​​The Legal Review Magazine: «Indomitable Spirit of Ukraine»

12 minutes

The CEO of Nemiroff, Yuriy Sorochynskiy, shares how the company enters new export markets and premium segments during wartime, making its products a well-recognized “born in Ukraine” brand worldwide.

Which Challenges Ukraine’s Business Environment Faced During the War?

The ongoing war has brought significant challenges to businesses across Ukraine. Unpredictable events, increased government pressure, and limited financial resources have made it difficult for businesses to thrive and plan for the future. The lack of financial resources, including clients’ insolvency and limited access to credit and capital, has constrained business growth and investment decisions.

At Nemiroff, conducting business in Ukraine is governed by a set of unwavering principles. Despite the challenges brought on by wartime, the company remains committed to operating within the bounds of the law, regardless of its complexity. Adhering to legislation is a top priority for the owners, and this principle guides the company’s actions at all times.

Amidst the full-scale invasion, one of the company’s foremost concerns was the safety and well-being of its employees. Despite the cessation of state support for businesses during the war, Nemiroff ensured that its staff received timely payment of salaries. As business activities resumed, the company’s contributions to the national budget were also resumed. Nemiroff takes immense pride in being one of Ukraine’s largest taxpayers, having paid 1.14 billion UAH to the budget last year.

Before the war, Nemiroff was among the TOP10 global vodka brands and the TOP3 in Duty-Free sales. How did the Ukrainian company establish its place in the global market?

Securing a position in foreign markets is always challenging, and for an alcohol company, it’s even more so. Each country has its cultural and legislative peculiarities that need to be taken into account. In other industries, one can create a single scaling plan with minor adjustments, but in our case, it requires almost 80 separate plans. Some prefer classic vodka, while others demand different flavored and infused varieties.

However, this challenge only motivated us because Nemiroff had a clear mission long ago: to build a global brand born in Ukraine and to make it known worldwide. Today, our brand’s export share accounts for approximately 40% of our portfolio and our goal is to reach 70%. We take pride in representing our country and its rich heritage on five continents.

The alcohol market is highly competitive worldwide. How did you address the question of “Why the world needs another vodka?” during negotiations with potential partners abroad?

A few years ago, when we entered negotiations with potential partners abroad, this question indeed came up repeatedly: “Why another vodka in the world?” Thankfully, we were well-prepared with an answer. While there’s no one-size-fits-all recipe for success, some key ingredients stand out: high-quality products, a unique brand, a strong reputation, robust partnerships, constant development, and innovation.

The legendary “Ukrainian Honey Pepper” vodka became not only the company’s flagship but also a symbol of Ukraine and has been included in the “Ukrainian gift set” for many years. As for reputation, Nemiroff’s standing has been proven over the centuries.

How have production and sales been since the war started?

The company’s main production facilities in Nemyriv, Ukraine, were temporarily closed for over a month following the invasion. The decision was made primarily with employee safety in mind, as well as the logistical challenges and difficulties in obtaining components from suppliers. The initial ban and subsequent restrictions on the sale of alcohol in the country also impacted the alcohol market and sales volume in the first half of the year.

Despite these setbacks, Nemiroff was quick to adapt to the new circumstances, drawing from its experience in crisis management during the pandemic. Logistics were restored, raw materials and components were obtained, and the company retained its full workforce despite the temporary halt in production.

As a result, the company was able to adjust its processes and achieve positive results in the third and fourth quarters. Despite the challenges and restrictions, as a result of 2022, our share of total vodka exports reached 45.2% in 2022. This makes Nemiroff a leading exporter of vodka from Ukraine and means that almost every second bottle of vodka produced in Ukraine and sold abroad is a Nemiroff product.

Moreover, our indomitable spirit gave us the wings to expand our reach to new markets last year. We’ve entered the Bahamas, Belgium, the Netherlands, Luxembourg, Portugal, Iceland, Croatia, Bosnia and Herzegovina, and North Macedonia. Recently, we’ve signed an exclusive distribution deal with Whyte&Mackay for the UK and Ireland markets.

How do you overcome new transport and logistics challenges?

In 2022, despite the war, the company managed to strengthen its position in existing markets and enter a dozen new ones. With the closure of maritime logistics routes from the Black Sea, we had to develop new overland routes. Logistics costs significantly increased, impacting profitability. For example, if before the war, delivering one container of vodka to the US cost $5,000, or $0.5-0.6 per bottle, by summer 2022, it increased to $17,000, or $1.6 per bottle.

Despite the rising production costs and expensive logistics, alcohol exports were not a highly profitable venture. Nonetheless, last year, we managed to increase export volume by 32%, and net revenue by 3.86%, although profit decreased by 109%.

However, we are thinking long-term, not seeking immediate gains, making global expansion a strategic project.

How has the perception of your and other Ukrainian brands changed abroad after Ukraine’s victories over the invaders?

