FINE BRANDY CANNOT BE CHEAP

ArmInfo
2009-12-02 15:14:00

Interviewed by Artur Yernjakyan

Interview of Executive Director of Yerevan Brandy Company Ara Grigoryan
with ArmInfo Agency

Mr. Grigoryan, please, tell about procurement of grapes by Yerevan
Brandy Company in 2009. How much grapes have your purchased and from
how many farmers? What is the average procurement price and what are
the peculiarities of procurement this year?

Some impact of the crisis on the producers was felt this year, in
view of which some hysteria and tension occurred as regards grapes
procurement. There were rumours as if the wineries would refuse from
procurement at all, however, if they procured, they would do it at very
underestimated prices. Now, having made the procurement, one should
probably escape all kinds of rumours and speak at actual: initially
we planned to procure 30,000 tons in 2009, but later increased the
target by 2,000 tons more to ease public tension and disperse the
farmers’ concern that the harvest will not be purchased.

So, we envisaged purchasing 32,000 tons from winegrowers, though we
did not reach this figure and finally stopped at 31600 tons. We were
ready to procure by 1,000 tons more in Tavush but the grapes harvest
in that region proved not as rich as we were told. We procured grapes
in the Ararat Valley (YBC Aygavan and Armavir branches) for 130 drams
per kg and in Tavush branch for 120 drams per kg. The farmers have
already been paid for their produce. However, procurement succeeded
despite difficulties.

However, according to the specialists from the Agriculture Ministry of
Armenia, the grapes were not sweet this year because of the rainy and
cold summer, moreover, part of the harvest rotted off from moisture
in the fields. Is it so?

We are working with 5200 winegrowers. These are the people with whom
we have direct long-term contracts on procurement. Such a number
of contracts allow seeing the whole picture with grapes purchase
in Armenia. Some part of the harvest was actually damaged by hail,
and some part rotted off because of the rainy weather, however,
I do not think that it made up a great percent.

May one suppose that part of the Armenian brandy is made not of grapes
but of something else?

I would not like to touch on this issue now. In general, we procure
grapes more than we need today.

Here one should not forget that purchase of grapes is also a social
programme where a psychological aspect is very important: a farmer
growing grapes must be sure that his produce is in demand. However,
it is impossible to purchase grapes in unlimited quantities. For
example, those 5200 farmers, the Company works with, increase the
areas of their vineyards every year. Some of them initially had 3
ha of vineyards, now their area makes up 20 ha. Otherwise saying,
the area of vineyards increases in general, and the whole produce is
to be purchased and placed somewhere.

You purchased more grapes even in the crisis year as compared to the
previous one (31,000 tons). So, why did you increase the procurement
volume: whether because of social responsibility? You, see, this is
a business.

Actually, it is very important for the people to be sure that there is
no risk and their produce will be purchased. All this allows defusing
public tension in the country. You see, the company has stored almost
30 million absolute liters of brandy spirit and can produce brandy
for 10 years without annual procurement. However, the point is that
brandy production requires succession of production, first of all:
replenishing the spirit reserves every year, we perform a certain
part of work, and the following generations will enjoy the fruits of
our work. We have inherited from our predecessors a rich heritage of
spirits. Therefore, procurement is of strategic importance for us.

The grapes we purchase today are a brandy delivered 3,5 years later.

According to the Armenian laws, the brandy should be 3-year-old to
be called Armenian, and after it is aged at least for three years we
blend it into brandy and leave in oak casks for another 6 months to
sleep, as we say.

The year 2009 has become crisis for the whole real sector of the
Armenian economy, and it affected the export-oriented productions in a
greater or lesser degree. The crisis also affected the Armenian brandy
being, perhaps, the most out-bound product. According to the official
statistics, the peak of decline in brandy sales in Armenia fell on the
first half year, afterwards the rates of decline started decreasing.

What is the situation at Yerevan Brandy Company?

Although the crisis affected Yerevan Brandy Company, the countrywide
decline was higher than at YBC. 36-38% sales skid was the peak for us.

The Company sales over 6 months, 2009, fell 36% and 54% – countrywide.

Comparing the situation with the data of 2008, one may note that we
fall behind by 14% in all, upon the results of 9 months, 2009, as
compared to the similar period of 2008. The pleasant fact is that the
first insignificant signs of economic recovery are felt in general,
however, the Russian market, with the lion’s share of brandy sales,
is the primary one for us. Unfortunately, the situation here is worse
than in other markets. We have already reached the envisaged volumes of
sales in the Ukraine, while in Armenia, we fall behind the plan by 7%,
and we even advance the planned figures in other countries. The sales
in duty-free shops even grew by 20%, while they stand behind by 22%
in Russia.

Is it necessary to diversify the sales and search new markets, or
you think that the crisis is just a temporary phenomenon?

Actually, the crisis is a temporary phenomenon and the situation will
normalize unambiguously, however, we have to seek new markets. The
point is that there are no markets to compare to the Russian ones by
marginality: sales volumes or growth rates. No established market of
any developed state had such high growth rates as the ones in Russia.

