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.
Players manoeuvre with Foster’s in their sights Adele Ferguson
This column reported last month that SABMiller, one of the world's largest brewers and which has a small presence in the Australian beer market through its Pacific Beverages joint venture with Coca-Cola Amatil (CCA), had spent the past few months working with lawyers to sort out legal and commercial issues relating to its joint venture with CCA that had prevented it making a lone bid for Foster's.
That in-principle agreement, which will be triggered only if SAB bids for Foster's, is understood to include SAB paying CCA a sum of money, which some believe could be as high as $350 million, as well as walking away from its 50 per cent stake in the business and the $120 million Bluetongue Brewery in New South Wales.
Advertisement: Story continues below While such a deal would make CCA a tidy one-off profit, it loses some of its blue sky growth. It would also lose a powerful partner at a time when CCA's lucrative co-pack agreement with Jim Beam is under threat following a decision made in December by Jim Beam's owner Fortune Brands to sell its global spirits arm.
The sale of Jim Beam wouldn't trigger a loss of licence with CCA, but if Diageo or Pernod Ricard, the front runners to buy Jim Beam, acquired the spirits giant they would want to get the brand back as soon as possible and run it through their own distribution system with their other brands. For CCA, this would mean a pay-out for the licence or a wait until the contract expired.
The talk from a number of industry sources is that informal discussions have already begun between one of the bidders for Jim Beam and Australian distributors about a new distribution agreement.
An industry estimate of the co-pack margin earned by CCA is $15 million. To lose this would not only hit its bottom line, but would impact the economics of its alcohol distribution platform as it would struggle to cover its overheads without it.
With so much potential change, it will be interesting to see if CCA boss Terry Davis makes any statements about its alcohol strategy when he releases the profit results of the food and soft drinks giant tomorrow.
Against this backdrop, the big question is whether SABMiller, or another potential bidder, pounces on Foster's before or after it releases its scheme booklet in late March. Whatever the case, a demerger appears to be more complicated than most had believed given some poor management and board decisions at Foster's over the past couple of years, including a decision to push on with the roll-out of a single integrated platform, known as Project Core Operations, across its beer and wine business, even after it announced last April it would demerge the two businesses and list them separately on the ASX.
Instead of adjusting the roll-out from an integrated platform to two separate platforms back in April, Ian Johnston and the board proceeded with a common platform. This decision is the key reason why the beer and wine businesses will remain joined at the hip until June 2013. More importantly, it will cost Foster's $42 million to separate the IT platform. Its overall costs of demerging, $150 million, are far greater than other demergers such as that of PBL, which was less than $40 million.
It also makes it more complicated for a bidder to buy the beer or wine business because the core operation of both businesses, including orders, delivery, receivables and sales, are enmeshed on the one platform.
It is highly speculated that private equity operators TPG and KKR are interested in the wine business. Any bidder will need to have a good relationship with the owner of the beer business due to the integrated platform.
No matter what advice Johnston and the board received about the platform, the buck stops with them. What they did is akin to renovating a house only to decide part way through to sub-divide the house - but instead of modifying the renovation, they waited until the end and then worked out how to split it. Reports might show it saves money or is quicker, but the brutal reality is a demerged company won't be truly separated for two years. Interestingly, Foster's head of IT left in December. It seems the board, headed by David Crawford, not only botched the front end of Foster's but also the complicated back end.
It is no surprise then that a wall of scepticism has emerged over Foster's recent notch-up in beer market share. Despite company denials that it wasn't due to discounts, the beer division sold more volume on promotion. Mutterings around the traps were that it was throwing in 18 cartons of beer as a bonus for every one pallet.
Industry sources say that in October, November and December price realisation for Foster's was zero, versus 3 per cent for Lion Nathan. Promotional stunts are not sustainable and have prompted talk that it is fattening the pig for market day.
It would have been much cleaner, easier and fairer to shareholders if the company had announced a demerger and a trade sale at the same time to flush out the best deal. But then again, that might have alerted the market to some of the poorer management and board decisions. But in typical Foster's style, key directors are part of the new demerged entities.
20 Feb. 2011