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.
Analysis of the beer market in the regions of Russia in 2015 – rise of small and regional breweries
The tendency of ousting the major brewing brands from the market has been obvious for a long time. While the international corporations were closing their factories, the regional enterprises were increasing their facilities and a lot of minibreweries appeared on the market. But each region has its own peculiarities of beer "alternative". The love for the draught beer and the interest in craft or regional brands are manifested in various degrees in different parts of Russia. To better understand the tendencies in the beer market it is necessary to analyze it in every region.
Development of regional breweries: Zhigulevskoe vs Zhigulevskoe
Development of small brewing: great results and vague prospects
Positions of brewers in the regions
Far East region
Development of regional breweries: Zhigulevskoe vs Zhigulevskoe
By the end of 2015, the independent regional medium-sized breweries will show the growth of about ..%* to approximately ... million decaliters which is generally good against the falling beer consumption. We estimate that their market share will sharply increase accordingly by ... p.p., to ....%.
* Tomskoe Pivo Company which belongs to big beer brewing companies has been included in the category.
In September 2015, Russian Statistics Committee (Rosstat) has published data on the financial results of the companies in 2014, including small and medium-sized producers of beer. And updated information of regional statistics of the companies’ production and revenue in 2015 will allow us to estimate and forecast their further development.
According to Russian Statistics Committee (Rosstat), in 2014 medium-sized producers have increased their revenues by .%, to about .. billion rubles*. It is expected that in 2015 their total revenue will increase by about a quarter and will be about .. billion rubles due to the growth of physical volumes and prices.
* Deka Company and Osha Distillery were excluded from the assessment of the "medium-sized enterprises" category because their main activity is not beer production.
While the transnational companies have been closing their enterprises the capacity of regional breweries has been growing and updating. Thus, the financial statements of .. medium-sized enterprises (that published it, as JSC) show that .. of them had or planned technical re-equipment of production and capacity expansion in 2015. The local authorities contribute to the development of breweries. In the difficult economic conditions, excise duties have become for them an important item of filling the regional budgets.
Approximately ..% of sales of medium-sized enterprises belong to the draught segment, where beer range varies greatly from region to region. The market of keg beer focuses on specialized retail. According to the .GIS data, there were about .. ... beer shops in .. cities of Russia. Taking into account the population of these cities, we can say that on average there are .. specialized outlets per ... ... people.
Beer shops try to develop their own special range of products and the growth of their quantity does not mean a simple scaling of the current sales structure. That is why the market of draught beer develops by expansion of the number of brands and it has become more diversified in the recent years. For example, today, it is not difficult to find a beer in Central region which was brewed in Siberia or in the Volga Region. A growing draught segment has an increasing impact on the market of packed beer, where regional brands are gaining weight.
Switching from the “mass market” beer brands to development of their own unique brands becomes increasingly important for regional producers although operating mainly in the economic segment makes the process more difficult.
Thus, Zhigulevskoe mark accounts for approximately a third of sales of the regional breweries. Today this beer can rightly be considered the favorite brand among Russians, although the popularity of "the national brand" seems to be approaching its limit.
While in 2013 the market share of packed beer Zhigulevskoe was about .%, at the year-end 2015 it will be at least ..%. However, in the segment of draught beer we see a reverse trend, i.e. under our estimation its share will be reduced from ..% in 2013 to ..% in 2015. In physical indicators this means that sales of Zhigulevskoe beer in keg were relatively stable against the growing segment of draught beer and packed beer have grown despite the general market decline.
A total of ... producers of different scales (including .. regional) have included Zhigulevskoe in their range in Russia. The key problem of this step is the lack of ownership of the brand. Zhigulevskoe beer can not provide for the stability of sales, they can flow from one producer to another which occurs continuously.
In the recent years Baltika has made a significant contribution to the sales of nostalgic brand, promoting its version of Zhigulevskoe. Baltika has managed to press Zhigulevskoe by many of the regional manufactures not only from the market of packed beer, but also from the draught segment for a time. However, other market leaders have managed with it too. For example, Zhigulevskoe beer has helped Heineken Company maintain the regional enterprises functioning. As a result, more than ..% of the sales of Zhigulevskoe in the segment of packed beer and about half in the segment of draught beer accrue to companies on the federal scale.
That is not to say that the share reduction of Zhigulevskoe of the regional producers is only related to the activity of federal companies. Other brands are worth attention as well. For example, ... enterprises (including .. regional) have in their range a beer with the simple name Cheshskoe (Czech) and .. (including .. regional) have beer Nemetskoe (German). Their share in the market of packed beer is about .% and in the draught segment about .% and less, although this process develops uniquely in different regions.