During the last 10 years, the Armenian brandy sales market in Russia
grew by 20-30% on average per year, and even by 40% on some segments.

Naturally, the current decline turned out to be more essential
under such high growth rates in the past. So, despite the inarguable
importance of the Russian market, the crisis proved the necessity
of market diversification. However, as you have already noticed,
the point is in replenishment of one or another market rather than
in their replacement.

You said that the sales in duty-free shops grew by 20%. What is it
conditioned by? Is it conditioned by the fact that Armenians like to
gift brandy more than drink?

The brandy sales grew not only in Yerevan duty-free shops, they grow
in all the duty-free shops. I think that such a situation is mainly
conditioned by the fact that consumers often deny themselves the
everyday life, however, when they leave for somewhere, they try to
overtake arrears. For example, they leave for rest, and if they used
to take one bottle with them, now they take two.

Yerevan Brandy Company has initiated alterations to the law on brandy
over many years, and adoption of standards has become possible mainly
due to the Company’s efforts. How far does the Armenian legislation
protect a fair producer today?

I must say that very good laws have been passed in Armenia. I cannot
say they are perfect, however they are good for a young state which
has gained its independence relatively recently. But the point is how
these laws are observed. The law clearly specifies that a product,
made by 100% of the grapes grown in the territory of Armenia, as
well as bottled in Armenia, can be called an Armenian brandy. There
is also a specific list of technical grapes which should be used for
brandy production. Now, the problem moved to another plain – a plain
of adherence to the letter of the law. You see, every bottle of a
low-grade Armenian brandy sold endangers the whole category of the
"Armenian brandy", a category, which was built by decades and which
costs expensive, believe me. I would not like to blacken the picture,
but every such bottle of brandy is fraught with loss of the whole
market. If we turn to the experience of other countries in solution
of this problem, in the Ukraine, for example, when I worked there (Ed.

from 2001 to January 2009, A. Grigoryan headed the representation
of Pernod Ricard Company in the Ukraine), nine organizations were
keeping an eye on the product quality. Basically, this problem was
disrooted during a year or a year and half.

Is this so-called brandy produced in Armenia or outside of it?

It is produced even here, in Armenia. Though both in Russia and in
Ukraine we sometimes reveal the clandestine plants which prepare a
substitute and adulteration.

Who and how deals with falsification of the Armenian brandy?

The falsifiers can be divided into two groups. The first group includes
unfair producers the products of which do not meet the law requirements
by the technology of their production. Such products are sold at a
suspiciously cheap price. The second group includes those who falsify
the well-known and widely promoted brands, for example, "Nairi",
"Prazdnichny" and others. I must say that fine brandy cannot be cheap!

Argentine and European grapes are lately imported to Armenia. Is this
phenomenon dangerous for development of winemaking and brandy-making
in the republic?

I think this is not dangerous at all. Rather, the danger is in possible
penetration of different diseases by these grapes, including the
grape-louse, and here we must be cautious.

I cannot but ask you a question which is actively discussed by our
public, that is, the prospects of opening of the Armenian-Turkish
border. How can the border opening affect the activity of the YBC?

What are the prospects of promoting the ArArAt brand in Turkey?

It is my invincible belief that there should be no closed borders in
a civilized world. I think the Armenian-Turkish border must be open
irrespective of the prospects of promotion of the Armenian brandy in
the Turkish market. As for the commercial success of ArArAt brandy
in case the Armenian-Turkish border is opened, it depends on many
factors, including the degree of our dynamism and execution of a
corresponding marketing.

By the way, do the Turks produce brandy?

I know that Turkey produces wine. At least, the Turkish wine I used
to taste, was not of the highest quality.

If the borders are opened, will it be more profitable for you to
supply your products to Europe through Turkey?

We may have great profit in the opposite direction, since we supply
brandy to Europe in small volumes. It will be very profitable to import
bottles, plugs, boxes and equipment from Europe – everything that is
used for brandy production. Moreover, this will open an alternative
way of transportation that is also very important. Let Armenia have
a choice to carry the freight through Georgia or Turkey.

A choice always bears competition.

Finally, can you tell us about your plans for the foreseeable future?

As for the plans for the foreseeable future, I can say that we have
developed a new brand-platform for promotion of the Armenian brandy
and Armenia itself. It is based on a cycle of short feature films
presenting the old Armenian legends in the modern interpretation.

The first film "Akhtamar" is ready, and it will be demonstrated soon.

Armen Jigarkhanyan plays the lead. A famous duduk (pipe) of Jivan
Gasparyan also sounds in the film. I must say that this is not
an advertising spot but a feature fifty-minute film which ArArAt
dedicates to the rich Armenian folklore. This time, it is the history
of Akhtamar, being a 10-year-old brandy from the ArArAt collection. It
is also scheduled to film other interesting Armenian legends.

(Ed. The package of "Akhtamar" brandy contains the following record:
"Akhtamar island is situated on the lake of Van where the Armenian
kings resided in the 10th century. The name of the island suggests
a legend of love of princess Tamara for a splendid young man").