Putin’s back door for Whisky, Cognac gives distillers a headache

International spirits brands that halted supplies of premium liquor to Russia have lost control over whether their stock is sold there, thanks to a government scheme allowing drinks imports without the trademark owners’ consent.

Products like Diageo Plc’s Johnnie Walker whisky and Remy Cointreau SA’s Remy Martin cognac are widely available in Russia, even though the distillers stopped exporting to the country after its full-scale invasion of Ukraine.

Remy says its spirits being sold in Russian stores could be residual inventory left over from when it pulled out, or it could be the result of “parallel imports,” products brought into the nation from countries and entities not following sanctions against Russia.

Remy Martin XO Excellence Cognac. Image: Balint Porneczi/Bloomberg

“We do not know, as we have not sold one single product in Russia since January 2022,” a Paris-based Remy Cointreau spokesperson said when asked about the origin of its products being sold there. “We have no visibility.”

It’s a tacit admission that owing to the large number of middlemen involved in selling a product internationally, it’s difficult for companies to keep track of all their stock. Manufacturers in other industries — such as beauty or personal electronics — which have stopped exporting to Russia are likely to be in a similar position. The country has expanded brands and products for which it allows parallel imports to include IKEA furniture, Lancome cosmetics and Hasbro Inc. toys, among others.

Allowing access

The government rules allow Russian companies to buy goods without the trademark owners’ permission. It’s a bid to mollify citizens by allowing easier access to products such as Apple computers and Nike shoes when those companies halted imports in response to Russia’s full-scale invasion of Ukraine.

Recent steps by Pernod Ricard SA — the maker of Absolut Vodka and Jameson Irish Whiskey — show the tightrope some brands are walking. The distiller stirred a public backlash last week when it decided to resume product shipments to Russia to keep control over its brands, and to curb potential counterfeiting.

On Tuesday, the company reversed course again, halting exports of Absolut to Russia to avoid exposing employees and partners to “massive criticism,” it said.

“For clarity, this will unfortunately not prevent Absolut from falling into the hands of the parallel market, which has strongly increased in recent months and over which we have no control,” Stephanie Durroux, chief executive officer of The Absolut Company, a Pernod unit, said in a statement.

Parallel imports of certain goods are not uncommon and are permitted in many countries such as Australia, which allows them for pharmaceuticals to ensure greater availability and competitive prices.

But Russia has been expanding the list of goods for which it allows the practice to soften the disruption to consumers after scores of Western companies halted shipments in response to President Vladimir Putin’s military aggression.

Costly controls

Diageo, which makes Smirnoff vodka and Tanqueray gin, says it stopped exports of its products to Russia in March 2022 as well as third-party, local production of beer and bottling spirits.

Nabi Abdullaev, partner for Russia at risk advisory firm Control Risks, says throttling the supply of premium spirits requires great scrutiny of the companies’ suppliers.

“In principle, it’s possible to reduce the imports of elite alcohol into Russia,” Abdullaev says. “They need to boost their control over official distributors to ensure that they will not sell to buyers that will ship their alcohol to Russia. But this is a rather costly effort.”

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