SLU The Boycott of Stoli Vodka Case Study

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The Boycott of Stoli Vodka

Just a few months after being
named the new president of the Stoli Group USA, John Esposito woke up on a
bright July morning in 2013 and was alarmed to learn that one of his company’s
most popular products—Stoli vodka—was being bombarded by heavy criticism on
social media. The hashtag, #DumpStoli, coined by Dan Savage, a prominent
gay-rights blogger, had gone viral overnight.

Savage asserted that Stoli vodka,
because of its Russian heritage, should be boycotted along with other
Russian-made products. In his view, consumers should refuse to buy Stoli vodka
to show solidarity with the Russian gay community because the Russian
government, under the leadership of Vladimir Putin, had recently passed a
series of discriminatory laws. One law enabled police officers to arrest
tourists and foreign nationals suspected of being gay or pro-gay and to detain
them for up to 14 days. Another law imposed heavy fines on citizens and
deportation of foreigners who held gay pride parades or provided information to
minors about “nontraditional sexual relations.” Yet another law prohibited
same-sex couples, as well as singles and unmarried couples living in a country
that recognized gay marriages, from adopting Russian-born children.1 Savage’s
message to his followers included the following directive:

If you drink a Russian Vodka like
Stoli [or] Russian Standard . . . switch to another brand from another country,
or even a local brand from a local distillery. Stoli is the iconic Russian
Vodka and it’s returning to Russian ownership in 2014. Other brands like
Russian Standard should also be boycotted. Do not drink Russian vodka. Do not
buy Russian vodka. Ask your bartender at your favorite bar—gay or otherwise—to
DUMP STOLI and DUMP RUSSIAN VODKA.

Historical Twitter data showed
that on the first day of his blog, hashtags with references to Stoli were
tweeted or retweeted 1,046 times; on the second day, the number of tweets rose
to 2,572; on the third day, the number of tweets increased to 4,156.2

Esposito was dismayed. He was
aware of Stoli’s historical support of the lesbian, gay, bi-sexual, and
transgender (LGBT) community, and he knew that the brand had no page
522influence on, or cooperative relationship with, the Putin government. In
fact, both the owner and top executives at SPI Group, the parent company of
Stoli Group USA, had had progressively adversarial relationships with the Putin
government for more than 10 years. Nonetheless, the #DumpStoli hashtag was
gaining traction. Esposito needed to act quickly. He noted, “The firestorm
hits, the reaction is swift, and your head is spinning. Before you know it,
bars are pouring your product onto the street.”3

Along with Esposito, the primary
responsibility for managing the crisis fell to Lori Tieszen, Stoli USA’s senior
vice president and chief marketing officer. She had the challenging task of
leading a team effort to neutralize the social media campaign and inform the
company’s many stakeholders of its supportive position on gay rights. Tieszen
later reflected on the dramatic day Savage launched the boycott:

It was kind of a scary day. I had
just joined the company in June. . . . When you think about when Dan Savage put
his hashtag #dumpstoli out there, that was D-Day . . . it was growing and
growing . . . that one tweet from him really set everything afire. It was a bit
of a panic . . . we tweeted a lot, our phones starting ringing. . . .

How should Esposito, Tieszen, and
the rest of their team respond? What should be the team’s next steps? They knew
that they had the full backing of Stoli Group USA’s parent company, SPI Group,
as well as access to its vast resources. Tieszen soon began to work under
Esposito’s directive to, as she put it, “do whatever it takes.”

Stolichnaya (Stoli) Vodka

Stolichnaya (Stoli) was a storied
brand. Stolichnaya’s most popular alcoholic beverages were its classic 80-proof
vodka label, as well as its fruit flavored and premium vodka blends. It was the
drink of choice for many well-known figures—from former Russian President,
Boris Yeltsin, to Patsy Stone, a character in the popular BBC sitcom Absolutely
Fabulous. During the Apollo-Suyuz mission in 1975, a Russian cosmonaut offered
his American counterparts two tubes labeled “Vodka Extra” and “Vodka
Stolichnaya” to celebrate their meeting in space (the tubes really contained
borscht, a Russian soup made from beets). A bottle of Stolichnaya vodka
appeared in the James Bond movie, A View to a Kill, at the end of a chase
scene, when Roger Moore took it out of his bag to share with another spy on a
floating iceberg.

