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.
Russia. Summary of Baltika’s performance in 2010
2010 was a unique year for the Russian brewing industry. At 1 January 2010, the excise duty on beer with 0.5-8.6% ABV was raised by 200%. Baltika minimized the volume impact from the substantial excise duty increase through our pricing strategy of gradual price increases throughout the year, recovery of the market dynamics in the second half of 2010.
|Performance indicators *||2010||2009||Difference, 2010/2009|
|Sales Volume, mln hl||37,6||42,7||-12,0%|
|Sales Revenue, mln RUB||79 307||93 720||-15,4%|
|Gross Profit, mln RUB||45 145||51 254||-11,9%|
|EBIT, mln RUB.||23 631||29 618||-20,2%|
|Net Profit, mln RUB||19 171||23 372||-18,0%|
|Gross margin, %||56,9||54,7||+2,2%|
|Operating margin, %||29,8||31,6||-1,8%|
* Source: IFRS, FY 2010
Consumer confidence and consumer spending that declined during the economic crisis, started to recover to previous levels and supported by high customer loyalty and a hot summer market dynamics were impacted positively in the 3rd and 4th quarters. The company estimates that the market declined by 4% in 2010, with an improving trend in the second half of 2010. In the 4th quarter, the beer market declined by 1% compared to Q4 2009.
Baltika's beer in-market sales (distributors’ sales to trade outlets) declined by 4% compared with 2009. In Q4 Baltika beer in-market-sales increased by 2%.
For 2010 Baltika's Russian beer volumes (shipments) declined by 13% as distributors did build stocks in the 4th quarter of 2009 ahead of the excise duty increases.
According to data compiled by the agency AC Nielsen (urban Russia), Baltika’s 2010 market share was flat at 39.7% (39.8% in 2009). In the 4th quarter of 2010 Baltika market share grew by 0.4% compared to 4th quarter of 2009.
The duty increase led to unprecedented consumer price increases. Baltika’s products were leading on price versus most of the competitors in the market which had an impact on market share development, mainly in the modern trade.
The company’s financial performance displayed negative dynamics as a result of a decline in sales.
Nevertheless, despite the decline, investment in products promotion increased and the company successfully maintained high profitability, demonstrating an ability to manage fixed costs whilst operating within a highly volatile market due to ongoing efforts to improve efficiency and high level of control of expenses in all areas of the company’s activities and in all areas.
For example, in the reporting period, administrative costs were reduced by 4%. As in other departments, this improvement was achieved by increases in efficiency, economies of scale, synergy and an increase in outsourcing. Cost of sales decreased by 20% compared to 2009.
The results were positively impacted by the favourable raw material prices in the first half of 2010, as prices for the essential ingredients — brewing barley and malt — declined to a 4-year low during the year. Adverse weather conditions during harvest in the summer of 2010 resulted in a poor yield of brewing barley and subsequent price increases for barley and malt at the end of 2010. The higher raw material prices material impacted profits in the late part of 2010, but will to a larger extent impact 2011.
In 2010, Baltika continued significant investing into innovation. The company launched several new products in the main category, such as Baltika Draft, Baltika Cooler (in a premium 1.5 liter format), Zatecky Gus Cerny and Old Bobby.
Besides its range of beers, the company entered a number of new categories, with its drinking water (Life Spring), cider (Somersby), lemonade (Crazy) and extensively developed its kvas (Khlebny Krai). It also added a new sort of kvas: Khlebny Krai 7 Grains.
In 2010, the flagship Baltika brand held its leading position: according to data from A C Nielsen (urban Russia), its share amounted 14.5%. The brand showed good results in the premium segment due to the growth of the share of Baltika №7 Export and successful innovation Baltika Draft. The share of the new sort in December 2010 reached 2%.
Baltika continued developing its sales abroad. In 2010, the company entered the large Latin American beer markets in Mexico and Brazil, enlarged its presence in Africa and strengthened its position in Europe. In December, a natural non-alcoholic malt beverage, specially produced for markets where alcohol consumption is strictly regulated, was introduced in the Middle East. Baltika is now sold in over 70 countries, and, as previously, Baltika is still the leading beer exporter in Russia.
Baltika has continued its integration into the Carlsberg Group: licensed beer manufacturing of Baltika №7 Export is underway at the Slavutich breweries in Ukraine; towards the end of the year, Baltika №7 share of the premium market segment was already 6.8% (source: AC Nielsen) and the total Baltika brand market share in the segment amounted 25%. In addition the Baltika brand is rolled-out in other parts of the Carlsberg Group for instance in Estonia, Latvia and Lithuania.
In 2010, company sales abroad increased by 19% compared to 2009, exceeded 3.3 million hectolitres and accounted to 9% of total volumes. International sales of Baltika brand amounted over 60% of the company’s total sales abroad.
Anton Artemiev, President of Baltika Breweries: "Mostly due to unprecedented tax increases on beer, 2010 was one of the most challenging periods for the industry. Owing to intensive work carried out across the company to increase efficiency in all areas combined with our weighted pricing strategy we managed to minimize the negative impact. We have been able to maintain a leading position in the market in terms of market share and profitability and will continue to drive for improving results and through investments behind brands and modern market tools to strengthen our market position".
In 2010, the company continued to develop projects and programs directed at increasing efficiency in operations, in particular, developing its own agricultural project, measures to reduce energy consumption, developing cross-production, optimizing use of own transport, storage logistics, introducing the corporate initiative "Lean Production", developing direct delivery, and others.
Most of investments were directed towards development of new products, commercial infrastructure and management systems.
Baltika Breweries is Russia's largest consumer goods producer and since 1996 has been a leader on the Russian beer market. Baltika is a company of Carlsberg Group. Baltika is the number one selling beer brand in Europe (Canadean, Euromonitor). The company has breweries in ten Russian cities and one brewery in Azerbaijan, and boasts an extensive brand portfolio. Baltika Breweries is the leading exporter of Russian beer: Baltika products are represented in more than 70 countries, and make up 70% of all Russian beer exports.
21 Feb. 2011