This Spring Gives Hope ... And Profits

This Spring Gives Hope...and Profits

The Russian Orthodox church’s revival is not limited to activity in the social and political spheres. It is also going into business in a limited way. Andrei Polyakovsky reports on a highly successful joint venture between the church and an American company.

When retired American businessman John King met Bishop Alexander  of Kostroma on a 1992 Volga river cruise, their conversation inevitably turned to the church’s  financial woes. And, when the Bishop later mentioned the pristine springs located on church property, King casually suggested bottling the water and selling it to raise funds. The off-hand remark did not fall on deaf ears. Instead, King and the Russian Orthodox church ended up founding one of the most unusual and successful joint ventures in the new Russia  The Saint Springs/Rodniki Water Company.

The involvement of the Orthodox Church in business stretches back to at least the 6th century. Then, a Byzantine missionary smuggled silk worms and silk tree seeds out of China in his walking stick. By this deed, China's silk production monopoly was broken, and Byzantium's famed silk industry was born.

In the case of Saint Springs, the progress to a successful business venture was a bit less romantic. It took fully two years of negotiations, aquifer selection, preparations, equipment installation and testing before the first 1.5 liter bottles of pure Kostroma spring water rolled off the line in the summer of 1994. Yet, since that time, demand for Saint Springs bottled water has soared.

Indeed, if visibility is any measure of success, the rapidly increasing retail presence of Saint Spring’s trademark onion-dome plastic bottles augurs well for the young firm. According to Marketing Director David Grady, sales have risen steadily and the company can no longer meet demand without expanding production capacity. St. Springs is currently distributed to 20 Russian cities, though its primary market remains Moscow and St. Petersburg. It is also sold at the US Embassy compound,  in the Russian State Duma, and is served on the flights of Aeroflot and other international carriers.

The company’s plant in Kostroma (320 km northeast of Moscow) employs about a hundred staff. Almost all are Russians trained in Germany, while the manager is an American. The plastic bottles are manufactured on site; labels and caps imported.

According to these labels, printed in Russian and English, the water is "blessed by His Holiness Alexii II, Patriarch of Moscow and Russia. Church proceeds will be contributed to the rebuilding of churches and monasteries of the Russian Orthodox church."

Just how much church proceeds amount to remains confidential, and, according to Grady, the church does not interfere in the bottling business. Church affiliation, he added, has earned his firm few privileges with the Russian government. The enterprise, he says, is run and taxed "like any other small business. The Russian government tends to be tough on new businesses." However, Grady did allow that the church has lent its clout where possible to help smooth things along.

Aside from the usual problems with red tape, Saint Springs has had to face recent entries in the market by foreign competitors. The company has sought to maintain its competitive edge by underpricing the imports. A 1.5 liter bottle retails for between $1 and $1.30 (the popular Italian brand Vera, meanwhile, costs around $2). Saint Springs has also relied on a brand loyalty that comes with being one of the few domestic foodstuff producers to combine high quality with reasonable prices.

Interestingly enough, Saint Springs was initially targeted at the expatriate market in Russia, hence the bilingual label. But Grady said that there was actually a second important reason for printing the label in Russian and English.

"Only a few years back," Grady explained with a grin, "Russians tended not to trust a product labeled in Russian."

This year, the company plans to extend its product line and re-focus its efforts toward the Russian consumer. It will be a tough sell in a country not accustomed to  bottled water as an alternative to tap water, but King is confident in his firm's destiny. As he told Capital Markets Report in late 1995, "We are in the right business, in the right country, at the right time, and with the best imaginable partner."