Stoli vodka was originally
distilled in Russia around 1938. In 1973, the product made its first appearance
in the United States, when PepsiCola Company formed a barter agreement with the
Soviet government. Under their arrangement, the U.S. firm exchanged Pepsi
beverages for Stoli vodka, which its wine subsidiary imported into the United
States and distributed as a premium brand. The Stoli brand remained under the
ownership of the Soviet government and union collectives.

When the Soviet Union broke up in
the early 1990s, local business people began to purchase government assets. An
entrepreneur, Yuri Shefler, started to acquire percentages of Stolichnaya and
achieved full ownership of the brand in 1997. He reportedly paid $300,000 for
the rights to several vodka brands, including Stolichnaya.4 Shefler’s company
became known as SPI Spirits.

Soon, the popularity of Stoli
made it a primary target for re-nationalization. In 2001, the Russian
government legally recaptured domestic rights to the vodka. But the government
page 523did not stop there. In 2002, Russian customs officers seized $40
million worth of Stoli vodka produced in a Kaliningrad factory. Masked police
officers raided SPI’s headquarters in Moscow, reportedly saying that they were
there to destabilize the business.5 Prosecutors also opened a criminal
investigation of Shefler, charging him with forging and destroying documents
that enabled him to purchase the Stolichnaya brand for a small percentage of
its true market value. They even accused Shefler of threatening to kill a government
official.

Shefler fled the country and went
into de facto exile. SPI criticized the Russian officials for “backtracking on
legal privatization” and acting “like Soviet-era thugs.”6 Shefler shifted
operations to Latvia and relocated SPI’s headquarters to Luxembourg. (Formerly
a republic within the Union of Soviet Socialist Republics, Latvia had declared
its independence as a nation in 1990.) SPI continued to manufacture the raw
alcohol in Tambov, Russia. The raw alcohol was then shipped to Latvia to be
blended, filtered, and bottled. Since Stoli was bottled in Latvia, it changed
its label from “Russian vodka” to “premium vodka.” Russian authorities
continued to contest SPI’s rights to the brand, however. In 2012, a court in
The Hague ruled that the trademarks to Stolichnaya belonged to the Russian
state-owned distillery in three countries outside Russia: Netherlands, Belgium,
and Luxembourg.7 SPI vowed to appeal the decision.

Between 2000 and 2013,
distribution of Stoli vodka in the United States passed among a series of
companies, including Allied Domecq, Pernod Ricard USA, and William Grant &
Sons. In November 2012, SPI Group announced a major change in its U.S.
importation, marketing, and distribution strategy. It created its own importing
arm, Stoli Group USA, and hired John Esposito as its new incoming president.

U.S. Alcoholic Beverages Industry

When Esposito took over at Stoli
Group USA, the outlook for the U.S. alcoholic beverage industry remained
strong. In 2012, alcoholic beverages accounted for about $197.8 billionin
retail sales, an increase of 3.1 percent from 2011.8 The industry was comprised
of three markets: beer, wine, and distilled spirits. Beer accounted for almost
50 percent of total alcoholic beverage revenues. Spirits were classified as
white goods (e.g., vodka, gin, rum, and tequila), brown goods (e.g., whiskey
and bourbon), and specialties (e.g., cognac, brandy, cordials, and liqueurs).
Vodka, in the white goods category, accounted for about a third of U.S.
distilled spirits consumption in 2012.

