#10
Chicago Tribune
13 January 2002
Baltic drinkmakers brew trouble for Coke
By J. Michael Lyons
Associated Press

RIGA, Latvia -- During the communist era, people in the Soviet republics lined up at sidewalk kiosks to quench their thirst with kvas, a cloudy brown concoction with a similar texture and taste of dark beer, minus the alcohol.

The drink nearly disappeared after the breakup of the Soviet Union, but now it's back. And it's at the center of a marketing war between local companies and the behemoth of the world soft-drink marketplace, Coca-Cola Co.

Not everyone is happy that kvas has become a mass-produced item.

"It's nothing more than cola," grumbles Vyacheslav Shamarin, who nevertheless brews a mass-market kvas.

The drink used to be made from locally grown rye, beet sugar, yeast and stale bread. It had a short shelf life, so it couldn't be bottled, and street vendors sold it by the glass.

Today, kvas producers use a syrupy concentrate imported from Germany, and the drink is pasteurized and sold in bottles.

Many fans of the drink say they preferred Soviet-era kvas because it tasted fresher and was more authentic. While quality may be open to debate, what isn't is the impact kvas has had on the regional drink market in recent years.

After the Soviet Union dissolved at the end of 1991, Latvia's new health laws banned its sale on the street, and post-Soviet economic disruptions forced kvas factories to close. For most of the 1990s, kvas virtually disappeared in this Baltic state of 2.4 million people.

Coke moved in and quickly dominated the market with its popular carbonated soft drinks.

Local drinkmakers struck back in 1998 by introducing a kvas that could be bottled and launching aggressive advertising campaigns. Kvas is also cheaper, at about 30 santims, or 48 cents, for a 1.5-liter bottle--about half the price of Coke.

In just three years, kvas rebounded to account for more than 30 percent of Latvia's soft drink market, researcher AC Nielsen Latvia says.

Coke watched its market share fall from 65 percent to 44 percent and had losses in Latvia of about $1 million in 1999 and 2000. Similar trends have occurred in the two other Baltic republics and in Russia.

"Some older consumers shifted from Coke to kvas, which they became accustomed to during Soviet times," said Aki Hirvonen, Coke's Baltic marketing manager.

Unable to beat the kvas producers, Coke joined the competition, or rather started buying it up. It purchased several kvas brands from the Baltics to Siberia, refitting some plants to produce kvas along with its standard soft drinks.

Last year, for instance, Coke bought the most popular kvas brand in neighboring Estonia, where the drink is known as kali. Linnus Kali made 60 percent of the 2 million gallons of kvas sold in Estonia in 2000.

An increasingly cramped market has forced producers to diversify.

Gutta, a Latvian juicemaker, now sells vitamin-enriched kvas aimed at children and a sugarless kvas "light" for dieters. It also changed the name of its first kvas brand to "Klassik," reminiscent of how Coca-Cola renamed its original cola Coke Classic.

"We are on the same playground as Coke and we have to have the same tools when we go into the stores and try to sell," said Gutta's general manager, Uldis Ronis.

Shamarin complains that all the posturing undercuts the traditions of kvas, which dates back 1,000 years to when Slavic hunters began fermenting boiling water and stale bread. "Kvas" derives from a Russian word for "sour."

"You can't carbonate wine and call it champagne," Shamarin said.

Shamarin oversees kvas production for Kok and Co., a condiment producer that started making the drink three years ago.

Squeezed into a white frock stained brown with kvas, he won't reveal his recipe but insists it is the closest version of the real thing left in Latvia.

But he concedes the kvas he produces is pasteurized, too, giving it a slight mass-produced flavor. And his firm did recently succumb to competitive pressures and start making what Shamarin calls "healthy" kvas.

"The kids love it," he says.

Leaning in, he sheepishly reveals its appeal: "More sugar."