Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.
10+1 trends of Russian beer market 2015-2017Despite of the moderately negative prognoses for 2017, the beer market can be stabilized soon. Yet the years of the negative dynamics have resulted in marketing being limited just to “optimization” and the art of balancing between price and volumes. Bigger supermarkets share means stronger trade marketing. These processes are connected to the majority of the described trends. At the same time, the federal brands inflation leads to searching for new tastes, sales channels and contact formats that expand the product range and diversify the beer market, but do not imply a substantial volume increase. Let us enumerate and further discuss the ten trends of the beer market we can see in 2015-2017 as well as the major event of 2017.
Beer market of Ukraine 2017In the first half of 2017, the Ukrainian beer market goes on decreasing slowly. Yet, the companies manage to compensate their lost volumes by raising prices and improving the sales structures. This results in the mid price market segment reduction while the sales of premium brands are rising. These processes are connected to position strengthening of companies Carlsberg Group and Oasis and the market share reduction of Obolon. Most of the novelties by the market leaders belong to craft or hard lemon categories.
Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
In the Spotlight – Diageo dangles M&A as results disappoint
It is a curious feature of the speculative financial world that, sometimes, a double-digit rise in profits is simply not good enough. So it was for Diageo yesterday (10 February), when it served up a 17% increase in net profits for its half-year, while net sales rose by 2%.
Not bad, you might think, considering the dazed state of the world's economy. "Not good enough," cried investors, however. Diageo's share price sank by 4% after it missed analysts' profits estimates.
Group CEO Paul Walsh declared himself "perplexed" by the share drop at yesterday's press conference. He suggested that some observers should have added two and two (or should that be 'minus two') together on the flimsy nature of the economic recovery. Diageo itself has not particularly talked up its prospects over the last six months, saying only that operating profits growth for the full-year would be stronger than last year.
That said, there is cause for concern about the group's operations in key European countries and, perhaps more surprisingly, in China. Sales in Europe fell by 7% on a reported basis, with operating profits for the region down 10%. Double-digit gains in Russia were not enough to offset problems in Spain, Ireland and Greece, which account for half of Diageo's European sales.
Sanford Bernstein subsequently reduced its full-year earnings estimate on Diageo by 2.5%. "Europe was much worse than our expectations on the bottom-line," said the analyst group in a note. Bernstein also expressed concern about China. "Disappointingly, organic net sales declined 3% in China, likely much weaker than their global competitors, and in our view only partially explained by the absence of Cognac in the portfolio."
Investec analyst Martin Deboo joined in the gloom. "A poor result with further hangovers to come," he said.
"Others, however, were willing to give Diageo the benefit of the doubt. Morningstar analyst Philip Gorham said: "First half results were broadly very positive, and we expect our thesis that the firm's strength in premium categories should position it for solid long-term growth to play out over the next few months."
"Gorham was sanguine about tough conditions in mature European markets. "We think it may now take slightly longer for these markets to stabilise than we had initially thought," he said, adding: "However, Diageo remains an emerging markets story, and its solid growth in developing markets is likely to continue unabated through 2011."
Mergers and acquisitions chatter has dominated a lot of the results coverage of late, with Paul Walsh unusually forthcoming on Diageo's plans. Was this a tactic to steer the news agenda away from Europe, or genuine transparency? Probably a bit of both.
Walsh told journalists that Diageo is seeking more acquisitions in developing markets and he said that, in respect to the possibility of Beam Global Spirits & Wine becoming available, the group "would look at everything" that comes up. Could 2011 be the year that the group's warchest is unlocked?
Several press articles went this way. The Scotsman, as an example, spoke of Diageo's plan to unleash "many billions of pounds" on takeovers. Some deals may, however, remain beyond the Guinness brewer's grasp. The Australian newspaper reported Walsh as saying that a move for Moet Hennessy looks unlikely any time soon. "I think he is keen to keep it," Walsh reportedly said of LVMH head Bernard Arnault.
Over the next six months, then, Diageo is clearly going to try to take more costs out of its businesses in weak markets like Spain, Ireland and Greece. At the same time, though, the group's Johnnie Walker-shaped star in Asia shows little sign of dimming and Africans continue to thirst after its beer. North America could be a key region to watch in the second half, with early signs of improvement in the US spirits market.
Diageo may have got a bloodied nose, then, but it is far from on the ropes. Prepare for calendar 2011 to be an interesting year as the group seeks to expand its footprint in emerging markets and, just possibly, new product categories. Jim Beam on the rocks, anyone?
13 Feb. 2011