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.
No Deals Brewing for Beermakers After $195 Billion Buying Spree
The two biggest companies to emerge from the spree, Budweiser owner Anheuser-Busch InBev NV (ABI) and SABMiller Plc (SAB), are best positioned to profit with a presence spread over Africa, Asia and Latin America, while smaller rivals Carlsberg A/S (CARLA) and Heineken NV (HEIA) may suffer from their higher exposure to Europe.
Brewers will be “just getting through 2012, keeping their heads down, managing price and trying to keep input costs down,” Trevor Stirling, an analyst at Sanford C. Bernstein, said. “It’s going to be tough for everyone, and particularly Carlsberg and Heineken.”
More than $21 billion changed hands for beer assets in 2011, topped by SABMiller’s A$10.5 billion ($11 billion) takeover of Foster’s Group Ltd. That made it the busiest year since 2008, when InBev NV paid $52 billion for Anheuser-Busch Cos. As sales volume growth decelerates and the cost of making beer rises, companies including the integrated AB InBev, Heineken and Carlsberg may focus more on running their own businesses this year than buying others.
Carlsberg shares have dropped 25 percent in Copenhagen in the past year and Amsterdam-based Heineken has dropped 4 percent, compared to gains of 14 percent at SABMiller and 13 percent at AB InBev. Carlsberg said in November that it plans to eliminate as many as 150 jobs across Europe.
Heineken and Carlsberg both cut their forecasts last year due to tough conditions in Europe and Russia. Grain harvests have also been relatively poor in the area this year, according to Stirling, which could lead to sustained high costs in 2012 weighing on their margins.
The amount of beer sold may rise 3.1 percent from 2012 through 2016, slower than the 4.9 percent increase in the four years ended 2008, according to analysts at Nomura including Ian Shackleton. Commodity costs are higher, including malting barley, a key ingredient in beer, which has risen 65 percent since the futures contract started trading in May 2010.
“It’s unlikely that growth will return to historical high levels of 2005 to 2008,” Nomura wrote in a note. “The cost of business is set to rise.”
Beer volume and revenue growth may be particularly limited in Europe and the U.S. as brewers compete for sales amid economic turmoil and high unemployment. SABMiller, the first brewer to post results for the three months through December, reported declining volumes in both regions, as every other unit grew. Carl Short, an analyst at S&P Capital IQ in London, said “recessionary conditions” may return to Europe this year.
Beermakers may have to rely on internal cost cutting as price increases may be limited. Carlsberg and Heineken may have a “really tough time managing the pricing mechanism,” said Anthony Bucalo, an analyst at Banco Santander.
Carlsberg, which exited or sold sites in Switzerland, Finland, Germany and Norway since 2009, may close more breweries and cut costs, according to Nomura analysts.
AB InBev should deliver $270 million of so-called synergies this fiscal year from the Anheuser-Busch acquisition, and Heineken will give details of a new cost-reduction plan when it reports full-year results Feb. 15.
Trading at Premium
Analysts at Nomura and UBS AG have reduced their outlooks on the beverage industry, which also includes spirits companies. The stocks “already command a significant premium to the market,” according to Nomura’s Shackleton.
Deals including Heineken’s purchase of Fomento Economico Mexicano SAB’s beer unit in 2010 and SAB’s takeover of Foster’s have previously helped brewers diversify into faster-growth regions away from the U.S. and Europe. With Brazil’s Schincariol Participacoes & Representacoes also off the market after Japan’s Kirin Holdings Co. swooped in last year, big acquisitions may be tough to find in 2012.
“There are fewer assets out there that move the needle,” said Anthony Bucalo, an analyst at Banco Santander. “We’re going into a period where companies are inward-focused.”
Carlsberg could make small acquisitions in Asia. The Danish brewer’s biggest deal in 2011 was buying 30 percent of China’s Chongqing Brewery Co. for about $31 million.
Any buyer with an eye on Corona brewer Grupo Modelo SAB, Groupe Castel and Turkey’s Anadolu Efes would have to wrangle with family ownership and existing joint ventures.
Expanding outside Europe and the U.S. isn’t necessarily a quick fix for brewers. SABMiller said Jan. 19 that Foster’s pro- forma sales slid 6 percent in the quarter ended Dec. 31, raising concern from some analysts that benefits from the acquisition could be harder to come by.
“Realistically, it’s probably not on anybody’s agenda” in 2012, Bucalo said. “This looks like kind of a low-drama year.”
26 Jan. 2012