Reference no: EM133297802

Case Study: 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 criticismon 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.Savage's message to his followers included thefollowing 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 in2014. 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 onthe 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.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 influence 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."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) VodkaStolichnaya (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" tocelebrate 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.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 did 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.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."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 theraw 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'srights 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: the Netherlands, Belgium, and Luxembourg.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 IndustryWhen 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 billion in retail sales, an increase of 3.1 percent from 2011.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.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.Unique package design and product positioning were particularly important in the vodka industry.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.Absolut's bottle design was popular among consumers over 35 because it was seen as "fun, friendly and approachable."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.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.Male same-sex partnered households spent more than other households on alcoholic beverages.

Russia's Anti-Gay Laws and the Public's ReactionIn 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 theLGBT community made their rounds on social media, of which the most popular was titled, "36 photos from Russia that everyone needs to see."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 Kingdom boycott 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."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."The Boycott of StoliDan 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.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 Americans behind the vodka boycott reconsider, but Queer Nation, a New York City-based LGBT group, refused.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 ResponseIn 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.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 short 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."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."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. Theyreceived 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?

Question 1. Describe the issue facing the managers of Stoli USA. Was this a corporate crisis, and why or why not?

Question 2. Identify the market and nonmarket stakeholders in the case. What were their interests, sources of power, and likely coalitions?

Question 3. Should Stoli vodka be considered a Russian brand? In an age of globalized supply chains, what qualifies a brand's national authenticity? Does it matter?

Question 4. In what ways did the nature of social media pose specific challenges to the company?

Question 5. Evaluate the crisis management response so far of both the SPI group and Stoli USA. What more should they do to restore the brand's reputation?