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.
Why beer giants are scrambling for Nigerian market
But if local players didn’t know or knew, but showed no interest, SABMiller, a South African brewing giant knew and made a grand entry into the market. Its coming has since rattled the market, giving the hitherto two giants in the industry a run for their money.
SABMiller, South African world brewing giant, in 2009, bought Pabod Breweries, Port Harcourt where it owns 57 per cent and Voltic Nigeria Limited (Voltic produces tablewater), Lagos owning 80 per cent of the company, and Standard Breweries in Ibadan, using these companies for soft landing in Nigeria. For over five years or thereabout, this world number two brewer tried to open shop in Nigeria. In its quest to tap is not a $3 billion (N45.9 billion) informal market, the giant brewer is encouraging farmers to raise cassava and barley for its new discount beers.
Beer sales in developed markets, according to industry sources, are losing sparkle so SABMiller is looking to the relatively untapped African market to help drive future growth. But with an estimated 315 million Africans living on less than $1 (N150.90) a day—roughly the same cost as a bottle of beer—commercial brews such as SABMiller’s Peroni and Miller Genuine Draft are beyond the reach of vast swathes of the population.
Low-income consumers have traditionally made home-brewed hooch from local ingredients that range from bananas and watermelons to root vegetables. In Nigeria for instance, we have local beers called Burukutu and Pito. Other variants which fall into the ‘hot drink’ group are known as Shepee and Aburo in the local parlance.
But in an apparent response to SABMiller’s entry into the Nigerian market, Heineken N.V., Nigerian Breweries Plc parent company stepped up the struggle for domination of the Nigerian beer market in Nigeria with its acquisition of two holding companies from the Sona Group which has controlling interests in five breweries in Nigeria.
Heineken’s buying of Sona Group’s Sona Breweries PLC, Sango Ota, Ogun State, International Beer & Beverages Ind. Ltd., Kaduna State, Champion Breweries PLC, Uyo, Akwa-Ibom State, Life Breweries Co. Ltd, Onitsha, Anambra State, Benue Brewery Ltd, Makurdi, Benue State is seen by industry players as a move to strengthen Nigerian Breweries position in the Nigerian beer market and a further response to SABMiller’s entry into Nigerian market. Of the five breweries being acquired, Champion Breweries is listed.
Analysts believe that the acquisition provides Heineken with an additional technical capacity of 3.7 million hectolitres, helping to alleviate the company’s current capacity constraints in the market and improving the geographic location of its breweries.
And interestingly, this Heineken’s move is clearly a smooth move to puncture SABMiller’s momentous strategic entry into the Nigerian beer market from the fringes, what with acquiring breweries in Onitsha, Uyo, and Makurdi. SABMiller which is currently operating from Port Harcourt, moved Voltic Nigeria Limited from Lagos to the South East, and is putting up a brewing plant in Onitsha. Heineken is taking the battle to them.
Guinness has just commissioned a new brewery that has taken its production capacity to about 5.5mn hectolitres, and capacity utilization is expected to be more than 80 per cent. So it is expected the entire beer market will grow by a further 15 per cent to about 22.5mn hl this year.
This will enable Heineken to take advantage of the attractive future growth opportunities that exist in different regions of the country. The acquisition has been funded from existing resources. The transaction price has not been disclosed. It was gathered that Heineken would explore the possibility of consolidating the newly acquired breweries into its existing business structure in Nigeria during 2011. Discussions with Nigerian Breweries and Consolidated Breweries will begin now that the transaction has been finalised.
The acquired breweries will continue to provide and expand contract brewing services to Nigerian Breweries and Consolidated Breweries for the meantime, while continuing to own, brew and support the Goldberg, Williams Dark Ale and Malta Gold brands as well as various smaller regional brands.
Commenting on the Heineken acquisition, Tom de Man, President Africa & Middle East of Heineken, said: “This important move reflects Heineken’s strategy of increasing our exposure to and growth from developing markets. Nigeria is one of the world’s most exciting beer markets and one of the most important countries for Heineken. This acquisition underlines our ongoing commitment to the country and will significantly strengthen our platform for future growth.”
And only two weeks ago, Guinness Nigeria Plc, the local unit of Diageo Plc (DGE), heightened the ongoing beer war tempo by announcing plans to spend 52 billion naira ($335.8 million) on expanding brewing capacity in the country this year. The Guinness move, is no doubt, an apparent response to the Heineken N.V.’s acquisition of two holding companies from the Sona Group, which has controlling interests in five breweries in Nigeria, and SABMiller Africa’s entry into Nigeria.
What Vetiva, other analysts say about the unfolding scenario
Vetiva Research predicts a blooming market for investors in the beer market in Nigeria. It argues according to the IMF, the Nigerian economy is estimated to grow at an average of 7 per cent over the next four years while the population is expected to grow at about 3 per cent. “This along with a youthful population enmeshed in a culture in which entertainment has gained a foot-hold, present key drivers for the Nigerian beer market. A growing, largely youthful population, with increased disposable incomes is expected to drive beer consumption, leading us to estimate that the Nigerian beer market will grow at an average of 8 per cent over the next 5 years,” the Lagos based research company says.
It adds: “The ‘two big giants’ (Nigerian Breweries and Guinness) have long operated in Nigeria, controlling about 90 per cent of the market- Guinness with its niche stout brand and Nigerian Breweries with its prime Star Lager Beer. Both owned by world beer giants (Diageo and Heineken respectively), these two have wielded control of the market, with essentially only each other as competition. With the entrance of another beer giant, SABMiller into the space in 2008, competition has begun to heat up. However, it is unlikely that the ‘two giants’ would concede their hold on the market, without putting up a good show of strength to defend their market shares.
“Nevertheless, the low level of penetration in the Nigerian beer market (as evidenced by the beer consumption per capita of about 10 litres, compared with an African average of 14.6 litres) clearly leaves room for brewers to take advantage of the underlying growth potentials in Nigeria. While the premium end of the beer market still has some play for the brewers to make, the current competition seems set to re-shape the low end of the market. Improving levels of disposable income following economic expansion, means that there is some market to capture at the low end, as drinkers switch from home brewed drinks to low end beers.”
Biodun Adedipe, chief consultant, B. Adedipe Associates Limited, a frontline management and financial consulting company argues that the expansion of breweries will create more jobs, “but the technology being more sophisticated than what existed before now, might mean more capital intensive production technology”. “The number of jobs created might not match the volume of investments. But surely, new jobs will come on line,” he says.
For Adedipe, the volume and efficiency demands that will enable any of the breweries take best advantage of the market opportunities will require investments in new technology. “In particular, for all the existing breweries acquired, it is not so much as engaging them as they are, but completely replacing the plant, which will naturally come with new technology.”
He argues the variety of products in the market that will arise from the consolidation and expansion of the brewery industry will create value for the consumers, while the looming heightened competition will be an incentive for innovation and creativity.
28 Mar. 2011