Growth opportunities in the
spirits industry could be exploited by targeting certain demographic “sweet
spots” (in terms of specific ages and ethnic groups), by marketing to warehouse
clubs and supermarkets, and by engaging in brand innovation.9 Millennials were
a favorite target market for alcoholic beverage companies; they preferred their
drinks to be somewhat sweet. U.S. census data showed that the number of
consumers reaching the legal drinking age was steadily increasing, and a Nielsen
survey reported that while young consumers still preferred beer, they purchased
more wine and spirits than the older generation had at the same age.10

Unique package design and product
positioning were particularly important in the vodka industry.11 Newer brands
like Svedka and Pinnacle were successful in grabbing consumer attention and
holding shelf space with their unique bottle designs and bold colors,
detracting from the brand equity of older brands, such as Smirnoff and
Stolichnaya.12 Absolut’s bottle design was popular among consumers over 35
because it was seen as “fun, friendly and approachable.”13 To target women
pursuing healthy lifestyles and low-calorie diets, Diageo introduced Smirnoff
Sorbet Light Vodka with only 78 calories per serving in three flavors:
raspberry pomegranate, mango passion fruit, and lemon.

Industry market research showed
that LGBT consumers had strong purchasing power. Gay households had 23 percent
higher median income and 24 percent more equity in their homes compared to non-gay
households.14 LGBT consumers were very brand conscious; in a national sample,
49 percent of gay respondents, compared to 41 percent of heterosexual
respondents, said they ordered alcoholic beverages by brand name.15 Male
same-sex partnered households spent more than other households on alcoholic
beverages.16

Russia’s Anti-Gay Laws and the
Public’s Reaction

In the summer of 2013, Russian
president Vladimir Putin aggressively expanded his country’s anti-gay agenda.
In June, the Russian parliament unanimously passed a law against “propaganda of
non-traditional sexual relations,” making it illegal to teach minors about
homosexuality. A few weeks later, Putin banned the adoption of children by gay
parents. Around the same time, the media reported numerous unwarranted arrests,
persecution, and bullying of members of the LGBT community. Some powerful
images of the atrocities committed by Russian officials toward the LGBT
community made their rounds on social media, of which the most popular was
titled, “36 photos from Russia that everyone needs to see.”17 In response, the
international LGBT community was becoming increasingly vigilant and distressed
about human rights violations in Russia.

Stephen Fry, a British actor,
author, and journalist, demanded that the United Kingdomboycott the upcoming
2014 Winter Olympics in Sochi, Russia. Other activists began to pressure
corporate sponsors of the Olympic games—including Coca-Cola, GE, and Procter
& Gamble—to issue strong statements condemning Russia’s anti-gay stance. Celebrities
cancelled planned trips to Russia. Wentworth Miller, star of the TV show Prison
Break, decided not to attend a film festival in St. Petersburg saying, “I
cannot in good conscience participate in a celebratory occasion hosted by a
country where people like myself are being systematically denied their basic
right to live and love openly.”18 City council members across the country were
asked to sign petitions ending their sister city relationships with their
counterparts in Russia. Even President Obama weighed in on the issue. On Jay
Leno’s Tonight Show, Obama declared that he “had no patience for countries that
try to treat gays or lesbians or transgender persons in ways that intimidate or
are harmful to them.”19

The Boycott of Stoli

Dan Savage’s #DUMPSTOLI campaign
arose against the backdrop of these events. In his blog, Savage wrote at length
about Putin’s vindictive agenda toward the LGBT community.20 He initially
called for a boycott of the 2014 Sochi Olympics in Russia. However,
acknowledging that the Olympic boycott might not come to fruition, he turned
his attention to Russian vodka. He asserted that Stoli, as well as other
Russian vodka brands, should be boycotted “to show our solidarity with Russian
queers and their allies and to help to draw international attention to the
persecution of gay men, lesbians, bisexuals, trans people, and straight allies
in Putin’s increasingly fascistic Russia.”

