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Global hop market

A 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 Russia

Germany 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.

SAB reclaiming its local turf

Local beermaker SAB has clawed back some of the market share it lost over the past two years.
Having revitalised operations, cut costs and invested savings in promoting its core brands, SAB's market share has stabilised over the past 10 months.
It is now estimated at between 88% and 89% of the local beer market, up from its lowest point two years ago of about 86%.
These few percentage points are significant in an industry valued at about R33-billion a year.
SAB's initial decline followed the loss of its leading premium-beer brand, Amstel, which accounted for more than 9% of SAB's volumes before April 2007. Heineken won back the right to brew and distribute its Amstel brand in SA. At the time SAB held between 97% and 98% of the SA beer market.
Brandhouse, a venture owned by Dutch brewer Heineken, British Diageo and Namibian Breweries, took on SAB with an attractive suite of premium brands, and made inroads into the beer market. Heineken and Diageo built the first non-SAB brewery in SA and SAB faced real competition.
"After a period of initial success, Brandhouse is reeling at the pace and success of the fight-back of SAB," says Julian Wentzel, EMEA head of research at Macquarie First South Securities.
"The business under Norman's [Adami, the South African CEO] stewardship is leaner, meaner and more strategically aggressive," says Wentzel.
Adami has extracted cost savings totalling R1-billion over the past two-and-a-half years, which have been ploughed back into marketing and brand promotion.
Castle Lite is the country's largest and fastest-growing premium brand with an annual growth rate of more than 20% and about 6% of the market.
Carling Black Label has about 30% market share and has stabilised after having been in steady decline for two years. Hansa, with 26% of the market, is growing in strong single digits and Castle Lager, at about 16%, has resumed double-digit growth. At competitor Brandhouse, Heineken sales have been growing well, but at the expense of Amstel, Wentzel says. Heineken is cannibalising the growth of Amstel.
"Amstel is probably about 1.7million hectolitres a year. When SAB gave it up it was about 2.3million."
Market insiders suggest that Amstel has 6%, Heineken about 4% and Windhoek Lager 2% of local market share.
Apart from greater direct competition, the beer group faces more intense regulations on several fronts. Government has proposed restrictions on licensing, alcohol advertising, increasing the legal drinking age and raising taxes on alcohol.
Some analysts suggest the proposed ban on advertising may be advantageous to SAB in that it would reduce the impact of competitors.
Concern about SAB's dominance led to an investigation by the Competition Commission for three years, between 2004 and 2007. The commission decided that a case for anti-competitive behaviour exists, and has referred it to the Competition Tribunal. The case started at the end of last year and resumes at the end of this month.
SABMiller's dependence on local unit SAB has declined as the group continues its global expansion. SA contributes about a fifth of SABMiller's total earnings.
SABMiller, the world's second-largest brewer by volume, is working with JPMorgan Chase & Co to study a bid for Australia's largest brewer, Foster's.
Foster's beer business, with the highest operating margin in the industry, is valued at about $11-billion. There is also speculation that SABMiller could look at a $71-billion merger with Anheuser-Busch InBev.
Wentzel is not convinced this would be a good fit. "Culturally they are very different. SABMiller has been run with amazing strategic intent and vision. AB InBev is more opportunistic and is run by private equity players. They're ruthless in how they approach acquisitions, they're fiercely competitive and run a different type of organisation."
Other reports have suggested that SABMiller has been in talks with French drinks group Castel, SABMiller's partner in 15 countries in Africa.

20 Mar. 2011



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