THE RUSSIA JOURNALNews & Analysis Weekly

Published in Moscow Since 1998 September 7 - 13, 2001 Vol. 4, No. 35 (128)

By VLADIMIR KOZLOVThe Russia Journal

VOLZHSKY — The Volgaregion’s Povolzhye brewerymay not be as famous as St.

Petersburg’s Baltika or Moscow’sOchakovo, but as one of eightRussian breweries controlled byBelgium’s Interbrew, the plant hasdefinite ideas about its role in thecountry’s burgeoning beer market.

Since Interbrew acquired a con-trolling stake in Povolzhye twoyears ago, Povolzhye has workedhard to bring its quality standardsin line with the investor’s require-ments. "To survive in the market,you have to produce competitivegoods," said Pyotr Nekryty,Povolzhye’s director. "Withoutquality, we’re dead."

Although improvements wereneeded, the attraction for Inter-brew was obvious. From a regularSoviet brewery that made Zhigul-yovskoye — the Soviet Union’snational brand — the company hadgone on to gain a dominant positionon the local market, which includesVolgograd, Rostov, Astrakhan,Samara, Voronezh and SaratovOblasts and Stavropol and Kras-nodar Krais, and has some 20 mil-lion potential customers.

Monopoly position

"Five years ago, we had amonopoly position in the region,"said Nekryty. "But the output andquality of our competitors has

increased since." Still, the firmoccupies a comfortable position inthe market, producing about 14million deciliters of beverages ayear. Like several other Russianbreweries, Povolzhye, whichemploys about 1,000 people, alsomakes soft drinks and mineralwater as a sideline.

Nekryty said the company usesdomestic malt and water and uses alarge portion of Russian hops.According to Nekryty, the brew-ery has upgraded equipment sev-eral times in the past decade, usingits own resources as well asinvestors’ and is currently operat-ing on equipment supplied fromGermany and Slovenia, producingabout a dozen different brands.

Popular brand

When a Samara brewery patent-ed the Zhigulyovskoye brand sev-eral years ago, Povolzhye came upwith its own brand of the same type— Volzhanin — which has sincebecome the company’s main prod-uct and a popular local brand,retailing in the lower-price bracket.

The brewery has attracted for-eign investors for some time. Soonafter its privatization in the mid-1990s, Coca-Cola became the firstforeign investor in the companyand used the plant’s productionfacilities to bottle its soft drinks.Later, the two parted ways and thesoft-drinks giant went on to build aseparate plant in Volgograd region.

Interbrew, which also controls

seven more breweries in Russia —St. Petersburg-based Bavaria,Omsk-based Rosar and breweriesin Klin, Perm, Saransk, Kursk andIvanovo — was looking to expandand bought a controlling share inPovolzhye.

"We’re learning from [foreigninvestors] to work in the Westernstyle, but we’re also trying to pre-serve Russian customs and tradi-tions," said Nekryty.

Soon after the arrival ofInterbrew, the nationally distrib-uted Tolstyak brand, originallydeveloped at the Saransk brewery,was introduced to Povolzhye.According to Viktor Papenko,senior brand manager for Tolstyak,the Volga brewery now accountsfor the majority of all beer made inRussia under the brand name.

"We tried Tolstyak not long agoand it worked out well," saidNekryty. Currently, this brandaccounts for 40-50 percent of thebrewery’s output, Papenko added.

But despite Tostyak’s populari-ty, Povolzhye has little ambition tostruggle for a top slot in theMoscow beer market. "SomeTolstyak beer that we producemakes it to the Moscow market,but selling there is not our goal,"Nekryty said.

He added that the 1,000-km dis-tance between Moscow and Volzh-sky creates logistical obstacles forthe company.

Experts say that even if it focus-es primarily on the Volga region,Povolzhye has good prospects."Any well-equipped brewery likePovolzhye has every chance of suc-ceeding," said Alexei Krivoshapko,an analyst at the United FinancialGroup in Moscow, adding that rel-atively high incomes in the Volgaregion are an additional advantage.

Meanwhile, Interbrew broughtstricter quality-control standardsto the plant, along with theTolstyak brand.

Higher requirements

"With Russian quality standards,we didn’t have any problems," saidNekryty. "But with the arrival ofSun-Interbrew as a major investor,quality requirements have beenincreased."

Interbrew takes an active role inquality control at Povolzhye. "Beeris very much a local business," saidNancy More, Interbrew’s quality-compliance director for EasternEurope. "So, our first priority is tocontrol quality locally at the brew-ery."

