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.
SA. SABMiller interims: Jamie Wilson (SABMiller) & Chris Gilmour (Absa Investments)
HILTON TARRANT: In the six months between April and September South African Breweries sold 1.25bn litres of beer in SA. My maths is slightly rusty, but it works out to 7m litres of beer a day, the equivalent of 20m cans of beer a day in this country. Its parent, SABMiller, the world’s second-largest brewer, today said global revenue grew by 11% in its six months to $17.5bn. Rand-adjusted earnings per share up 32% on the back of a weaker rand. Organic lager volumes, the all important number, up just short of 4%.
Chief financial officer Jamie Wilson joins us from London. Jamie, a very strong performance across the group, boosted particularly by the acquisition of Australia’s Foster’s.
JAMIE WILSON: Yes, exactly. I think it's very encouraging, the performance of all our existing businesses, but you are right, the Foster’s side on top of that gave us very strong growth and we got down to an adjusted earnings per share growth of 14%, which is in the current climate very good.
HILTON TARRANT: Are you surprised by the performance of Foster’s, given that this is not even one year into that acquisition?
JAMIE WILSON: No particularly. As we said, it's early days in the Foster’s integration into our business. We took over a company that we felt had been undermanaged for some time, and it would take us some time to get just the business back on an even footing, the combination of rebuilding the brand portfolio and getting the operational expertise back into the business. But so far that part of the business is going well. It will take us a little while just to get the brands back into consumers’ hearts and minds, but that's pretty much as we expected.
HILTON TARRANT: Jamie, the real focus across your group is strengthening those core brands. Just looking at how your peer, Anheuser-Busch InBev, tackled this, they seem to have the single global megabrands, these kind of five or six brands that they spread across the world, versus an SABMiller which seems to be focusing on very, very strong regionalised brands. Is that a fair comparison?
JAMIE WILSON: Yes, it is. We've built our business on local brands and local consumers and that’s the model that we follow in pretty much every part of the world. We do have global brands such as Azzuro, Miller Genuine Draft and Grolsch, but we focus particularly on growing a lot of local brands as well. Some of them, as you so rightly say, go across different regions. But that’s just our business model and it works well in the emerging markets that we operate in.
HILTON TARRANT: Here in South Africa you won back market share, especially in the premium space. What sort of percentage have you managed to win back over the past year?
JAMIE WILSON: Well, I think what you’ve seen is a steady flowing back of market share. We are sitting at just over 90% in the market now, so we're pretty pleased with that performance. You are right, the premium space is doing well with Castle Lite. But equally well the whole portfolio has been moving forward.
HILTON TARRANT: Castle Lite is doing particularly well across the continent and in South Africa as well. Take us through the strategy there. Is this really a story of getting a premium product into other African markets?
JAMIE WILSON: Very much so. I think as the African markets evolve and mature in their economies and you get an emerging middle class there looking for more choice, and to trade up into different brands, Castle Lite is a great brand to be able to offer them in their local markets. And we are seeing about a 50% growth in that brand across the African continent in the six months, which has been terrific.
HILTON TARRANT: Jamie, Just to close off with, craft beer seems to be the new trend in the kind of brewing space. It really has sort of taken off over the past couple of years and I do note that you have made mention of craft beer, especially in the US operations. It's obviously at tiny volumes that those craft brewers do come through. Have you noticed much from that space across your businesses?
JAMIE WILSON: Yes. The craft beer has been an evolving phenomenon in the US and we have set up our own company, Tenth & Blake in the US which plays in that space, and we brew brands like Blue Moon, Leinenkugel’s and we've actually been gaining share in that space in the US. It's an interesting space; it's offering the consumer quite a lot of different choices and different flavours and obviously gives a bit more interesting in craft categories. So it's quite a healthy space in the US.
HILTON TARRANT: Jamie Wilson. Let’s bring in Chris Gilmour now, analyst at Absa Investments. Chris, SABMiller obviously beating estimates, given how the market reacted to the results today.
CHRIS GILMOUR: I’d say! And you’ve now got a company that’s the second-biggest market cap on the JSE. It's getting off at twice the size of Anglos these days in terms of its total market cap. So ja, this has been a phenomenal performance this year. And it all comes down to the earnings.
As Jamie says, you’ve got the diversified base now. If one area isn't performing quite as well as another area, there are other areas that are coming in and taking its place. It's a tremendous success story.
HILTON TARRANT: The market share here in South Africa back at 90%, obviously facing some significant onslaught from brandhouse with the Amstel rights. We saw the big entrance of Windhoek as well as Heineken really denting market share in the premium side of things. Seemingly that’s behind it now.
JAMIE WILSON: It's all been put to rest a long time ago. I went on a site visit about 18 months ago and even then you could see that things were changing quite dramatically.
To put this is some sort of perspective, when Amstel was taken away from SAB in March 2007 they had a 9.1% share of the total beer market. Today it's about 4%, 4.5%. So it's halved. Castle Lite – you were talking about that earlier, that has been one of the main drivers. The other one has been of course the fact that you’ve got things like Carling Black Label and drafts. They’ve been pushing so many areas of product in there and it's been killing Amstel.
HILTON TARRANT: And this craft beer trend is pretty interesting given that SAB – you are finding this brewing giant moving into that space in the US and possibly no doubt looking down the line to enter more maturing beer markets along a similar vein.
CHRIS GILMOUR: Oh, absolutely. Malcolm Wyman, the former financial controller at SAB, said to me many years ago anything that promotes interest in beer is something that SAB would look at. And that’s along those lines. You go along and you promote interest in the craft beer, in the small brewers, anything that gets people interested in coming and drinking beer who have formerly not been drinking it, there’s going to be a spinoff into mainstream or premium or whatever. Oh, absolutely.
HILTON TARRANT: Chris Gilmour.
David, have you tried this Blue Moon?
DAVID SHAPIRO: You don’t drink Castle Lite, do you?
HILTON TARRANT: I do.
DAVID SHAPIRO: No, you don’t.
HILTON TARRANT: I do, seriously. I switched to Castle Lite about six months ago.
DAVID SHAPIRO: No-one drinks Castle Lite [laughs].
HILTON TARRANT: Have you been to a pub lately? Castle Lite outsells all other draft beer.
DAVID SHAPIRO: That’s awful! I've drunk Blue Moon.
HILTON TARRANT: Blue Moon’s a very good beer.
DAVID SHAPIRO: I like craft beers and when you are really in a beer-drinking mood you can go to some of the Belgium beers which are similar, like that. But Castle Lite!
23 Nov. 2012