When 21-year-old Borys Kaufman, trained as a lawyer, founded one of the first joint-stock companies in Odessa nine years ago, he had no way of knowing that his business would make the successful transition from bakery to empire.
Today his company, which has remained secretive and low-profile until recently, is the largest Ukrainian holding in the seaside city, and is reinvesting millions to modernize and expand its activities.
Concern Overline, previously called Overline Trading Ltd., started its business in 1994 with mostly Ukrainian money, and some small investments by Cypriot firms. In that year it opened the seaside city’s first private bakery, which proved lucrative. At the same time, Overline worked with Italy’s Simon company to sell Italian shoes in Odessa. Kaufman reinvested the money he earned in Overline’s first business ventures in a shipping business that involved the export of vodka to Australia. Since 1997, the company has further expanded its shipping business.
Since Kaufman’s days making bread and selling shoes, the graduate of Odessa Mechnikov University has turned his attention to producing alcoholic beverages and developing Odessa’s hospitality industry. In total, the concern has created 2,000 new jobs in the region.
Ukrainian capital comprises the bulk of all investments in the company today.
In 2001, the company decided to enter the alcoholic beverages market by acquiring former Soviet distilleries that had fallen on hard times.
Today Overline owns three distilleries. The First Distillery Plant produces Myagkov vodka and a low alcohol product called 220V. Concern Overline also owns the Odessa Champagne and Izmail Wine Plants.
One of the concern’s recent projects was the restructuring of the factory that produces the Myagkov brand of vodka, an enterprise that employs about 500 workers. Between 2001 and 2003, Overline completed a $10 million renovation of its 116-year-old factory’s facilities.
During the next few years, the company plans to invest an additional $10 million to modernize the factory, acquire more property and expand the capacity of the existing distilling units.
Dmytro Roschupkin, the factory’s general director, said that it would take roughly four years of operation to break even on the investments.
“I am absolutely convinced that in three years this factory will meet all European standards,” Kaufman said.
In addition to its alcohol products, the company operates two hotels, the Londonskaya and the Krasnaya. Both are architectural monuments that were built in the 19th century.
Inga Osetinskaya, Overline’s marketing manager, said the 92-room Krasnaya hotel, currently undergoing reconstruction, will reopen at the end of 2004. After it does, the Londonskaya hotel will close for renovations.
For now, the 56-room, four-star Londonskaya hotel has a 70 percent occupancy rate. Rates vary from $100 to $500 per night, depending on the suite.
She said that after renovations, her company’s Londonskaya hotel will likely be the city’s most luxurious hotel.
Opening up
Though the company has been working for nine years, information about its activities and shareholders has not been widely available until recently.
Over the last year, rumors circulated that Fozzy Group, which operates the Silpo supermarket chain, owned Overline’s Myagkov vodka brand.
Launched two years ago, Myagkov has become the country’s second most popular vodka maker in terms of sales, after Nemiroff.
“When we were launching Myagkov, Fozzy was the exclusive distributor of the trademark,” Kaufman said.
Denis Bogush, Fozzy Group’s spokesman, confirmed this information, and told the Post on Nov. 19 that his company never claimed ownership of the Myagkov brand.
Kaufman denied speculations that Fozzy owns the Myagkov trademark.
Although Overline still works in tandem with Fozzy Group, its marketing strategies have been entirely rethought.
While Fozzy was the single distributor for Myagkov during the last year, the company today works with about 40 distributors throughout Ukraine.
The Myagkov trademark has ambitious expansion plans that, if successful, could help it land a market niche abroad within the next few years.
“In August we opened a representative office in Moscow, and since October we have started selling our brands there,” Yury Muzhanov, director of Myagkov Tradehouse, said.
After two months on the Russian market, Myagkov has sold 1.2 million bottles in Russia.
“But we think that the market niche for Myagkov is much bigger,” Kaufman said.
The company sees the Russian market expansion as one of its top priorities next year. The Russian market is five times larger than the Ukrainian market, and Russia consumes between 130 million and 150 million deciliters of vodka annually. To compare, Ukraine’s annual consumption is about 35 million deciliters. In addition, Overline hopes to export Myagkov into 20 other countries. Currently Myagkov sells in Israel, Azerbaijan, Moldova and Russia.
Before entering the Russian market, Kaufman said his company analyzed the experience of Nemiroff, Ukraine’s top exporter to Russia. Natalia Konovalova, Nemiroff’s spokesperson, said that her company currently exports its products to 40 countries.
“Nemiroff occupies 0.7 percent of Russia’s vodka market, and we plan to double our market share next year,” she said.
Though Konovalova refused to comment on Nemiroff’s closest rival, she said that Overline is likely preparing for further expansion of its Myagkov brand, and has therefore started to open up.
Liana Feschuk, Overline’s marketing and advertising department head, said that Myagkov has taken its first steps in Russia through a newly created premium line of Myagkov vodka.
Britain’s Stolzle Flaconnage, a manufacturer of glass bottles for such trademarks as Teachers Glenfiddich, Ballantines, Smirnoff and Sheridans, was chosen to produce bottles for Myagkov’s premium vodka.
When the company introduced Myagkov’s elliptical bottle design in November 2001, it set Myagkov’s vessels apart from the circular and square-shaped bottles of competitors.
Stolzle Flaconnage’s President Peter Christi told the Post that Overline was the first formerly Soviet country to place an order with his plant.
On Oct. 28, Overline signed an agreement with the Ukrainian Football Federation, making Myagkov a sponsor of the Ukrainian National team and youth soccer home matches for the next two years.
The company is also trying its hand in the low-alcohol drink market with the 220V brand of beverages, but its position remains weak because of traditional packaging and its late appearance on store shelves.
“The drink has a seasonal character, and it was launched at the end of the season,” Feschuk said.
She said that her company will re-launch production of 220V brand drinks next April, predicting that the low alcohol market will develop quickly, and that large players will step onto the playing field.
Plans are also underway to plant 157,000 hectares of grapes at Izmail’s winery, and to launch production of Odessa champagne under classic technologies.
In addition to making waves in the alcohol industry, the diversified holding aims to add banking to its repertoire. Kaufman unveiled plans to acquire a controlling stake in Finbank regional bank.
Before its privatization in the early 1990s, the bank was the property of the city of Moscow.
“For years we were the bank’s major clients. Later we bought some stakes in the bank, and now we are preparing to buy a controlling stake,” he said.
After acquiring a controlling share in the bank, the company plans to strengthen Finbank’s position on the regional market, developing its branches across the country, he added.“I am pleased to say that most of our assets are of Ukrainian origin, and we are interested in reinvesting that capital elsewhere within the country. I think this is a very positive sign,” he said.
