Spirited return for Armenian brandy

Spirited return for Armenian brandy
by Kieran Cooke, in Yerevan, Armenia

BBC News
June 8 2004

There is a right time and a wrong time to make foreign investments –
and Pierre Larretche, the French managing director of Armenia’s Yerevan
Brandy Company, thought he had made the biggest mistake of his career.

“A great drink”, says Mr Larretche

In the mid-90s Armenia, which had gained independence from the
old Soviet Union in 1991, embarked on a privatization programme of
state-run enterprises.

Mr Larretche, an executive with Pernod Ricard, the French drinks
conglomerate, was sent here from Paris to assess the potential of the
Yerevan Brandy Company, Armenia’s most prestigious business enterprise.

“On my recommendation Pernod Ricard paid $30m for the company” says
Mr Larretche.

“Immediately afterwards the rouble crisis happened and sales to Russia,
our main market, dropped by 75%. We suddenly had thousands of barrels
of unsold brandy on our hands.”


Fortunately for the Yerevan Brandy Company, Pernod Ricard and Mr
Larretche, the situation has changed dramatically.

Brandy production has risen from a low of 1.7 million litres in 1998
to 4 million litres last year. The Russian market, which accounts
for about 85% of exports, has revived.

In Armenia, a country of less than three million with few natural
resources and in which per capita annual incomes are less than $600
a year, foreign investors are scarce.

Pernod Ricard’s move into the country is a rare business success
story – but it has been a tough few years.

I wish I could earn more, but at least these days I have enough to
buy food – Hakob Karapetyan, Armenian grape grower

“At the beginning, there was a lot of local resentment about foreigners
gaining control of a company regarded with great pride by Armenians”
says Mr Larretche.

“We had to quickly demonstrate we were here to stay and not here to
simply asset strip the business.”

Court battle

The Yerevan Brandy Company, founded in 1887, had been starved of
investment in the later years of the Soviet period. Its main brand
name – “Ararat” – was being used by other brandy producers, mostly
in Russia.

Pernod Ricard, as the company’s new owners, had to undertake a series
of complex court cases to regain its brand exclusivity.

It also had to assure Armenia’s grape producers – poor farmers
dependent for survival on sales from their vines – that the company
would continue buying their produce.

“Despite the downturn in the market we kept on buying grapes” says
Mr Larretche.

“At one stage, due to ongoing production and lack of sales, we built
up more than 40 years inventory.”

‘A natural gift for business’

As what was once the Soviet market recovered – the Yerevan Brandy
Company sells mostly to Russia, Ukraine and Belarus – capital
investments were made to streamline the business. In 1998 the business
had only one computer – now there are 200.

The firm faced a battle to regain exclusivity over the Ararat brand
“Armenians are loyal workers and extremely capable managers” says
Mr Larretche. “They have a natural gift for business – out of 500
employees here only five are from France.”

Both to ensure the quality of brandy production and to protect local
grape farmers, the government brought in regulations five years ago
stipulating that only Armenian grapes can be used in the production
of Armenian brandy.

“This guarantees our brandy is uniquely Armenian” says Mr Larretche.
“But it has created a problem – now we are faced with a shortage of
grapes and local prices are rising.”

Financial security

Hakob Karapetyan tends grapes on his smallholding in the Ararat Valley,
Armenia’s main vine growing region.

In the early 90s – a time when Armenia was suffering acute economic
problems – Mr Karapetyan was forced to uproot his beloved vines and
plant vegetables so he and his family could survive.

As with many Armenian families, Mr Karapetyan’s two children had to
leave the country in search of jobs.

Life continues to be a struggle but at least Mr Karapetyan feels a
little more financially secure these days.

“In the old days, I had to take my grapes to the factory and accept
whatever price it gave me. Now we have long-term contracts and an
agreed minimum price.

“I wish I could earn more, but at least these days I have enough to
buy food.”

Mr Larretche is confident Armenian brandy can conquer other markets
besides its traditional ones in the old Soviet Union.

“At Yalta at the end of the second world war Churchill was so impressed
with Armenian brandy given to him by Stalin that he asked for several
cases of it to be sent to him each year.

“It’s a great drink – the equal of any in the world.”