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.
Corona Brewer Drinks to Family Business
Modelo—whose brands include Corona Extra, the best-selling imported beer in the U.S., and Modelo Especial—is one of a dwindling number of family-controlled beer dynasties. The publicly traded company, which was launched in 1925, watched last year as its main rival, family-controlled Femsa Cerveza, was snatched up by Heineken NV.
Analysts predict that the Mexican brewer's controlling shareholders will face increasing pressure in coming years to sell their stake to Anheuser-Busch InBev NV. (When InBev NV purchased Anheuser-Busch Cos. in 2008, it inherited Anheuser's 50.2% noncontrolling stake in Grupo Modelo.)
After weathering the sluggish recovery of the Mexican economy and a U.S. beer-industry slump, Modelo's current strategy includes introducing new products in the U.S., aggressively defending its No. 1 position in Mexico, where it controls about 55% of the market by volume, and looking for expansion opportunities overseas.
Mr. Fern?ndez, the great-nephew of one of the company's founders, is also a soccer enthusiast and father of five. The 44-year-old recently spoke to The Wall Street Journal at the brewer's U.S. office in Chicago about Mexico's economy, Modelo's relationship with Anheuser and his favorite beer. Excerpts:
WSJ: Your sales in Mexico were up 5% in the fourth quarter. Is demand starting to improve?
Mr. Fern?ndez: Last year was really tough. I'm starting to see that the consumers are willing to spend more again on our beers in the Mexican market.
I would say volume growth [in 2011] will be in line with GDP. And revenue growth, well, I certainly hope it's going to be above that, because we are raising prices [in line with inflation].
WSJ: You're dealing with rising commodity costs. Which commodities will be most challenging this year?
Mr. Fern?ndez: It's raw materials, specifically wheat, corn and barley. Then it's aluminum and gas. All these are moving and getting big increases.
WSJ: The company has said it may start hedging against the Mexican peso. How much of a problem for you is the stronger peso?
Mr. Fern?ndez: I'm happy the Mexican economy is strong, but unfortunately for the business model, [the stronger peso] puts extra pressure on the management to deliver better results year after year. For instance, I'm selling more cases of beer in dollars, but receiving fewer pesos. Since my company reports in pesos, that doesn't help much.
WSJ: What impact is the violence in Mexico having on your company?
Mr. Fern?ndez: Security is an issue. We have been investing more money than we used to on that. But I believe that our government is handling it in a way that, within time, order will come in many regions.
WSJ: What are your priorities in the U.S.?
Mr. Fern?ndez: One of the key points here is how well we balance our portfolio of brands. We have been able to bring innovation to the market with certain packaging styles, and new brands such as Victoria (introduced in the U.S. last year).
WSJ: Corona Extra went through a rough patch in the U.S., with volumes down for three years until it was about flat last year. Have you put to rest the concerns about the brand's health?
Mr. Fern?ndez: You always have to be concerned about the brands you manage. If you feel really comfortable, it's the start of disaster. Corona is still a unique brand, which reflects a different lifestyle. And this is not the first time that we've gone through a bump with that brand. I'm very confident we're going to be able to make it grow.
WSJ: Can you maintain the double-digit sales growth for Modelo Especial, the No. 3 import brand in the U.S.?
Mr. Fern?ndez: I cannot say that we are going to repeat another year of double digits, but we're targeting everything we can to keep that momentum going.
WSJ: Outside of the U.S., where else do you see strong export opportunities in the years ahead?
Mr. Fern?ndez: One of our goals is we want in the next [several] years to have almost 50% of our revenues coming from foreign markets. Today it's 40%. Australia is having very good momentum. I think Asia will be very important for us going forward. Latin America has been really a surprise for us in many ways. Countries such as Chile, Argentina and Colombia [have shown] double-digit growth.
WSJ: Would your family and the others who control Modelo consider selling to Anheuser-Busch InBev?
Mr. Fern?ndez: I cannot speculate on what's going to be the position of all the controlling shareholders, but what I'm certain about is three things. They are very happy about the performance of the company. They've asked me to continue working based on performance, but also [to expand the company's existing operations] and just getting the company where everyone wants it, which is a better company among the top 10 [brewers globally].
WSJ: How healthy are relations with Anheuser-Busch InBev?
Mr. Fern?ndez: We are starting to develop that relationship. I believe that going forward it has to be strengthened based on communication, based on what is better for Grupo Modelo, as they are part of our board and important shareholders. These are the first stages of getting to know each other and so far it has been very good.
WSJ: What are your main management principles?
Mr. Fern?ndez: I like to be respectful with everyone. Open communication. Talking and communicating as much as we can. The other one, I'd say, is trust. You have to trust the people that surround you. I have a great team around me, and the results are basically a reflection of the efforts everyone makes.
WSJ: What's your favorite beer?
Mr. Fern?ndez: Victoria. It's a well-balanced beer with a distinctive taste, a distinctive color. It's also a little bit sweet, so I really enjoy it.
|Net sales, in billions*||Profit, in millions*||Employees|
|Grupo Modelo SAB *Figures converted from Mexican pesos, 0.0834 rate|
14 Mar. 2011