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.
Beer market of Vietnam: “Young tiger”Vietnam is one of the few big beer markets that continue to grow steadily. The beer popularity results from its low price, street consumption culture, and social motives. The outlooks of beer market as well as the Vietnamese economy inspire optimism, though the country is heavily dependent on export of goods. The state regulation can be called liberal, but the key risk for brewers is harbored in intensive rising of excise. Within TOP-4 there are two leaders, Sabeco and Heineken that grow at the fastest rates. The first company effectively employs its capacities, the second one focuses on marketing technologies. Almost 80% of the market belongs to century-old brands, yet the middle class and the youth are shifting their interest toward international premium that is growing taking share from the mainstream.
Euromonitor: Carlsberg Needs to Find Growth Opportunities if it is to Retain its Global Position
Geographical bias hindering performance
Carlsberg has been struggling with falling beer consumption in its main markets in Eastern and Western Europe as the financial crisis has hit both regions' economies. Its sales have been further hit by regulatory measures in its key Russian market (200% duty increase in 2010, new legislation to prohibit beer sales from kiosks from 2013 and a ban on stores selling alcohol between 23.00-08.00hrs). In the nine months to September 2011, the company reported 4% growth in its net revenue thanks to a positive price/mix, but its operating profit declined by 12% due to higher input costs and marketing spend as it had to increase investment to maintain sales, primarily in Eastern Europe.
Due to weak performances in mature beer markets in Europe and North America in recent years, major brewers have made strong efforts to create a more balanced geographical footprint so as to be able to take advantage of volume growth in fast-growing emerging markets and value growth in high-value mature markets. Global leader A-B InBev has been taking advantage of its dominant position in Brazil and its growing presence in China, and in 2011 generated nearly half of its total beer volumes in Latin America and Asia Pacific. The global beer industry's second-ranked SABMiller, the least exposed to mature beer markets among the major brewers, has been enjoying solid volume growth thanks to its leading position in the Middle East and Africa and its strong presence in Latin America, while Carlsberg's closest competitor, Heineken, has also been benefiting from its increased footprint in emerging markets, and by 2011 43% of its total beer volume sales derived from Latin America, the Middle East and Africa and Asia Pacific. Carlsberg has also started working on its expansion in developing markets, particularly in Asia Pacific. In 2011, it increased its equity stake in Chongqing Brewery in China to 30%, acquired the remaining 50% share in Hue Brewery in Vietnam and agreed to set up a joint venture with Chongqing Brewery, although its global presence still remained heavily biased towards Eastern and Western Europe. According to Euromonitor International, the two regions accounted for 84% of the company's global volumes in 2011.
Rise of Chinese brewers
While companies face economic uncertainty and restricted consumer spending in Europe and North America, Chinese brewers have continued to capitalise on the robust growth in their domestic market. In 2011, China Resources, the leading Chinese brewer, registered 11% beer volume growth, increasing its global share to 5.4%, while Tsingtao Brewery and Beijing Yanjing Brewery also posted dynamic growth and secured their places among the top 10 global beer companies.
Source: Euromonitor International
Note: SABMiller 2011 share includes Foster's Group
As China is forecast to continue to drive global beer volume growth with an additional 13.9 billion litres (5% CAGR) over 2011-2016, local players are expected to continue to post strong results, and if Carlsberg is not able to improve its performance, it may well lose its fourth position in the coming years.
Need for further expansion to enhance growth prospects
According to Euromonitor International, Carlsberg's core Eastern and Western European markets offer limited growth prospects over 2011-2016, with predicted volume CAGRs of +1% and -1%, respectively. Hence, the company should switch its focus from volume to value generation and should push its high-margin brands, accompanied by strict cost management to improve its margins.
In order to enhance its growth prospects, Carlsberg should seek to further expand its coverage in fast-growing emerging markets. The company has already been working on strengthening its position in Asia Pacific, particularly in China, which will continue to enjoy the strongest beer volume growth over the forecast period. The company can benefit from its share in Chongqing Brewery and their newly set up joint venture, but it should also continue its expansion in the country, particularly in North/Northeast and East China, which are expected to see the strongest growth (9.2 billion litres) over 2011-2016. Moreover, it could push its premium brands to take advantage of the premiumisation trend as premium lager is forecast to outperform the wider beer market with a 15% volume CAGR, albeit from a low base. Its other markets in Asia Pacific, such as India and Vietnam, also offer strong growth potential, so the company should continue to invest in broadening its distribution in the region.
Furthermore, it should also look for opportunities to establish a footprint in the Middle East and Africa and Latin America, which are forecast to register volume CAGRs of 5% and 4%, respectively, over 2011-2016. The quickest way to enter would be through acquisitions but as these regions are highly consolidated, with one or two brewers dominating each market, the company's potential for inorganic growth is fairly limited. Carlsberg's sales are likely to remain focused on the niche but growing imported lager category, and the company should try to create partnerships with local brewers to boost its brands' international presence.
Carlsberg's ambition is to become the fastest growing global beer company, measured in terms of average organic growth in net sales and operating profit over a three-year period. However, the company has a great deal of work to do if it is to meet this ambitious target.
9 Feb. 2012