Other influential LGBT groups
such as Queer Nation followed, and the campaign gained significant momentum on
social media. The New York Times reported that dozens of bars in major cities
such as Seattle, Chicago, and Los Angeles would no longer sell Stoli vodka.21
The Stonewall Inn, a prominent gay bar in New York City’s West Village and the
site of the 1969 Stonewall riots, also confirmed to Time magazine that Stoli
vodka was no longer on its shelves.22 The boycott extended to bars in smaller
cities, such as Provincetown, MA. In bars still offering Stoli vodka, many LGBT
patrons voluntarily avoided ordering Russian brands.

Despite initial support for
Savage’s rallying cry, over the course of the summer members of the LGBT
community became increasingly split on the issue of the boycott. Queerty, a
satirical website promoting LGBT interests, argued that the boycott was
misguided. It noted that Stoli had not been a Russian company for the past 12
years. The website portrayed Putin as an evil empire-builder intent on hunting
down Shefler to the ends of the earth and seizing his vodka company. Russia was
cited for its talent for usurping and then ruining good brands.

When Savage was informed that
Stoli was not technically a Russian brand, he reportedly replied, “Whatever. At
the end of the year Stoli will be a Russian company again.”23 Savage believed
that Russia would eventually resume complete control of the brand. Chris
Cannon, a writer in Vancouver, called on Savage to “stop bullying LGBT-ally
Stoli” and to target true state-owned Russian brands instead.24 Andrew Higgins,
a reporter for The New York Times, also distinguished between the Stolichnaya
consumed within Russia and the Stoli imported into the United States and
consumed by Americans. The vodka imported into the United States was distilled
in Latvia. Higgins pointed out:

The exact nationality of Stolichnaya,
like many global brands, is hard to pin down. It was made for a time in Russia
and simply bottled in Riga (capital of Latvia) but has in recent years been
filtered and blended in Latvia . . . while its water comes from Latvian
springs, its main ingredient, raw alcohol distilled from grain, still comes
from Russia. Its bottles are from Poland and Estonia, its caps from Italy.25

The Riga factory, operated by
Latvijas Balzams, was a century-old enterprise that ranked as one of the
country’s biggest taxpayers and employers. Approximately 900 Stoli employees
were in Latvia, and 600 in Russia.

Many employees working in Stoli’s
Riga production facility, along with members of the small LGBT community in
Latvia, expressed their deep concern over the boycott. They feared that gays
might face the anger of their neighbors. “If the boycott works, Latvians will
lose their jobs, who are they going to blame? Putin? No, they are going to
blame gays.”26 While discrimination against gays was banned in Latvia (since it
was a member of the European Union), de facto discrimination was rampant, and
the LGBT community often faced verbal and physical abuse. Mr. Zalitis, an
advocate for gay rights in Latvia, wrote an open letter requesting that the
Americans behind the vodka boycott reconsider, but Queer Nation, a New York
City based LGBT group, refused.27

ACT UP, an HIV-awareness and
activist group, supported the boycott. It sent protestors to disrupt Stoli
Vodka’s “Most Original Stoli Guy” event at the Splash Bar in the Chelsea section
of New York City. The event involved a competition between 13 contestants from
around the country who were vying to become Stoli’s national LGBT ambassador.
The activists entered the bar and positioned themselves in front of an audience
of 150 participants (including Stoli executives), shouting and holding signs
that read, “Russia Kills Gays,” “Boycott Russia,” and “Dump Stoli.” They were
removed from the club. Activists from ACT UP and Queer Nation also disrupted
the competition’s finale held at the Marquee NY on September 19. Stoli Group
USA was not deterred. The company stayed the course and continued its marketing
campaign and other scheduled events.

The SPI and Stoli Group
USA Response

In mid-June, executives at SPI
and Stoli Group USA received forewarning that a threat to its brand might be
brewing. Stoli’s public relations firm, the Magrino Agency, detected a meme on
Facebook asking people to boycott Stolichnaya, especially in gay bars. A few
days later, the firms’ LGBT media partner, Gay Cities, began to see negative
comments about the “Stoli Guy” on Twitter. The owner of a Seattle bar sent an
e-mail to Stoli salespeople asking them why they were promoting the brand when
Russia had just “outlawed homosexuality.”28 Stoli took a “wait and see”
approach and vowed to take quick action should the situation escalate.
Executives began to work on a statement, which would be released if they got a
call from a mainstream media outlet or a well-respected LGBT site.

