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Russia's latest billionaire minted on cheap booze

Sergei Studennikov's Krasnoe & Beloe chain is the fastest-growing major retailer in the country

Moscow

RUSSIAN President Vladimir Putin has spent 18 years erecting barriers to selling alcohol to a population still recovering from the decade-long bender after communism's collapse.

Crackdowns on kiosks and ads, electronic inventory tracking as well as higher taxes have all succeeded in suppressing consumption, but the crackdowns have also cleared the field for a Soviet-era bootlegger with a knack for navigating complex rules to make a fortune selling cheap booze from the beginning. Sergei Studennikov opened his first discount liquor store near the gritty industrial hub of Chelyabinsk 12 years ago. Today, his Krasnoe & Beloe chain is the fastest-growing major retailer in the country, with 6,700 outlets in 57 of 85 regions. A sales jump of about 50 per cent to 215 billion rubles (S$4.5 billion) in 2017 and another 40 per cent this year has turned the former wholesaler into Russia's newest billionaire, according to the Bloomberg Billionaires Index.

With funding from state-run banks including Sberbank and VTB, Mr Studennikov, who got a taste of profit selling illegal vodka amid an anti-alcohol campaign in the 1980s, said he has no intention of slowing down. "We're opening an average of six new stores every day," he said in Moscow.

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The breakneck expansion puts Krasnoe & Beloe, or Red & White, on pace to overtake Dixy and Auchan and challenge Lenta for third place among Russian chains by 2021, according to Infoline, a St Petersburg-based research group. Market leaders X5 and Magnit now have a self-proclaimed negotiating whiz to contend with.

Mr Studennikov's no-frills business is based on tacking a small array of food items onto a larger assortment of beverages rather than the other way around. An obsession with margins means shelf space is given to the supplier who offers the lowest price. The number of products is held at about 1,300, almost two-thirds of which contain alcohol.

It's a model that isn't just making Mr Studennikov rich. It's upending the whole supermarket industry, Infoline chief Ivan Fedyakov said. "Alcohol has been the most profitable category for the largest food retailers, but Krasnoe & Beloe is disrupting the market," Mr Fedyakov said. "It's offering a wider range of beer, wine and spirits at lower prices and even taking on the grocery chains on their own turf by selling food."

A typical Krasnoe & Beloe store offers 800 types of alcohol, including imports such as Corona beer, Jack Daniel's whiskey and Barton & Guestier wine. There are 400 basic foodstuffs like coffee, milk and sausages, with a hodgepodge of cigarettes and whatever Mr Studennikov can get a good deal on - BBQ grills or toys.

He drives a relentlessly hard bargain, with suppliers as well as his 100,000-plus employees. Former shop assistants, who are paid as little as 25,000 rubles a month in some regions, say they often had to pay for unsold inventory at the end of every month, a practice he's defended as motivational.

Even the standard storefront in most regions is cheap - sheets of building material painted half red, half white.

The billionaire said it's not all about making money. He also aims to change what he called Russian "attitudes" towards drinking, a history of using alcohol as a way to tune out life. 

One thing he's doing that competitors aren't is selling makes of wine that are already rated by international experts. He said he's consistently able to sell decent vintages for less than the ruble equivalent of US$15 a bottle.

Mr Studennikov uses the same cherry-picking strategy for food as does for wine and miscellaneous items. He sells Jacker, for example, a Malaysian brand of potato chip, instead of Kellogg's better-known Pringles because it's cheaper for the same quality. He doesn't have the space to offer both.

But it's beer, the biggest alcohol segment, that offers the clearest indication of which distributors are offering Mr Studennikov the steepest discounts. His chain carries only a handful of products made by Carlsberg, the biggest brewer in Russia. It sells a much wider variety of brands from Anheuser-Busch InBev, a laggard in the once-booming domestic market.

Mr Putin has overseen one of the world's steepest declines in alcohol use in the past decade, yet Russians still drink about 80 per cent more than the worldwide average, 11.7 litres of pure alcohol a year, according to the World Health Organization.

"Alcohol should be a flavour of life," Mr Studennikov said. "Look at Italy and France, where people just enjoy wine and don't drink themselves to death." BLOOMBERG