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Czech Liquor Ban Hurts Pernod, Ahold as Search Drags On

September 19, 2012

Czech Liquor Ban Costs Pernod, Ahold Millions as Search Drags On

A barman walks past covered shelves containing bottles of liquor in a bar in Prague. Photographer: Michal Cizek/AFP/Getty Images

Siberian mining engineer Michail Safronov wanted to try the local Czech alcoholic specialties while visiting Prague, including plum brandy and Becherovka, an herb liqueur owned by Pernod Ricard SA. (RI) The plan didn’t work.

“I wanted to have a shot last night and they wouldn’t let me,” Safronov said two days after the government indefinitely banned the sale of hard liquor after dozens of people died from methyl-alcohol poisoning. “This isn’t good news.”

Producers, retailers, bars and restaurants agree as authorities try to uncover the source of the illegally bottled liquor to stop further deaths. Business owners and executives say the country’s widest ban in 20 years is costing the hospitality and retail industry as well as the airport operator millions of euros in lost revenue every day.

Producers including Paris-based Pernod complain that the ban is unjustly punishing legal businesses while encouraging a further spread of illegal alcohol on the black market. Pernod, which sells high-end global brands like Chivas Regal whiskey, Absolut vodka and Martell cognac, questioned the legality of the ban and asked the European Union assist the government in lifting it, said Anthony Schofield, the head of the French company’s Czech unit.

“The government has hugely overreacted,” said Schofield in a telephone interview. “To me, they are destroying Czech brands and the Czech reputation abroad. It is very debatable whether such a complete ban is even legal.”

Empty Shelves

Liquor shelves in bars and supermarkets including Tesco AS (TSCO) and Koninklijke Ahold NV (AH)’s Albert outlets have been bare since Sept. 14 because of the prohibition that may last for weeks. Over 20 million bottles have been taken out of distribution as police continue to search frantically for the source.

“The ban was a correct and necessary measure in order to protect the health of our citizens and I fully stand behind it,” Prime Minister Petr Necas said today during a press briefing in Prague. “We wouldn’t want to be responsible for even one death if we didn’t proceed with the ban.”

In the long run, though, the measure is hurting decent liquor makers and pub operators and it’s the government’s top priority to re-establish the spirits market in the country “as soon as possible,” Necas said.

Twenty-three people died from poisoning in the country so far and the cause one or two other deaths are awaiting autopsy confirmation, police spokeswoman Stepanka Zatloukalova said by phone today.

Pernod Ricard, which also sells Ballantine’s whiskey and Havana Club rum, has suffered “significant financial effect,” spokeswoman Petra Noskova said in an e-mailed message. Schofield said the ban could “hugely damage” exports of Becherovka, the best-known Czech liqueur.

Retail Losses

Ahold, which operates 282 Albert and Hypernova outlets in the Czech Republic, is losing about 1 million koruna ($54,000) a day, according to spokeswoman Simona Caidlerova.

Sales of alcohol at duty-free stores dropped 85 percent over the weekend as customers were prevented from purchasing cognac, whiskey and local high-end alcohol, said Jana Volickova, a marketing manager at duty-free shop operator Aelia, owned by Lagardere SCA. (MMB)

“Our customers show understanding, but they are very disappointed, because local alcohol is the favorite souvenir people like to bring back from the Czech Republic,” Volickova said in an e-mailed message.

The tainted alcohol was contained in bottles under fake labels from at least two Czech liquor makers and the bottles weren’t properly sealed, according to police. The poisonous drink was sold at discounts in bottles labeled as vodka or tuzemak, a local rum-like alcoholic beverage. Several people went blind or fell into coma after consuming it.

Slovak Poisoning

At least two people were hospitalized in neighboring Slovakia after drinking plum brandy bought over the Internet in the Czech Republic. The country halted sales of liquor imported from the Czech Republic yesterday, following Poland’s ban for 30 days.

The Czech Republic ranked fourth in alcohol consumption, defined as annual sales of pure alcohol in liters per person aged 15 years and over, among the 34 members of the Organization for Economic Cooperation and Development. Consumption stood at 12.1 liters a year, compared with an average of 9.1 liters of alcohol among the OECD states, according to the last available statistics from 2009.

While the ban, applicable to drinks containing more than 20 percent of alcohol, may temporarily boost the consumption of beer and wine, it is not beneficial to the industry in the long term, said Jan Vesely, the head of the Czech Beer and Malt Association. Brewers agree.

Knock-On Effect

“Some pubs that rely on sales of drinks rather than food may be endangered by this development if it lasts too long,” said Petr Samec, the spokesman of Budejovicky Budvar brewery, the maker of Budweiser Budvar. “In that case the impact on the beer market would be negative.”

At least 40 people have been hospitalized, highlighting the need for stricter laws over the alcohol industry and tougher border controls, industry officials say. Health Minister Leos Heger said the ban will remain in effect until further notice.

While under communism, which ended in 1989, alcohol-sale bans were imposed occasionally, the last countrywide post- communist prohibition was in 1992 for the last Czechoslovak parliamentary vote, according to state CTK newswire.

In Poland, the city of Krakow banned spirit sales on the day of the 2005 funeral of Pope John Paul II, CTK reported. The sale city and the capital Warsaw also halted sales during the funeral of President Lech Kaczynski in 2010.

Estonian Case

In Estonia, the government refrained from issuing a ban after stolen methyl-alcohol sold as bootleg vodka killed 68 people and left 43 disabled in the Parnu region in the Baltic state’s southwest in September 2001.

The Czech decision is “an extraordinary measure in extraordinary times” and cannot last for much longer without causing major damage, according to Jiri Janousek, a spokesman for the Czech Union of Alcohol Importers, whose clients represent over 80 percent of hard alcohol sold in the country.

To contact the reporters on this story: Ladka Bauerova in Prague at lbauerova@bloomberg.net; Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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