In the 1990s, DP-Trade was one of Russia’s pioneering wine importers. Today the company operating activities include importation, distribution and retail. Although not the largest business on the Russian wine scene, DP-Trade is a recognised key leader in the fine wine sector. The company’s success can be attributed to a number of factors, most notably a strict adherence to the strategy of working with a limited number of top producers worldwide. Dmitry Pinsky and Igor Davtian have remained DP-Trade’s sole partners since the business was founded in 1991. Eleonora Scholes spoke to Dmitry Pinsky about the company’s operational set up and the overall challenges of the Russian market.

Meininger’s: Russia is being hit by the financial crisis. Has it affected your business?

Pinsky: At the moment, no. We have traditionally been careful and conservative. As we have never pursued sales too aggressively, there has been no need to overextend our credit lines. The amount of money we have borrowed has always been proportionately very small. This now puts us in a very positive position, particularly compared to our competitors. That said, the crisis has only started to unwind. Naturally, demand for fine wines will slow due to a general slump in consumption. By then, we hope to have increased our market share to avoid any loss in turnover.

Meininger’s: In fact, this is not the first crisis that the Russian wine trade has had to deal with, is it?

Pinsky: No, far from it! There have been a number of previous crises — some relating to the economy in general and others specific to the wine trade only. The latter are more dangerous, without question.

Meininger’s: Then what made you choose to work in wine importation and distribution?

Pinsky: To put it briefly, it’s a beautiful business. You need to work with and interpret a huge amount of information. There is also an attractive cultural aspect. To be happy, one has to have a desire for work beyond the financial aspect. No crisis could alter my decision to choose this line of business.

Meininger’s: The company was founded in 1994. How would you describe the key stages in its development?

Pinsky: We started to work with wine in 1994, but before this we had a business that supplied equipment to restaurants, which was launched three years earlier and continues as a parallel activity today. So, in fact the company was founded in 1991 and has remained unchanged as a business of two equal co-owners, being myself and Igor Davtian. This year we have proudly added the phrase ‘since 1991’ to our logo. Before we were somewhat shy about it, but then we realised that a year in Russia is equivalent to 10 in a country with a stable economy. Thus age becomes respectable.
The stages of our development were probably very similar to other companies around at the time in Russia. At first we all ran in a pack and covered all sectors at once. Then as the staff grew in numbers, people started to specialise. Geographically, first came Moscow and St. Petersburg, then the regions. We have always been particular in the fact that we aimed to abide by the law. We have paid and continue to pay customs duties in full. Imports and distribution are organised through our own legal entity. It is only now that a certain order has been established in the Russian Customs Service. Even a short period ago our integrity was considered unusual, and this uneven playing field always prevented us from growing too quickly. Now when everybody has to compete on the same basis, we can look forward to sustainable development and growth, according to a more classical business model.

Meininger’s: From the very beginning you set a strategy of working only with top producers and brands, even though the Russian market wasn’t established for them in the mid-1990s. How difficult was this to maintain then and now?

Pinsky: A considerable interest in famous wines existed even in the mid-90s, and, by the way, it was sincere. If your strategy is not aiming for a demographic coverage of everyone and everything, like the beer market, and if you set yourself up as a niche business, then top brands are the right answer. We were one of the pioneers. It is true that demand was small then, but on the other hand, it was easier to get the greatest names in the portfolio, and competition was very weak compared to the present day.

Meininger’s: Which wine areas are key to your business?

Pinsky: Bordeaux is traditionally important. It is virtually beyond fashion, though there was a period several years ago when it was nearly eclipsed by Italy. Bordeaux is followed by Burgundy, which is growing in demand, Piedmont and Tuscany. In our particular case the New World is losing out to the Old World even in the number of bottles, let alone value.

Meininger’s: What other wines are successful and why? Will Russian wines one day make an impact?

Pinsky: Many other good wines are successful. ‘Good’ is an important notion here. If I am frank, we are unable, unlike some of our more energetic competitors, to take an average brand and achieve a leading position for it. Russian wines are stuck in a rut at the moment. As soon as a reasonable locally made wine appears, the price soars with no justification, spoiling its chances of success. Although the south of Russia has always been climatically suitable for quality winemaking, the issue is whether wine from there can be a viable product. Obstacles arise through unreasonably high interest rates, the absence of a local culture of wine consumption and the lack of a coordinated state policy for winegrowing and winemaking.

Meininger’s: Are your clients buying established brands? Can you influence their choices or do you buy what your clients demand?

Pinsky: Our market is still young. Yes, it is saturated in supply, but demand is adolescent, if not to say in a phase of prolonged childhood. Most clients think brands, famous wine growing regions, international grape varieties. That’s not to say that we don’t work to promote non-Cabernet and non-Chardonnay wines, but we are realistic enough to accept that our efforts in this area are still not widely appreciated.

Meininger’s: On the issue of pricing, how justified are high margins? They are considerably higher than in Europe.

Pinsky: I can only speak for my company. After transportation costs for climate conditioned trucks travelling 3,000 km (or air freight for the finest wines), allowing 43% for customs duties, and then adding our reasonable and consistent margins which have to reflect our quality service, our wholesale prices are still slightly lower than those in specialised retail wine shops in Europe. You can make the calculation yourself. I therefore believe that our prices are very reasonable. Some of our competitors’ prices for Bordeaux are 20-30% higher than ours, likewise comparable wines from other regions. If we look at retail pricing, add-ons to our wholesale prices are 50% in our chain of boutiques. On average, our wines are still 10-15% cheaper than the same items on supermarket shelves. The situation is much more worrying in the restaurants. Suppliers with much higher wholesale prices buy listings in wine lists and supply bottles to these restaurants without due discounts. Unfortunately, many restaurants adopt a short-sighted approach, preferring to maximise short-term profit rather than to work in a civilised way and earning reasonable profit through selling good wines for decent prices.