The perception of Ukrainian vodka changed almost immediately after the full-scale invasion. In some countries, our long-term stocks were sold out within a few weeks. Additionally, the global bar industry showed support by regularly including Ukrainian vodka in their menus and creating patriotic cocktails based on it, like the “Kyiv Mule,” which helped raise funds for Ukrainians. We continue to receive requests from businesses in new countries and from partners who want to add Ukrainian vodka to their portfolios. Every bottle of Nemiroff exported proudly bears the label “Imported vodka of Ukraine” along with our blue-and-yellow symbol of freedom and indomitable spirit.

The ban on Russian vodka sales after the sanctions about a year ago also made an impact on the beverage industry. However, due to significant restrictions imposed by the government on working in foreign markets, Ukrainian manufacturers could not fully exploit this opportunity. The gap was quickly filled by representatives of other countries.

What are the company’s plans for next year?

Nemiroff continues to develop the projects initiated before the war. We are working on the premiumization of our portfolio and refreshing our premium and ultra-premium lines. Recently, we received news from a major French glass supplier that they have launched a new premium product bottle for us, a project we started developing even before the full-scale war. This bottle will be presented in October at the international exhibition.

Our R&D department continues to work on finding new flavors and improving recipes that we hope to present to consumers soon.

Are there enough qualified professionals to execute your planned initiatives? Where do you find international sales experts?

Unfortunately, the war caused a significant outflow of skilled specialists. On the other hand, working in other markets without professionals deeply understanding local cultures and mentalities is impossible. It’s challenging to find such experts within Ukraine. Therefore, we now face the challenge of seeking the right local professionals who work in other markets, helping us better understand and meet the needs of our consumers worldwide.

At Nemiroff, we embrace competition and are willing to fight for our place in the market. However, we always advocate for fair and healthy competition. We believe that proper cooperation with other market players and adherence to common rules can benefit everyone – producers, the country, and consumers.

How is life currently in Ukraine? What is business as usual now in Ukraine?

As Ukraine continues to overcome the challenges posed by the war, the indomitable spirit of its businesses, exemplified by Nemiroff, serves as a beacon of hope and resilience. As the company strives to increase its global presence further, it sets a powerful example for others to follow. With unwavering dedication and an unyielding commitment to excellence, Ukraine’s businesses will continue to leave an indelible mark on the world stage. But they need support from the government to do their job even better.

In Ukraine’s economic revival, reducing tax rates may not be the primary solution. Instead, the emphasis should be on simplifying state control, eliminating corruption, and creating a transparent tax system. By streamlining processes and fostering a business-friendly environment, Ukraine can attract investments and foster sustainable growth, propelling the nation towards prosperity and stability.

As Ukraine’s largest taxpayers, businesses like Nemiroff will play a crucial role in the country’s recovery. If they will get the freedom to do so.

The alcohol industry, where nearly 50% of turnover was in the shadows, faced challenges that needed real reforms to positively impact legal producers and increase tax revenues. However, instead of substantial reforms, attempts were made to introduce changes to the color of excise stamps and raise minimum alcohol prices. These measures, without proper regulation of production and circulation, would have only boosted the profits of illegal producers.

As a legitimate spirits producer in Ukraine, Nemiroff emphasizes the importance of implementing transparent and effective state control mechanisms over the movement of alcohol’s key raw material – ethanol alcohol. With just 80 distilleries in the country, adopting best European practices for its control should be achievable.

Instead, the government has opted for a convoluted approach through an electronic excise stamp, signed into law on 24th July 2023. While striving to enhance control over already paid taxes, this mechanism has created challenges and complexities for legal producers like Nemiroff. Simplifying state control mechanisms and eliminating unnecessary bureaucratic obstacles would pave the way for a more conducive business environment, benefitting both producers and consumers.

So let’s move forward together with hope, embracing reforms that will ultimately lead to a thriving and prosperous Ukraine.

About Nemiroff:

Nemiroff is a renowned Ukrainian premium vodka brand with a legacy of more than 150 years. Known for its uncompromising commitment to quality, Nemiroff crafts premium vodkas using only natural ingredients that embody the rich Ukrainian heritage and deliver an exceptional taste experience. From classic vodkas to innovative flavor infusions, Nemiroff continues to set the standard for excellence in the spirits industry.

Before the war, Nemiroff was within TOP10 vodka brands globally and TOP3 in Duty-Free and Travel Retail. We were dedicated to our goal to serve high-quality vodka to our adult consumers all around the globe.

In 2020, despite the pandemic, Nemiroff reported 18.3% volume growth worldwide supported by entering 10 new markets during the year. Such a result led to the recognition of Nemiroff as the ‘fastest-growing international spirit brand’ in 2021 by IWSR Drinks Market International, leaving behind hundreds of other spirit producers. We also were proud to receive the title of “Vodka Brand Champion” by the highly reputable international spirits media “The Spirits Busines”.