Russia, October 2nd 2008 Abrau-Durso being restored to sparkling glory an analysis by Igor Serdyuk Abrau-Durso, Russias historic

sparkling wine producer, is launching a new investment program, aiming to restore its status as the industrys flagship after 20 years of decay another sign of an emerging viticultural renaissance in Russia Abrau-Dursos new majority shareholder, Boris Titov, the Russian petro-chemical entrepreneur and head of the Delovaya Rossiya (Business Russia) association, has invested more than $12m into the project and continues to buy new equipment for the winery. A multi-million dollar marketing campaign to help Abrau-Durso retrieve its fame is underway, including designing new labels, creating a modern wine museum and developing tourism; the winery is located on the beautiful Abrau lakeside, near the Black Sea beaches. Abrau-Durso winery was founded in the late nineteenth century by order of the then tsar. Prince Leo Golytsin, who was known as the Russian Bacchus for the series of award-winning wines he created, was assigned to run Abrau-Durso in 1891. He invited French winemakers from the Champagne region, who remained on the key positions in Abrau till the October revolution in 1917. The Soviet state re-launched production of Abrau-Durso soon after the departure of the French specialists, assigning prominent young winemaker Anton Frolov-Bagreev to head the winery. It was Frolov-Bagreev who established the Charmat method in Abrau-Durso. He also saved the tradition of the classical sparkling wine production for use in the the premium quality line of Sovietskoye Champanskoye, a state-owned brand now produced by a big number of the former state-owned wineries, including Abrau. Abrau-Durso survived the 1990s when the whole wine industry of Russia suffered not just from the economic crisis, but also from the disintegration of the Soviet Union, whose former republics, such as Moldova or the Ukraine, provided Russiabased bottlers with raw materials. As inevitable consequence, the quality of AbrauDurso sparkling wines went down. When Boris Titov visited the winery for the first time, he was more impressed by the beauty of landscapes, than by the flavour of the wines. But we realized that Abrau-Durso was a very good asset, said Boris Titov. The brand had wide public recognition and it was very important for the image indeed. Titov calls himself an advanced user rather than a wine specialist, but he admits he has become personally interested and fully involved in winemaking since he acquired Abrau-Durso. Winery employees say he might spend the whole day in the cellars making sure that the new press is fixed in the proper way. Vladimir Drobiz, head of the Research Center for Federal and Regional Alcohol Markets (RCFRAM), is optimistic about the future of Titovs investment, because Russian sparkling wine industry is showing good potential. According to RCFRAMs data, sparkling wine production has become one of the fastest growing segments in

the Russian wine market, with annual growth of 10% to 15% since 2000. The ban imposed on the Moldovan imports in 2006 eliminated significant part of the competition for the Russian producers of sparkling wine. They did not hesitate to fill the empty niche, increasing sparkling wine volumes from 154m L in 2006 to almost 216m L in 2007. The first six months of 2008 showed a further 15% growth. The sparkling wine segment is growing with the market, representing a 20-21% share of wine consumption in Russia. Domestically produced sparkling accounts for 94% of this percent. Imported sparkling wines and Champagne is slowly losing its share, from 10% in 2003 to 6% in 2008. But so far, Abrau-Durso is only number seven in the RCFRAM list of the 23 Russias major sparkling wine producers, having a 5.7% share of the domestically produced sparklers. Large-scale wineries located in St Petersburg, Moscow and Osetia, have bigger volume of production. However, with the new ownership and management, Abrau-Durso has become one of the most dynamic market players, having its share almost doubled during last 12 months, and many of its distribution problems solved. Besides, Abrau-Durso has a significant image advantage of a historical top-quality winery. Its top classical method sparkling wines aged from three to five years in the cellars, retail at about $27 a bottle. Meanwhile, the lions share of the Russian sparklers has the retail price of $4 per bottle, benefitting from the image of affordable luxury. The attitude of Russian consumers to the sparkling wine was created by Sovietskoye Champanskoye brand as long ago as the 1930s. Sovietskoye was created as a symbol of the peoples wealth and was always promoted by the state as a quality product. Even during 1942, one of the critical moments of World War Two, a group of Russian oenologists was symbolically awarded a prestigious State Prize for the improvement of the Charmat method. The wines reputation weakened only in the 1990s when the bottlers located in the major cities of Russia were cut off from the wine regions of the former Soviet Union and had to by cheap raw material from all over the world