Without Tears — and Now Without Booze

The joy of Russia is drinking, and without drinking we cannot be," said Prince Vladimir, ruler of the state of Kievan Rus in the 10th century, as he chose Christianity for the state religion over teetotal Islam. Never has Russia indulged her joy more than over the last five petrodollar-rich years, with alcohol from any land available to complement the fabulous abundance of domestic vodkas, at prices ranging from affordable at kiosks to exclusive at rare wine boutiques.

But the joy abruptly ended on July 1. Citing the need to control alcohol quality and tax collection, the government has decreed that as of that date, both domestic alcohol and the estimated 200 million imported bottles held in stock by Russia's retailers and suppliers have to carry sophisticated new excise labels. Selling or hoarding bottles with the old labels is punishable by a $1,500 [an error occurred while processing this directive] fine and loss of a license to sell alcohol. On the same date, any transactions in alcoholic goods became illegal, unless entered into the computerized Unified State Automated Information System ( usais). The state also ordered alcohol retailers to double their authorized capital stock from $18,500 to $37,000, and raised the cost of the retail license for booze from $220 to $2,200.

Major Moscow hypermarket chains were forced to put their wine stocks on sale just before the deadline, once they realized they couldn't get them relabeled on time. Wines costing $15 to $25 a bottle were going for under two bucks. Within a week after the deadline, at least 15,000 small stores, including expensive wine boutiques, went out of business. Shelves of imported alcohol have been stripped bare, except for lonely bottles of German alcohol-free wine. The posh Bosco Café in Red Square, Moscow, famous for its cocktails and elaborate wine list, now typically restricts its aperitif offerings to unimaginative gin or scotch, while patrons wash down fish dishes with overpriced Chianti from Bosco's depleted stocks, as no white wine is to be had.

Retailers smell a conspiracy. "These are the first steps to reinstate a state monopoly on the alcohol trade," says Vera Nefedova, general manager of Vincroft, a private company that runs a four-supermarket chain in Moscow. The state is set to destroy small businesses, and force others to enlarge, she believes: "It'll be easier to take them under centralized control that way." She may be right. Last summer, Russian President Vladimir Putin endorsed restoring the state monopoly on production and distribution of ethyl alcohol. And proposals for a State Shareholding Committee ( ssc) to take over the legal alcohol market, worth some $20 billion a year, are still before the Duma.

Meanwhile, the new laws have not worked as planned. To get their stocks relabeled, retailers returned their bottles to suppliers. But just a fraction of the needed new labels had been made on time. Imports, too, have been affected. During the first week of new regulations, just 1.8 million newly labeled bottles entered Russia — earning just 5% of the usual weekly revenues from imports. And apparently the database is flawed as well. The usais cannot support more than 10 users at the same time — it simply shuts down, writes the Moscow daily Kommersant. "Today, I can't offer imported alcohol, tomorrow I won't be able to offer domestic vodka," says Nefedova. "The supplies will dry up."

The government seems to know it has a problem. Just three days after the July 1 deadline expired, Prime Minister Mikhail Fradkov, faced with bare wine shelves and rapidly dwindling revenues, was forced to sign a six-month relabeling extension. In one week, Russia's retail revenue dropped 20%, a downturn that has cost the economy some $188 million, according to Ekho Moskvy radio station. Andrei Tkemladze, general manager of Moscow's fashionable Azbuka Vkusa supermarket chain, believes that the alcohol market may take at least six months to recover, with retail prices skyrocketing by over 30% as producers, suppliers and retailers make up for their losses.

But the cost of drinking has always failed to get between the nation and its joy. Russians will tighten up on everything else to sit back and enjoy a stiff drink; few, however, are likely to raise their glass to toast the bureaucracy.