The catalyst for immediate action
was Dan Savage’s blog and hashtag. Val Mendeleev, CEO of the SPI Group (Stoli
USA’s parent organization), published an open letter to the LGBT community just
one day after Savage posted the hashtag. In it, he acknowledged that Stoli
vodka included some Russian ingredients (wheat, rye, and raw alcohol) but was
distilled, blended, and bottled at its facility in Riga, Latvia.29 Mendeleev
also highlighted the strained relationships with the Putin government, saying,
“The Russian government has no ownership interest or control over the Stoli
brand that is privately owned by SPI Group, headquartered in Luxembourg in the
heart of Western Europe.”

Moreover, Mendeleev noted, Stoli
had been a longtime supporter of the LGBT community. As he pointed out in his
letter, “In the US, the brand’s commitment to the LGBT community has been
ongoing for years. Among the best examples, I can cite the series produced by
Stoli in 2006 called ‘Be Real: Stories from Queer America,’ which featured page
527short documentaries on real life stories depicting the challenges and
accomplishments of the LGBT community in the United States.”

In addition to his open letter,
Mendeleev travelled to the United States, appeared on radio shows, and granted
interviews to the press. He described himself as an “ex-Russian” who had left
the country 20 years earlier. He reiterated that SPI Group was not allowed to
sell its brand inside Russia and that it had been reducing its workforce and
operations in that country.30 In a New York Times article, he stated,
“Stolichnaya . . . is no more a proxy for the Russian state than Google, whose
co-founder Sergey Brin was born in Moscow.”31 Stoli Group USA president
Esposito said, “Hurting Stoli in the U.S. is actually probably going to make
the Russian government happy, given that they’ve been fighting us for the last
13 years. They’re probably going to be sitting there chuckling.”32

Back at Stoli Group USA, Esposito
reached out with an e-mail to the firm’s business partners (distributors,
bartenders, and retailers). In it, he wrote:

As you are probably aware the
attitudes and actions of the Russian Government against the LGBT had
understandably ignited a passionate response from all of us who believe in
human rights for all. . . . In an attempt to call attention to the situation in
Russia, which we fully agree is outrageous, boycotting Stoli, is being singled
out as a way to express outrage. While I understand this reaction, I want to
set the record straight and ask that each of you share with your organizations
Stoli’s position and reinforce our longstanding support of the LGBT community.

Despite Stoli’s early efforts to
appease its critics, Savage and others in the LGBT community continued to push
the boycott in the United States. The hashtag gained followers. On their end,
Stoli’s marketing and public relations employees, led by Tieszen, were busy
monitoring all news media channels. They received and evaluated analytics daily
to shed light on both the level of activity and the sentiment of the reporters
who were reflecting and commenting on the Dump Stoli message. One of the
marketing department’s conclusions was that activity on Twitter was more
intense than on Facebook. A tracking of the daily tweets across time showed
that social media activity was most intense during the first 15 days of the
crisis.

John Esposito joined Tieszen in
community outreach activities. As Tieszen recalled:

He did not want to just send out
press releases. . . . John personally talked to key accounts. He actually tried
to get Dan Savage on the phone (who would not talk to him). We attended
meetings and we attended some town hall meetings . . . we got to the open forum
and we got to the check-in and they knew who we were. It was like we were on a
most-wanted list. And they said, ‘Well, you can attend but you can’t speak.’ We
attended, we listened.

Esposito added:

Our initial reaction was to come
to the defense of our brand. People were attacking our brand, hurting our
family. The team in our global home office was focused on the WORDS. Our
initial response was to get the facts straight . . . but in the end, this was
the wrong response.

It was time for Esposito and
Tieszen to intensify their activities. They were faced with the difficult task
of challenging what they believed was an unwarranted boycott in the age of
social media. What more should they do?