Meininger’s: The company structure is quite small. How do you achieve efficiency?

Pinsky: Our small structure is explained by the fact that we are a niche player. With rare exceptions, we don’t work with supermarket chains. In Russia, apart from two international players, they are either primitive or cannot be called chains at all. They pay terribly, their development is funded from their suppliers’ money, and all problems deriving from their inability to work professionally are blamed on the suppliers. Today’s crisis has fully vindicated our approach. Nearly all chains are de facto bankrupt, except for those who applied for financial salvation from the state. We still have a long way to go to maximise our efficiency, but I can assure you that sales per sales manager are higher in our company than in many others.

Meininger’s: How much business is done in Moscow and in the regions?

Pinsky: This proportion is changing in favour of the regions. At present 60% of the market is outside Moscow.

Meininger’s: How different are these markets in terms of competition?

Pinsky: Competition is fierce in Moscow. Unfortunately, the short-term commercial approach often prevails over sustainable wine business practices, and at times even over common sense. In the regions the situation for good wines is more favourable. That said, there is a trend to consolidation, up to the point where some regional markets are monopolised by large local players.

Meininger’s: Will regional markets ever rival Moscow for consumption of quality wines?

Pinsky: Never, I am afraid. Moscow is a financial and cultural centre, as well as a terribly over-populated place.

Meininger’s: The company owns a chain of wine boutiques in Moscow and three other cities. Why did you decide to go into retail? Isn’t it an issue that you are effectively a competitor of your own clients?

Pinsky: We went into retail when it became ridiculously difficult to list wines in restaurants. There was a period in the late 1990s — early 2000s when restaurants failed to perform their duty of carefully selecting and pouring the best possible wines for their clients. The sommelier profession was discredited. With our superb range, we had to get to the end consumer. And we got to him very quickly. Both then and now the intentions of Russian restaurant goers are sometimes far removed from the desire to eat well and enjoy good company. In fact, they are often more likely to be based on the ostentatious display of new-found wealth. The majority of restaurants have to date been conceptually created to serve this purpose. The situation is improving, though. Our wines are in demand in the ‘non-commercial’ sections of wine lists, where enthusiastic sommeliers can choose wines free from any interference by restaurateurs. It should be noted that we are talking about general trends. There are some places which are excellent in all respects — who would have thought that they are also the most successful from a commercial point of view? Returning to sales in our boutiques, wine lovers who were seriously interested in wine and progressively developed their tastes, have all been our customers. There is no competition between us and our clients in retail. We agree margins. We stimulate them — after all, why not?

Meininger’s: DP-Trade — a brief SWOT analysis.

Pinsky: Our strengths lie in an impeccable portfolio of wines, totally legal business operations, honest pricing and good client service. The weaknesses are that we haven’t fully exploited the outsourcing of various activities nor have we built a sufficient HR structure. Opportunities are seen through further development of the chain of wine boutiques, including franchising, and the already mentioned strengthening of work in the regions. The legislature and Russia’s general foreign and domestic policies would be our threats.

Meininger’s: Now a SWOT analysis of the Russian wine market.

Pinsky: Strengths are that consumption is cosmopolitan as we don’t have our own good wine; a great national cultural base; presence of enthusiasts in the wine trade. Weaknesses come from the self-interests of the market players; influence of the nouveau riche lifestyle on the restaurant business; high interest rates for borrowing money. I will mention just one opportunity — to create an association of wine merchants who will work on a regular basis with the law makers. The threats remain the same as mentioned for our company, the legislation and Russia’s political and economic outlook.

Meininger’s: Do you believe Russia can become a major international wine market?

Pinsky: Dry statistics of consumption per capita don’t give us any such hope just yet, but Russia — like the UK — is a cosmopolitan country for wine. There is a lack rather than a presence of our own wines, therefore there is no subject at which our patriotism can be directed. We should rather become a place for showcasing the achievements of international winemaking. And we are gradually doing it.

Meininger’s: Does Internet retailing have any potential in Russia?

Pinsky: It did until the government passed a resolution to ban internet sales of all alcoholic beverages in autumn last year, under an excuse that it is impossible to licence this activity. Excessive control over the wine trade is a big and painful issue.

Meininger’s: How important is education for your business? The market is certainly not as mature as in Western Europe.

Pinsky: Very important. As I said previously, information is the basis of our business. We try to educate our clients, even if we may not be as effective as one of our competitors — who I believe publish the best corporate magazine on wine in the world.

Meininger’s: How important is the foreign press in relation to demand for wines in Russia?

Pinsky: It is very influential. Advanced wine lovers read the top three international magazines, they browse (the) Internet.

Meininger’s: Who do your clients read, either in Russia or abroad? Who do they admire?

Pinsky: They read magazines, wine columns. They love the universally admired Jancis Robinson and Hugh Johnson, they hold in reverence the opinions of Robert Parker. Recently they fell for Willi Klinger, an ambassador of Austrian wine, who it’s impossible not to love.

Meininger’s: Are clients often buying brands? Points? How much of your clientele is developing its own taste?

Pinsky: I already talked about it when we discussed brands. There have been improvements lately, for example towards autochthonous Italian varieties. I would be reluctant to say that there is a strong tendency for the clients to develop own taste. At present it happens in an ad hoc manner, usually based on impressions gained from various travels abroad.

Meininger’s: Is the Russian palate different from the French or English or American?

Pinsky: I believe it is closer to the English and French. I am trying to influence my clients in this direction.

As published in Meninger’s Wine Business International