While mostly focusing onRussian brands, Interbrew plans tobegin bottling its internationalStella Artois brand at the Volgabrewery. Nekryty said he could notsay when the project would belaunched.

Volga brewery aims for quality

POVOLZHYE is a lower-priced, popular brand and the firm’s main product. PYOTR NEKRYTY

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Moscow developers hope to be swimming in profits after a hand-ful of aqua parks open their doors to Muscovites pining for ataste of the tropics.

The city has been slow to follow its European counterparts in buildingaqua parks, which alongside swimming pools of various types typicallycontain restaurants, discos and sports and fitness facilities — offering theowners diversified sources of income.

Pavel Konov, deputy engineer at Koros, a developer working on a num-ber of aqua park projects in Russia, explained why construction firms herehave been slow to take the plunge: "Aqua parks aren’t cheap — they needlong-term investment,” he said. “On average, you have to spend two to

three years to complete a leisuresite of this kind, then it takes twoor three years before you get areturn." The benefit, he said, ispotentially stable profits.

Mikhail Komisarov, commer-cial director of ISD, which is sup-plying equipment and know-howfor one of Moscow’s projects —Aquadrome — agreed, sayingrecent economic stability has ledsome investors to fork out moneywith long-term gains in mind.

The first aqua parks will enjoy a monopolistic position, althoughexperts say that a city of Moscow’s size can support four to five parks.

First to test the waters will be a 21,000-sq.-meter complex in Yasenevo,south Moscow, set to open in April of next year featuring a water surfaceof 3,000 sq. meters, with the rest of the space taken up by a disco, bowl-ing alley, fitness center, saunas and banyas.

"We will offer a unique product," said Vladimir Desyatkin, deputydirector of the yet-to-be-named complex. "The aqua park will have atropical climate, offering something very different from the cold Russianweather outside. Our customers will be able to enjoy an atmosphere oftotal entertainment — we are planning many attractions, even theatricalperformances."

Some specialists have already praised the construction for its good loca-tion in a densely populated area. "The complex will attract many peopleliving in the adjacent area and is set to get a regular client base," saidKonov of Koros.

"We will offer a classic European aqua park," added GennadyDeryugin, deputy engineer of the Yasenevo complex. "It will contain fea-tures like water toboggans, rivers, cascades, hydro-massage and waves."

The Yasenevo center is owned by ETS, a closed joint-stock company.The developer is Turkish firm Kocak. Officials wouldn’t disclose the priceof building the center, but by comparing similar projects in Europe, theprice of a square meter looks set to come out at $1,000 to $1,300, depend-ing on materials and facilities involved.

Next year, another big scheme could also be making waves —Aquadrome, at Aminievskoe Shosse — a 43,500-sq.-meter center con-taining a water surface of 3,000 sq. meters. Total investment needed hasbeen preliminarily estimated at $50 million to $60 million. Gazprom isfunding the effort, which will be jointly owned with the Moscow citygovernment after the gas giant promised to provide several recreationprojects in lieu of local taxes.

Insiders say both schemes are aimed at customers spending $5-$10 pervisit — giving them a potentially large customer base.

Meanwhile, construction started in July in the Moscow City businessdistrict to create Aqua City Center — a $230 million hotel complex fea-turing a 24,353-sq.-meter aqua park — also financed by Gazprom.

"We plan to open part of the building in autumn," said Anton Fetisov,head of PR for Moscow City. "I don’t see any problems with completingthe construction by December 2003."

"Aqua City Center will have some distinctive features," said Fetisov."A glazed dome covering the aqua park will create a more natural envi-ronment and lighting." He admitted, however, that according to someestimates, it could take 10 years to recoup the initial financial outlay.

Future efforts could include aqua parks adjoining Moscow’s Luzhnikiand Dynamo stadiums, providing developers and funding can be found.

Set to open in the southeast of the city next month is a facility thatsome observers have called an aqua park — Moscow Kimberly Land —which calls itself a sports center. The 8,000-sq.-meter fitness complexcombines elements of an aqua park, featuring a water surface of morethan 1,000 sq. meters, including pools, spas and hydro massages.

Mikhail Yanutan, chief of PR for the soon-to-be-opened complex, said:"We will compete with fitness centers more than aqua parks. Water facil-ities for us are just an extra attraction in our fitness package."

(E-mail Building Blocks at dmitryb@russiajournal.com.)

REALREAL ESTESTAATETE

Testing the watersTHE SITE of the future 21,000-sq.-meter aqua park in Yasenevo.

By DMITRYBULGAKOVA close look at

Russia’s real-

estate sector.

BUILDINGBUILDING BLOCKSBLOCKS

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