Capitalism proves sobering for Russian vodka plant

September 09, 1994|By Will Englund | Will Englund,Moscow Bureau of The Sun

MOSCOW -- The big, red-brick Kristall Distillery, built above artesian wells in 1901 to produce the best vodka in czarist Russia, survived the Communist Revolution, the Second World War, even Mikhail S. Gorbachev's anti-alcohol campaign of 1986 -- but it may not make it through Russia's rough-and-ready leap back into capitalism.

Here, in the land of the world's heaviest drinkers -- who depend on vodka to mark every celebration and disappointment -- the nation's most cherished distillery is producing well below capacity and sliding toward bankruptcy.

"Kristall should have enormous potential. People who understand quality always prefer Kristall. There's no way it should be in such trouble. It's simply unwise management -- or worse," said Nodar Sarkisian, head of the government's Insolvency Committee.

"It's ridiculous to say this enterprise is bankrupt," retorted its deputy assistant director, Sergei Nikultsev.

The government is moving in to force Kristall to change its ways. Management is fighting back.

In the United States where Kristall's best-known label, Stolichnaya, is said to have dropped from an 80 percent share of the premium vodka market 15 years ago to little more than 20 per cent, an ambitious advertising campaign has been undertaken by the New Jersey distributor, Carillon Importers.

The hope is to recapture the market dominance from Absolut, the Swedish vodka.

What's at stake in Russia is a national heirloom -- buffeted and nearly swamped by the tumultuous changes sweeping Russia, but one that both sides believe should be a gold mine in the bright post-socialist future.

The conflict over Kristall helps illuminate one of the mysteries of life here: Why are so many businesses faltering, even those offering a popular, high-quality product?

Kristall, which produces Stolichnaya, among other labels, is at the heart of a fight over vodka and a fight over property, and it is difficult to think of two things more central to Russia today.

The Kristall plant, on a hill rising from the Yauza River in northeast Moscow, is a noisy, aromatic complex of distilling vats, filtration rooms and bottling conveyors. Four of the conveyors were bought this year from an Italian firm at $1 million each, and represent either the overspending problems at the plant or its bright and modern future, depending on one's perspective.

Kristall's 1,200 employees, mostly women, show an unusual pride in their work.

Tatyana Nevrova, in the water filtration room, offers a visitor a cup of tea made from the soft, mineral-free water that goes into vodka. There's a surprising mellowness to it; it doesn't have any edge.

"Of course, you can brew tea just as well from regular city water," says Irina Burachevskaya. "But this isn't tea we're

making here. This is vodka."

Upstairs, where the vodka is filtered once more, this time through quartz sand and then birch charcoal (always birch), Valentina Agashkova wants to offer a taste of a batch of Stolichnaya.

She fetches a glass from her office, but it's dirty. So she opens a faucet on the side of one of the filtration vats and casually washes the glass in a stream of vodka.

"The technology is perfect here," she says, offering the glass around. "It comes down to two things: the quality of the water and the quality of the alcohol."

But it's the quality that's killing Kristall.

For centuries, the production of vodka here has been under firm government control. Vodka distillers paid enormous sums into the czarist and later Soviet treasuries, but they were protected from competition, and standards were upheld.

But in the new Russia, government control is regarded as a bad thing. Where until recently there were seven major vodka distilleries in Russia, all operating under the government's heavy hand, today there are dozens, probably hundreds, of fly-by-night operators churning out various fluids and selling them as vodka.

This leaves the big, old establishments like Kristall, which have to pay an 85 percent excise tax and are expected to maintain standards of purity, at a decided disadvantage. Russians are flocking to the cheaper brands. No one knows how much rotgut is being drunk, but 45,425 people were killed last year by drinking bad alcohol, according to government statistics.

"These people who make vodka underground ought to be put in jail," sniffs Mrs. Burachevskaya.

More competition comes from Ukraine and Belarus, independent nations now where even legitimate distillers face lower purity standards, and where taxes are sharply lower -- yet their borders with Russia are so open that they are considered to be "transparent."

And despite the economic turmoil in Russia, Kristall kept to its old habit of sending out shipments without prepayment from buyers, which means that inflation often eats away huge chunks of the company's income before it even arrives.

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