Yuriy Sorochynskiy, the CEO of Nemiroff, on how the company managed to increase its export share by 32% and enter new markets despite the alcohol ban, bureaucratic obstacles, and the war.
Box: Nemiroff is a Ukrainian company engaged in the production and sales of alcohol. It sells its products in more than 80 countries. The company is the No. 1 exporter of all Ukrainian Horilka drinks.
How did the company perform last year?
Right after the war started, the government put alcohol sales under restraint. We were forced to stop our business. The entire production chain ― spirits, glass, caps, and labels manufacturers ― halted, too. The ban, which of course, was to the purpose at the moment, still had a fallout after a while. Solid earnings the alcohol business generates for the state budget as excise duty from the spirits sales, came to a full stop. Nemiroff is one of the largest taxpayers in Ukraine ― the amount of all taxes paid in 2022 totals UAH 1.14 billion.
It was not before early April that the ban was lifted.
In order to reopen, we had to draw up a bunch of papers with tax authorities of all levels ― after all, the regulatory issues never got canceled. Unfortunately, government regulatory and management tools have turned into obstacles to business recovery in the extremely challenging context of the war.
Anyway, we were able to tackle this, and starting from March 20 the export shipments resumed. The first trucks crossing the Ukrainian border was an important milestone for us. We made it clear to our Western partners that the company is capable of implementing contracts even amidst challenging circumstances.
Over the years we have built robust relationships with many of our partners who sell our products internationally. Not just selling drinks, but following through and supporting these sales is a pillar our reputation draws on. This is essential to the brand business. Again, we are always free to give delay in payment for the products supplied.
When the war started, we approached our foreign partners to offer temporary changes in the contracts by replacing the deferred payment clause with payment within 3-7 business days after the goods crossed the Ukrainian border. All partners supported us, and that allowed the company not only to pay off all the debts incurred as the war began but also to make settlements with suppliers and help with the nation’s economy launching little by little.
So, by the end of last April, we had no more debts to our employees or the state thanks to exports.
Despite all the restrictions that year, we were able to increase exports by 32% and net revenue by 3.86%, regardless of the profit decrease of 109%.
Based on a study released in 2022, Nemiroff was ranked the most recognizable of all Ukrainian brands in Poland (over 25% of the country’s brand awareness, which is the highest for Ukrainian brands in various categories).
In terms of horilka exports in 2022, Nemiroff’s share runs to 45.2% of all horilka manufactured in Ukraine. That is, every second bottle of Ukrainian horilka sold internationally was made by Nemiroff. This is also a way of promoting Ukraine abroad ― we take pride in putting “Imported horilka of Ukraine” on every bottle of Nemiroff.
Has Nemiroff expanded into new markets?
A robust business plan for global expansion, which we developed in the old days before the war, had to be suspended from late February until May. As soon as the door for it opened, we got the process up and running, to resume the export activity. The important point was to show our partners in the West the company’s ability to steadily operate and supply products as needed despite constant shelling and other restrictions. Meanwhile, the interest in Ukrainian products has grown globally, bringing inquiries from new partners and opening up several new markets in Western Europe.
So, regardless of the war setting, last year Nemiroff could cement its place in existing markets and enter the new ones. Before the war started, we had a warehouse in the United States with a yearly stock of drinks fully sold out in the very first months of the war. In Finland, the entire stock was depleted in two weeks. The company’s products have made their way to Scandinavia, Belgium, the Netherlands, Luxembourg, Croatia, and the Bahamas. The Ukrainian horilka is increasingly being featured on the menus of renowned restaurants around the world.
Before the Сovid pandemic, Nemiroff was at the global TOP-3 in Duty-Free & Travel Retail for horilka sales. The duty-free channel players gather for a yearly summit in Cannes at the end of September. We have been a part of it since 2005. In attending the exhibition last year, our team noted that Nemiroff is of great interest not only to Europe, but to Latin America, Canada, and the United States as well.
Progress despite restrictions
Highly competitive Western markets require a high-quality brand presence and support. The package of Western sanctions imposed on Russia іn mid-March included the ban on the sale of Russian vodka in Western Europe and America. That gives an unprecedented opportunity for a fully-fledged substitution of Russian vodka with Ukrainian horilka. To do this in a highly competitive environment, we needed specific marketing support, which the government of Ukraine unfortunately, withheld.
Conversely, any payments for marketing activities abroad have been prohibited for all Ukrainian exporters of branded products by a special resolution of the Cabinet of Ministers.
This ban has already resulted in a “wasted chance” to harness the top interest in the Ukrainian theme that national manufacturers had last spring and summer. Unfortunately, through state interference, we missed it irreversibly, since the shelf space has already been given to others. To enhance Ukraine’s presence in the international markets now, we‘ll need huge efforts after the victory.
Draft law on the electronic excise stamps
We have been discussing the issue of shadow alcohol with the government for a long. The major concern is not so much the quality of alcohol counterfeit, as the excise tax, which is not paid, through the uncontrolled sales of such products for cash.
In discussing the prewar model with the government to take the shadow alcohol drinks sector under control or drastically scale it down we suggested starting with alcohol manufacturers and then, moving down to the first taxpayer.
When the government set about taking more substantial steps towards European integration, the fiscal committee offered to align with the European standards, presuming control of the excise taxation at the point of the initial shipment. Basically, this is just the way we do it now ― once the tax is paid, no one keeps track of it. Excise stamps are not required in all countries, whereas some of them employ electronic tracking of alcohol. Therefore, in aligning the Ukrainian legislation with the EU, the electronic excise stamp concept does not seem appropriate ― in the EU the state control is limited to raw materials and spirit: there is proper metering and tax collection, and then, one is free to do further business.
Besides, how can we buy today the equipment to read electronic stamps? No one produces it in Ukraine. Which Western company would send its specialists to set up equipment in a country at war?
Does this affect the shadow sector? Not at all. Shadow alcohol has always been sold for cash and will continue the same way, while the draft law in question will get in a tight place not only for law-abiding manufacturers but sellers too. These additional restrictions won’t take illegal alcohol out of the shadows. I’ve even started joking that the shadow dealers went to buy popcorn, and opened their illegal drinks on the watch for the legal manufacturers and the State to fool themselves.
Business Development Strategy for 2023
First and foremost, we always operate legally. This is the commitment of the company’s owners, no matter how difficult it may be. Legislation may change, yet the company stands to the principle of legal compliance.
The rest is a matter of strategic business decisions. Export is one of the most important components of our business. During the Covid pandemic, we’ve entered into a strategic partnership with Coca-Cola to distribute our products. To work with a Ukrainian manufacturer a public company like this has to go through many different procedures. And we did it all.
Of course, the war has made us adjust to the previous plans for development. However, it did not make them null and void, just slightly pushed them back. We forge onward even though we are hindered. Last week, we got news from a major French glass supplier who has launched a newly designed bottle for our premium product.
We love the spirit of competition, and readily fight to carve out our niche in the market while staying committed to fair and healthy competition.
We are experiencing a strong regulatory impact, which makes it difficult for businesses to operate efficiently and effectively in the current challenging context. And yet, Ukrainian business keeps striving for success.
