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 beer sales suffering tax hike
While Munich is Europe's beer capital, St Petersburg is the beer capital of Russia.
It may seem like sacrilege in a country famed for its vodka, but this bar is devoted to the amber nectar - the ideal place to find out why a growing number of young Russians are swapping vodka for beer.
"Vodka is a heavy drink that not everyone likes and the quality of vodka has got worse," a young Russian women tells me over her pint.
"And it is easier for young people to buy beer, they don't sell vodka to under-18s in shops," her friend says.
Another punter tells me more bluntly: "Vodka turns people into animals and beer doesn't."
During the past decade, beer sales in Russia have risen by more than 40%, while vodka sales have fallen by nearly 30%.
It is now the fourth largest beer market in the world, after China, the US and Brazil.
Beer is marketed and consumed as a healthier alternative to vodka. It is common to see people swigging from cans in the street and in parks, as if they are drinking Coca-Cola.
And incredibly beer is not even classified as an alcoholic drink in Russia.
But this popularity is causing concern, particularly for the government.
Russians' alcohol consumption is already twice the critical norm set by the World Health Organisation, and male life expectancy is falling.
"Alcohol consumption has been growing really fast," Viktor Zvagelsky, State Duma Deputy tells the BBC's Russia Business Report.
He says the main problem is there are no proper laws to deal with it or programmes to promote healthy living.
"This is one of the main tasks for the government and it has been highlighted by both the president and prime minister," says Mr Zvagelsky.
So after years of bumper profits, the Russian beer industry has been hit where it hurts, with higher taxes.
In 2010 the tax on beer went up by a staggering 200%.
Zvagelsky believes the tax hike is long overdue.
"Beer has been taxed differently in the past which helped beer companies sell huge volumes and spend a lot of money on advertising and promotion, without having to worry about anything else," he says.
But, Mr Zvagelsky says, beer should be subject to the same restrictions as other alcohol.
"Even now beer is cheap, 200% tax is not enough. We have more plans to increase the tax on vodka by 120% and beer by 80%," he says.
All this is bad news for the world's biggest brewers. More than 80% of the Russian beer market is controlled by just five players: Baltika Breweries, SUN InBev, Heineken, Efes and SABMiller Rus.
With sales in mature markets such as Western Europe flat, they have invested billions of dollars in Russia.
Three football pitches
As Carlsberg might say, it is probably the best market in the world. The Danish brewing giant owns Russia's biggest beer company Baltika, which has about 40% of the market.
Eastern Europe, which includes Russia, accounts for about a third of Carlsberg's revenue but almost half its profits.
International brewers have helped develop the market both in terms of investment in production, and also promotion and marketing.
One of the best examples of this is Baltika's flagship brewery in St Petersburg, now the biggest brewery in Europe.
As well as producing beer for Russia, it exports the famous Japanese beer Asahi all over Europe.
The air here is thick with the smell of fermenting malt and hops.
We walk through a narrow corridor lined with hundreds of vats, and into the brewhouse. Open a vat and you will see a huge, swirling head of beer about 3m (10ft) wide.
You would not want to get lost here. The building is huge.
We walk down endless corridors and across numerous bridges.
When we finally reach the warehouse, it is the size of three football pitches.
We met Baltika's head of corporate affairs Alexey Kedrin in the microbrewery, where they experiment with new flavours.
After tasting the latest brew, a one-day-old Imperial Stout, he tells me how the government tax hike is hitting business.
"We had to cut down on all our extra expenses, stop some programmes, like administration and the amount of water we use in production," says Mr Kedrin.
Also, he says, they could not avoid raising the price of their products by an average of 25% in 2010.
He says he does not know why the tax on beer was raised so much, but suggests that "it may be that the influence of the spirits and vodka lobby on the government and state Duma turned out to be significant".
This is contested by the spirits industry.
"The criticism from beer companies is emotional", Maxim Chernigovsky, from the Alcohol Market Professionals Club, which represents spirit makers around Russia, told the BBC.
He says beer companies are lobbying to defend their own interests, adding they enjoy more preferences than the producers of strong alcohol drinks.
"The excise tax on vodka is 10 times higher than beer, so the difference is obvious," says Mr Chernigovsky.
Room for growth
There is definitely a tension between the two titans of Russia's drinks industry.
The beer industry may be backed by billions of dollars of foreign funds, but they feel powerless against Russia's vodka lobby, which they say has more political influence.
Russian politicians have been reluctant to take on the vodka industry in the past.
Soviet leader Mikhail Gorbachev was the last leader to seriously clamp down on vodka and once he did so, government revenues and his popularity both plummeted.
But with the government set to significantly raise taxes on both beer and vodka, it looks as though both sides could lose.
This will be bad news for brewers such as Baltika, which are still recovering from last year's tax hike.
That, coupled with the economic crisis, has seen beer sales fall by 15% during the past two years.
But the brewers point out there is room for more growth in this market, as Russians still drink less beer per person than in Western Europe.
Also, beer sales have started to level out - but it is too early for Russia's brewers to toast a recovery.
14 Jun. 2011