(Passport Magazine August 2006)
by Charles W. Borden
It’s July 7, seven days after the new Russian alcohol tax stamp regime took effect, and the shelves are bare. With the deadline for the monthly Passport wine tasting just days away, I took a tour of the wine boutiques starting with French deli Hediard, but its wine section was empty and closed. Grand Cru in Novinsky Passage had about 15 different wines and the only whites were three types of Chablis. Kollection Wine on Kutuzovsky was closed as was Kaufmann. The Magnum shop had just three wines. The shelves of the supermarkets such as Sedmoi Kontinent hadvirtually nothing but a few awful Russian wines and restaurant wine lists were down to three or four selections. Russia had entered another crisis, at least for the wine and spirits industry. (See sidebar)
Two heroes rode into the breach to rescue the Passport Knights of the Vine from famine – Preston Haskell of Colliers International and Julia Evdokimova, owner of Palais Royal wine distributors. From Preston we obtained wines from his new South African winery, Haskell Vineyards. From Julia, we obtained an eclectic mix of some of her red wines, a teaser for the future post crisis. We settled into the summer terrace at Carre Blanc for relief.
Preston joined us at the table to present the wines from his Haskell Vineyards, a 23-hectare estate in the Stellenbosch region of South Africa’s Golden Triangle of wine. The Sauvignon Blanc was a clear, pale color with excellent forward fruit and a crisp and dry palate, perfect for the summer evening on the Carre Blanc patio. The Chardonnay was a vibrant yellow-gold with soft fruit and not over oaked. The Shiraz exuded the dense power and fruitiness that has made this grape so popular. The Amalgam was a warm, well-balanced Bordeaux blend. These wines scored very well, exceeding many of the much pricier wines in this tasting.
The Wine Crisis
For consumers, the first crisis indications became apparent in late June when supermarket shelves began to empty of wine and other spirits and were not restocked. By the end of June, my neighborhood Sedmoi Kontinent had replaced the wines with beer and by June 30, the only wine left was seven bottles of Liebfraumilch and three bottles of expensive Spanish red wine.
A new alcohol tax regime took effect on July 1 and only alcohol with new, bar-coded tax stamps could be sold. All goods with old stamps had to be cleared one way or another. In late June, I ran into Alexander Bozhko of distributor Palais Royale at Hediard, the French deli. “We’ve had to take all our stock from customers to get new stamps. We’re not sure when we will be able return it.” I later learned the cost of this exercise is about $3 to $5 per bottle officially, and more if payments are made for “special service.”
For retailers and restaurants with a stock of wine from a lost or noncooperative distributor, or which had been bought “black” there was nothing to do but sell off by June 30, and this led to some great bargains on June 30. Afterwards, nothing was left but to give the wine away – my wife was pleased to receive a nice Bordeaux from the restaurant at her July birthday party, the old tax stamp an indicator that this was now an “unsellable” wine.
There are some advantages to the new tax stamp system. Previously importers had to pay a tax deposit, obtain stamps and send them to the winery for application before shipment to Russia. The new stamps are applied at the customs warehouse upon arrival in Russia. Also, the “accreditation” system under which regional and local governments required separate licenses for sale to retail establishments has ben eliminated, though rumor has it that the locals are dreaming up new schemes to make sure they get their piece. Theoretically, the system is also meant to eliminate counterfeit and fake goods, and help the government ensure that it collects its taxes – a significant part of the budget.
However, the system fell victim to the forces in Russia that still believe in central planning. The new tax stamps were not made available until May and the supply was still not adequate by the end of June. Many distributors and importers were not prepared for the government-inflicted chaos caused by the implementation of EGAIS, the information and control system designed to track every bottle of wine and spirits from producer to consumer.
EGAIS is a software/hardware system that is sold to importers and producers (Russian wineries or vodka producers) to apply the tax stamps at a cost of 500,000 rubles ($18,500) and to distributors to track shipments. EGAIS is developed and sold by Atlas, which is apparently silovaki controlled. Goods enter the EGAIS central information system when stamps are applied by the producers (a winery) or importer and the tax services use it to track every shipment. At every point in the distribution process, wholesalers and distributors must access EGAIS to sell the goods on. The EGAIS network crashed within a few hours of opening on the first business day of July.
To top it off, system updates to EGAIS must be made by SM Trade, the exclusive service provider for Atlas. The updates cannot simply be downloaded because users do not have administrative privileges. Service agreements (that cost 40,000 rubles per month) call for SM Trade to send a technician to install updates. But in reality, users have had to physically take their computer (and these are not notebooks) to SM Trade for the updates, which recently have been issued every few days. A well-known winery in southern Russia has already had to transport its computer to Moscow five times for updates.
Where this is leading is uncertain. Smaller importers, distributors and retailers have already or soon will be forced out of business as result. But for the central planners, this is probably good news.
John Ortega, Publisher, Passport Magazine
Charles Borden, Director, Meridian Capital
Lara Aragon, Manager Process Development, Toyota Financial Services
Timur Beslangurov, Managing Partner, Vista Foreign Business Support
Eric Boone, Director, Colliers International
Alexander Bozhko, Director, Palais Royal
Geoffrey Cox, Chairman, Astera Real Estate
Michael Guetebreuck, Security Consultant
Henri Guyard, President, Serge Pastry and Bakery
Preston Haskell, Executive Chairman, Colliers International
Danial Klein, Partner, Hellevig, Klein and Usov
Todd Nalven, COO, Tablogix