The Baltic countries have had it tougher than most in the global economic downturn, suffering double digit falls in gross domestic product. But the turmoil has not dented the ambition of Estonia-based AS Liviko, which continues to eye ambitious growth as both an importer to the Baltics and an exporter of its flagship brands, Viru Valge and Vana Tallinn. Chris Mercer flew to Tallinn to speak with Liviko chairman Janek Kalvi.

just-drinks: The Baltic region has been hit hard by the economic downturn. Would you say that consumers have changed their attitudes here?

Janek Kalvi: Of course, it has changed a lot. Now they are starting to realise that this consumption party is over and everyone is trying to reconsider their habits. For Estonia, I think this was an early capitalism phase, but I think that the next generation will be more careful. This is a good thing.

j-d: And how has Liviko fared in 2009?

JK: For Liviko, we survive. We've maintained our position as market leader in Estonia with more than 60% of spirits market share. But the situation is a problem for us also, because we have lost a lot of our margins. This has been the most important change in our business.

Also, we have an old plant here in Tallinn which is becoming too small for us [and is the only production plant owned by the company]. We had plans to start building a new one, which would have been three times the size, on a totally new site, but now we must wait until the economy recovers a little bit.

So the recession has beem problematic for us. But, because we have a big history [Liviko was founded in 1898], we also have perspective. The recession will go away one day.

just-drinks: Has the situation forced you to cut costs this year?

JK: We have cut costs in really serious ways. We have frozen salaries, but not cut wages, and we have reviewed all supply contracts and reopened negotiations on everything from raw materials to energy. In Estonia there is a phrase: 'to cut the fat and not the flesh'. This is what we have done, because the flesh must be given a chance to grow.

just-drinks: In that case, how are you positioning the business for growth?

JK: Our strategy goes back to 2005, when we started to think about what the next step for Liviko would be. We started to build up our import business and then, in 2007, we acquired companies in Lithuania and Latvia.

We are trying to squeeze the maximum out of recession in the Baltic region by growing our market share. In Estonia, because we are already number one, it is more about maintaining our market share. But in Latvia and Lithuania we are ambitiously growing. We are not so much focused on generating profit in Latvia and Lithuania, now is the time to focus on generating sales.

In Lithuania, for example, the spirits market has shrunk by 30% in the last year, but for the first nine months of 2009 our sales are up 7%. We are number three in that market, but the top two are coming down and we are rising.

just-drinks: You said that Liviko has been building its import business. I notice that the company already distributes Gruppo Campari brands and C&C Group's spirits brands here in Estonia. How is that strategy working out for you?

JK: We are looking for more good partners to whom we can offer pan-Baltic distribution. We are in constant negotiations with really big brands and companies all over the world. We have a big distribution network and we know how to develop brands.

just-drinks: Are there any fresh deals in the pipeline?

JK: I'm not able to say who, but some of the people we are talking to are in the top five wine and spirits companies in the world. We are finalising a deal for January, but I'm not able to say who it is at this stage.

just-drinks: Which of the brands that you currently distribute are doing well?

JK: Cinzano, for Campari, is doing very well here this year. Tullamore Dew Irish whiskey (C&C Group) is also doing well, as are our own vodka brands in Latvia and Lithuania. We don't disclose group sales figures until the end of the year, but I can tell you that our sales are rising in 2009.

just-drinks: How seriously does the company want to expand beyond the Baltic region? I see, for instance, that you recently signed an export deal in Japan.

JK: The Japanese approached us and asked us about our products, so that was not really part of the plan. But in business you have to be open to the opportunities that arise. We prefer to expand in markets that are close to us, such as the Baltics, Ukraine and Russia, because this makes sense from a supply point of view. We are exporting to 17 countries in total and in Russia we have listings with all the major supermarkets.

just-drinks: What are your biggest exports and what proportion of your annual sales is currently derived from exports?

JK: Our biggest exports are our key brands, Vana Tallinn liqueur and Viru Valge vodka. Exports account for around 30% of our sales and we plan to put more effort into increasing exports. We are looking to appoint export managers in some countries.

just-drinks: To change the focus of this interview slightly, I'd like to talk a bit about the tax situation in Estonia. Governments across Europe are raising excise taxes on alcoholic drinks, partly to discourage excess consumption and partly, it is widely believed, to help fill holes in public finances. Are you facing similar problems here in Estonia?

JK: Yes, in fact the Government intends to put up the tax by 10% from 1 January 2010. If they do, it will make Estonia 10th in the EU for alcohol excise tax when, for average salaries, we are something like 22nd or 23rd out of the 27 EU member states. If they do it, it will mean excise tax in Estonia has gone up by 46% in two years.

They need to realise that if the excise tax increases over a certain level, the Government will lose bigger money. Plus, increasing excise tax will only help the black market to grow. But the Government is not afraid of business or people, because they are not popular anyway. They have two more years until an election must be held and they have nothing to lose.

Having said that, at the moment we are benefitting from high tax in Finland. Consumers come over here for the day and we have developed special Viru Valge vodka suitcases for them to buy.

just-drinks: Thank you for your time, Janek.

For more information on Liviko, read today's just the facts.