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.
SABMiller – Out to get ’em
Hot on the heels of its successful bid for Australian brewer Fosters, SABMiller has clinched a deal with Turkey’s largest brewer, Anadolu Efes (Efes), earning it a standing ovation from analysts.
“It’s a mastermind stroke,” says Rob Forsyth, head of industrial research at Investec Asset Management. “It’s brilliant,” says Absa Asset Management analyst Christopher Gilmour. The deal ties up one of the largest remaining independent emerging-market brewers.
Under the deal SABMiller will transfer its Russian and Ukrainian businesses to Efes in exchange for a 24,3% stake in the enlarged group. It also gains the first refusal right on Efes shares sold by its controlling shareholders, the Yazici and Ozilhan families.
Forsyth says merging Efes’ and SABMiller’s units in Russia comes at a time when the country’s beer market, the world’s fourth-biggest, faces uncertainty created by the Russian government’s move to curb alcohol consumption.
Taxes on beer have tripled and further measures, including a ban on beer sales at airports and outdoor kiosks, are planned for 2013.
This makes the critical- mass benefits realised by combining SABMiller’s 7% market share and Efes’ 11% share all the greater . The merger creates Russia’s second-biggest brewer, which UK-based Barclays Capital notes will be positioned to compete “head on” against the country’s largest brewer, Carlsberg, which has 38% of the market .
The merger also puts Heineken, with its 12% market share in Russia, at risk of marginalisation, says Barclays Capital.
The merger should bring cost savings which SABMiller puts at “at least” US$120m/year. Bernstein Research analyst Trevor Sterling estimates that, with cost savings , Efes’ latest earnings before interest, tax and amortisation (Ebitda) will be US$595m.
SABMiller’s share of this will be about $144m, compared with the Ebitda of about $100m he estimates SABMiller made from its Russian and Ukrainian units in its year to March 2011.
The boost to SABMiller’s profit is a bonus. The big prize is its strategic relationship with Efes, the world’s 11th-largest brewer based on its production of 24,2mhl of beer in 2010, according to research firm Plato Logic. By comparison, Fosters’ 9,3mhl production ranked it 30th.
Efes brings with it an 89% share of Turkey’s developing beer market, which , reports Plato Logic, recorded annual per capita consumption of 12,6l in 2010, less than half the 27l world average. Efes is also the leading player in Georgia, Kazakhstan and Moldova.
The Efes deal enhances SABMiller’s appeal as a company, combining strong defensive characteristics and a strategy geared towards dynamic growth. Though the brewer’s latest trading statement indicates that it is under pressure in some markets, it is still on track to deliver solid growth in its year to March 2012.
SABMiller reports weak market conditions in Europe, North America and the low profit margin Asia region. This weakness was largely offset by strong growth in high-margin Latin American markets and, with the exception of SA, Africa. Overall, SABMiller reported beer volume up 3% and revenues up 6%.
Based on the consensus forecast of analysts polled by I-Net, SABMiller will report a 47% increase in EPS in the year to March 2012, followed by average growth of just under 21%/year in the next two years. The big jump in the current year comes from the rand’s depreciation. Looked at in UK sterling terms, Sterling expects a 12% rise in EPS in 2011/2012 and EPS growth to average 15,4%/year over five years.
For investors looking for a share that will deliver above-average earnings and dividend growth and provide a strong hedge against rand weakness, SABMiller is a first-class choice.
3 Nov. 2011