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.
Ethiopia’s beer market promises to be of a different mould
Two reasons feature prominently. The first is the dictat of the IMF/World Bank/WTO, etc. Once you are under the grip of these institutions, there isn’t much room to wiggle. Even Greece is now asked to sell its most lucrative enterprises (airports, seaports, etc) as well as surrender its priceless assets, (such as the ‘pantheon’ and its islands in the Aegean Sea) as collateral to its merciless creditors. What debt can do to you! The other reason is: even though beer is big business, it is not as strategic as, say banking or even telephone. Don’t forget, at the end of the day, governments make more money on beer than the brewers themselves. Here is how it goes; the beverage business is subject to severe excise tax, a ‘sin tax’, as it is customarily called and is levied on the ‘production cost’ of a particular product.
Suppose for example, the production cost of product A is one birr and the prevailing excise rate is 100% (It used to be 150% in Ethiopia). Then for every bottle of product A, the government takes one birr as tax from the selling price (which will be upwards of two birr). Now suppose the production cost of product B is two birr; this means the government will take two birr from its selling price. In this scenario, brand B will have a hard time securing enough volume to sustain itself, (quality being the same as product A) as its final price of four birr plus becomes dear, relative to product A. Because of this clever tax scheme of the states, producers have a built-in incentive to lower their production costs. Lower production costs mean more volumes and more volumes mean more tax revenues for governments, resulting in a more or less ‘win-win’ situation, to use a clich?. Moreover, the effect of wide spread ‘sud culture’ on the ‘beast’ (mass) should not also be underestimated. By soothing and at times by potently tranquilizing the restive elements of the ‘herd’, sud had been helping to secure the peace throughout the ages (for the benefit of the governing class). In times of need, governments can easily jack up the ‘sin tax’ to collect millions more without sweat. This is why; even though beer is big and profitable, the states didn’t mind privatizing it!
The process of privatizing Ethiopia’s breweries has taken over a decade and this might seem a bit too long, but as we elaborated above these serious cash cows need not be to be dumped just like the other wasteful state enterprises. We believe the wait has probably paid off. For a start, the government has collected about half a billion dollars for its old beverage factories, while assuring the partaking of all the major players in the beer industry (SAB-Miller, Guinness, Heineken, BGI.) The Ethiopian government has also managed (at least so far) to cutout ‘financial investors’ from direct participation in its beer industry. By and large, financial investors are neither knowledgeable nor kosher when it comes to productive activities. Just because some characters have managed to hit the ‘jack pot’ (embezzling, laundering, drug money, etc) it doesn’t mean they should be entitled to owning/operating such coveted enterprises. At least in this particular privatization project, (unlike its many other mistakes/failures) the government’s strategy was right on the money! What are the likely scenarios of post-privatization?
Assuming all the parties (the four majors and local brewers, current/upcoming) will be directly engaged in the business of brewing, the Ethiopian beer market promises to become (probably) the most competitive in Africa, with attendant benefits.
This on its own (besides other things) can assure product diversification and competitive prices. However, experience dictates that this is easily wished than done. At the outset we have to recognize that multinationals are multitalented and can come up with all sorts of arrangements that can baffle the state’s mundane authorities. For example, SAB-Miller has a full monopoly in South Africa and all attempts by outsiders have landed them heavy blows. Those adventuring souls who braved its market expired by hemorrhaging serious money. The carcass of brand new breweries litters the place. Therefore, for a big brewer consolidation (cornering the market by itself or with friendly competitors) is a very important objective.
It would cooperate with others only if it feels slugging it out is not a viable option. For example, SAB-Miller bottles ‘Amstel’ for Heineken in South Africa and Guinness bottles SAB-Miller’s brands in Kenya. SAB-Miller tried to slug it out with Guinness in Kenya, but soon abandoned the ambition, as it proved too costly (spent close to USD 70 million before it closed its factory.) BGI and SAB-Miller used to have a ‘non-competition’ agreement throughout Africa (BGI has a full monopoly in French speaking Africa.) SAB-Miller’s long standing desire to gobble up BGI has always been a public secret and in fact one wonders why the acquisition deal, (which was worth over USD 10 billion) is still not consummated. The beverage market is highly correlated to per capita rise in GDP (not counting other factors as religion, etc.) That is why Nigeria is 2nd in Africa (South Africa is no 1.) For now, Heineken has garnered about 70% of the Nigerian beer market, but the battle is still raging on. The moral of the story is; governments must be vigilant in monitoring the activities of these multinationals once they enter their markets and decide to play hardball. In this regard, Ethiopia’s anti-competition policy (an operator cannot have over 30% of market share) can help.
The beverage business is not about production, the assumption of novices notwithstanding. The beverage business is first and foremost about retailing, marketing/branding (hence requires deep pocket). That is why the giants are willing to pay premium prices for old factories. They know the trick is to hit the market running, otherwise with what ‘Diageo’ paid for ‘meta’, it could have easily put up three equivalent breweries. Our final unsolicited free advice goes to the developmental states; governments in Africa must be very cautious/prudent about the merit of rushing their privatization process. The virtue of selling the families (Mother Africa’s) jewels for mere pulp (paper/fictitious currencies, founded on a financial system that disfavors the poor (Africa, et al) and is based on phony money-credit) must be interrogated severely, particularly as we enter the crisis phase of the prevailing world order. Why sale a ‘gold mine’ or the ‘palace ground’ for an ephemeral entity (paper money) that can easily be blown off in the next economic tsunami? See Fry’s article on page 50. Beware; as the old Ethiopian proverb advises; “Commotion is conducive for thieves.” Good Day!
23 Sep. 2011