BRANDING

The Latest Twist in the Long, Sordid Tale of Stolichnaya Vodka

The scrappy exporter of Stoli to the U.S. faces a gay boycott on products from Russia--ironically, a government it has long fought.
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You should pay attention to the recent stories about the gay community's boycott of SPI Group's Stolichnaya vodka for its being a Russian product. The boycott is a cautionary tale about the risks entrepreneurs take, and it's also a marketing lesson about knowing your customers, and getting in front of the story you tell about your brand. Most important, it's a lesson about telling the truth.

SPI Group, which distributes Stolichnaya vodka in the United States, got caught in the cross-hairs of a boycott that went viral last week. The lesbian, gay, bisexual, and transgender community launched the boycott, with the tagline "Dump Stoli" and "Dump Russian Vodka," in the U.S., in retaliation for draconian laws signed by Russian President Vladimir Putin banning "propaganda of non-traditional sexual relations," which effectively make it illegal to be an LGBT person in Russia. Punishment for talking about or displaying homosexuality in public now includes fines, jail time, and deportation in Russia, and extends to foreign nationals as well as Russian citizens. Violent beatings of Russian LGBT people and the arrest of four Dutch tourists have since followed.

But SPI Group, which was reportedly valued at $1.6 billion in the U.S., where the bulk of its sales come, is not a Russian company. It's based in Luxembourg, and operates manufacturing facilities in Riga, Latvia. Its founder, entrepreneur Yury Shefler, is Russian, though he no longer appears to have an active role with the company.

A Misplaced Ban--and There's Even More to This Story

Though Stoli is not the only brand targeted by the boycott--Russian Standard, which is produced in Russia, has also been banned in some bars--Stoli is one of the most popular vodka brands consumed by the gay community, which tends to spend heavily in bars. Indeed, SPI has also marketed consistently, though perhaps with a tin ear, to the gay community, including sponsoring gay pride events internationally, and creating short "documentaries" about the challenges and achievements of "ordinary" LGBT people.

The boycotting bars are small companies themselves, and collectively represent millions of dollars worth of business.

Threat of the boycott was powerful enough to get SPI's chief executive officer Val Mendeleev to issue an open letter last Thursday. In it, Mendeleev says:

"The recent dreadful actions taken by the Russian Government limiting the rights of the LGBT community and the passionate reaction of the community have prompted me to write this letter to you. I want to stress that Stoli firmly opposes such attitude and actions. Indeed, as a company that encourages transparency and fairness, we are upset and angry. Stolichnaya Vodka has always been, and continues to be, a fervent supporter and friend to the LGBT community. We also thank the community for having adopted Stoli as their vodka of preference. In the U.S., the brand's commitment to the LGBT community has been ongoing for years."

The letter goes on to say that the SPI is based in Luxembourg, produces its vodka in Latvia, and uses "Russian ingredients (wheat, rye, and raw alcohol) blended with pure artesian well water at our historic distillery and bottling facility Latvijas Balzams in Riga, Latvia."

What the letter doesn't say is that the Stoli consumed in the U.S. has been at the center of a trademark dispute over use of the brand with Russia for more than a decade.

And this untold part of SPI's history, which the company probably should have discussed to dispel that idea that it's a Russian enterprise, reads like something from an Ian Fleming novel, filled with spies, alleged murders, and international intrigue.

The Entrepreneurial History of Stolichnaya Vodka in the U.S.

As it turns out, Pepsi Cola originally distributed Stolichnaya in the U.S. in the 1970s as part of a barter agreement with the Soviet Union, which lacked a free market economy at the time.

During the disintegration of the Soviet Union in the 1990s, news reports say, Shefler assumed control of a corrupt, state-owned enterprise called FKP Soyuzplodoimport, which distributed Stoli. After taking control of the company, Shefler reportedly sold off the rights to the Stoli brand to a shell company he had established, and continued exporting Stoli products.

Then, in the late 1990s and early 2000s, Putin, sensing a good business opportunity and pursuing a nationalist agenda, sought to reacquire lucrative Russian brands that had been sold off during Glasnost. So he pushed the trademark issue into Russian court. Ultimately the court gave control of the brand to Soyuzplodoimport around 2002. Ever since, Soyuzplodoimport has argued it owns the rights to the brand, but it has had to contest SPI's distribution of Stolichnaya in court in ever country where it sells the product.

Today, Shefler's role in SPI is not a direct one. He is not listed on the corporate website with its other executives, except in the "history" section as a founder. And there's a good reason for that--lots of bad press. According to an April 2009 story from The Sydney Morning Herald:

"British and Russian newspapers have reported that Interpol is searching for Schefler (sic.) who has fled to homes in Switzerland, London, and Sardinia.

He has been charged with threatening to kill the former Russian agriculture minister Vladimir Loginov, the man who controls the Russian company which makes Stolichnaya in Russia. Schefler has told reporters the charge of threatening to kill Mr. Loginov was part of Moscow's attempts to portray him as a villain and put him out of business. The U.S. lawsuit, in which Moscow lost its attempt to claim back the Stolichnaya trademark, cited the suspicious deaths of three people linked with the alleged theft of the trademark.

It said two businessmen collapsed "hours after" meeting with Schefler, and that another was murdered after suing Schefler over vodka trademarks."

Whether or not there's any truth to the allegations--SPI did not respond to a request for comment from this Inc. reporter--the boycott is only the latest twist for Stoli and SPI.

And contrary to the boycotters' wishes, and SPI's, it plays right into the hands of Putin, who'd like nothing more than to see SPI damaged--so he can gain full control of Stolichnaya again.

IMAGE: Thomas Hawk/Flickr
Last updated: Jul 30, 2013

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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