Polish vodka float full of investor cheer

BIALYSTOK - "Coffee, tea or vodka?" beams an executive at Polmos Bialystok, emerging from behind a desk stacked with his distillery's main export - a flavoured vodka with a blade of grass in the bottle.

Polmos Bialystok, Poland's last big distiller still in state hands, is preparing to go public just as vodka sales in the hard-drinking east European country take off following excise tax cuts and a crackdown on smuggling.

Already the fourth-largest vodka market in the world after Russia, the United States and Ukraine, Poland's registered hard liquor sales jumped by nearly half in the past two years to the equivalent of 100 million litres of pure alcohol in 2004.

No longer only the drink of choice for poorer Poles seeking to forget their troubles, the clear, nearly tasteless tipple has also made inroads into an urban audience recently drawn to foreign liquor, beer or wine by aggressive ad campaigns.

Poland seeks to float about 20 per cent of Bialystok on the Warsaw bourse next month, as well as find a strategic investor for the company with annual sales of US$400 million ($563.6 million).

Bialystok's products include local top-seller Absolwent, a brand it says was the world's fifth-best-selling last year. Its export hit, Zubrowka (Bison Grass), is flavoured with a grass that grows in a nearby forest, home to a herd of rare European bison.

Realising that the window of opportunity to buy into Poland's growing 7-billion-zloty ($3.24 billion) domestic vodka industry is closing quickly, some of the world's biggest spirit-makers are lining up for a stake.

Polish industry leader Sobieski Dystrybucja, owned by France's Belvedere, US spirits distributor Central European Distribution and the local unit of France's Remy Cointreau have all shown interest in Bialystok.

Fellow Polish distiller Polmos Lublin may team up with global leader Diageo in a bid. "This will be the final phase of consolidation on the Polish market. We have to take part," said Janusz Palikot, Polmos Lublin's majority owner.

While foreign buyers are drawn to Poland's vodka industry mainly for its export potential, the domestic market has also grown since tax cuts lowered prices and borders were fortified.

Poland's BRE Bank says US$500 million of vodka was sold on the black market in 2001, smuggled from neighbouring Belarus and Ukraine. As Poland shored up its borders to join the European Union last May bootleggers brought in only US$25 million.

But vodka sales are still below levels seen before the 1989 fall of communism when the hard liquor was the only readily available alcohol.

Vodka accounts for 42 per cent of Poland's alcohol market by value, says AC Nielsen, with beer making up half.

Polish producers also fought off an invasion of foreign brands after EU entry eliminated duties on foreign liquor, dropping the price of whisky by nearly 30 per cent.

"After EU accession, Poles rushed to taste drinks like whisky and rum, but it quickly turned out that Poland, like the rest of eastern Europe, is traditionally a vodka market," said Katarzyna Liczmanska, head of marketing at Sobieski Dystrybucja.

To bring Poles back to shops, most distillers aggressively expanded into the cheaper segment, offering brands at a high street price below 5 ($9) a 700ml bottle.

Bialystok said that with 3.8 million cases sold last year its flagship brand Absolwent was the world's fifth-biggest, after Stolichnaya, Smirnoff, Moskovskaya and Absolut.

Absolwent, which sells for 6 a bottle, has gained 14 per cent of the Polish market since its launch 10 years ago.

- REUTERS