardi’s major marketing investments is its sponsorship of the Taigastro festival of Siberian cuisine in August (Martini Fiero and Grey Goose are the festival’s signature drinks). Even after the start of the war, the company went ahead with the opening of its own bar in Moscow — “Tri Vokzala. Depot” — which operates under the Martini brand. In Moscow Metro Cash & Carry stores at New Year and before the March 8 holiday there were displays of Martini products with branded promotional materials. According to an industry source, this kind of display can cost up to 200,000 rubles per individual display per month.

According to a recent Nielsen report, Martini is the second most popular brand of sparkling wine at Russian New Year parties. Kommersant newspaper reported that, in the first nine months of last year, Bacardi Rus increased imports of Martini wines into Russia by 38% compared with the equivalent period in the previous year.

Thanks to its Russian partners, Bacardi brands are also available in areas of Ukraine occupied by Russia. Most likely, rum, vermouth and whisky get there via wholesale companies in the southern Russian cities of Rostov and Krasnodar. For example, Bacardi is available in Konfeterra boutiques in occupied Donetsk and Luhansk. In Crimea, Martini is on sale in branded stores belonging to distributor Luding, as well as Krasnikov Wine outlets.

Bacardi’s U.S. marketing team did not respond to The Bell’s questions about the company’s presence in Russia. Sergei Ponomarev, Bacardi’s director for government relations in Eastern Europe read the questions sent to him by The Bell on a messaging app, but did not provide any answers to them.

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