The problem is that a beer shop with a limited range of sorts does not need several providers of Zhigulevskoe and Cheshskoe (Czech). Brands with a special beer taste and with strong regional reference are rather more required. In general, the same can be said about the retail networks.
At the same time, each regional enterprise has in the portfolio one or more key brands of its own, usually at a reasonable price. In total, branded beer of the medium-sized breweries accounts for about .% of the market of packed beer and about ..% of the draught beer market. We estimate that about .% of the packed beer market and ..% of draught beer market are formed by the following largest regional brands: Krueger (Tomsk Beer), Afanasiy, Priyatel (Lipetskpivo), Vyatich, Trekhsosenskoye, Hmeleff, Abakanskoye (Ayan), Pennaya Kollektsiya (Bouquet Chuvashia-Bulgarpivo) and Bavaria (Agrofirma FAT).
In 2015-2016, judging by the statements and reports the main risks for the regional enterprises are in the area of state regulation and economy.
The most significant of these risks is the limitation the size of PET packaging for beer. At the time of the preparation of this article, the press mentioned a very probable ban on PET with a capacity of more than 1 liter. This option can hardly be called a compromise for the brewers, because plastic packaging is used for filling large volumes of beer, making it more affordable and convenient to carry. Today, only .% accounts for 1 liter or less while a total share of PET is about ..%.
This prohibition will deal an equally heavy blow to the federal and regional breweries. Medium-sized breweries have been recently worked with glass bottle, but in retail trade PET remains the main form of packaging. PET-packaged beer of medium-sized breweries accounts for ..% of sales while at the leading top six it accounts for about ..%. At the same time, the share of large companies in the market of draught beer is not under the hit, except of ..%, and the rest share is divided between regional and small brewers. Assuming that consumers, who used to buy large amounts of beer, will be more likely to visit beer shops, the prospects of medium-sized breweries look better.
The implementation of USAIS has a negative impact on profit and may be a result of temporary disruptions in the supply of beer, but is unlikely to become a critical issue for regional brewers. The implementation costs will be about .% of the average profit of the regional enterprise (an average net profit/loss of the regional brewery in 2014 amounted to + .. million rubles.
The economic risks will mainly affect the transnational companies, as they have to convert profits into currency. Furthermore, a probable change of the consumption structure towards the economy segment will stimulate interest in inexpensive regional beer. In our opinion, the inflation is equally a problem for both large and medium-sized breweries. At the same time, the regional breweries will have more tangible growth of expenses for brewing raw materials, materials, energy and logistics due to focusing on inexpensive beer and weaker buyer’s position.
There is a detailed analysis of the work of medium-sized enterprises in the chapters on the regional beer markets.
Development of small brewing: great results and vague prospects
In the autumn of 2015 in Russia 757 beer producers which can be defined as small brewers (both industrial and restaurant) have declared their activities. Beer production, de jure or de facto, is the main activity for 540 enterprises, and the remaining large part refers to the segment HoReCa.
Despite the dramatic decline of the brewing industry, small brewers have significantly increased their production volumes during the past year. According to Russian Statistics Committee (Rosstat), that single out small entrepreneurs into a separate group, in January-September 2015 they have increased the production of beer by ..% to .. million decaliters. Based on these data and current tendency in 2015 their production will reach ..-.. million decaliters of beer.
It should be noted that the updated information is usually effective in reflecting the activities of large companies. However given that many secondary producers of beer (that work in the sphere of HoReCa, trade, etc.) and basing on average production volumes of these breweries, it can be assumed that the total production of small brewers will be about .. million decaliters of beer.
In 2015, the fall rates of the beer market have accelerated, amounting to about ...% in January-September, (... million decaliters) under our estimation. Accordingly, the market share of small producers amounted to ...%. Note that in 2011 it was twice lower. In view of the secondary producers and the current tendency, the market share of small brewers in 2015 will grow by ... p.p. and will be around ...%, based on the calculation of official data.
How adequately the official figures reflect a situation of small breweries?
We estimate that in 2015 in Russia there were about 530 industrial minibreweries and microbreweries. At the beginning of 2015, there were about 300 restaurants in Russian HoReCa establishments. However, most of the small producers did not work.
We can analyze data only of 424 small enterprises with the known revenues of 2014 and the production of beer for which is the main type of activity *.
* A part of the small core breweries have a complex ownership structure, or changed their owners, so their revenues are unknown.
Thus, the revenues of the small core producers have increased by ..% to .... billion rubles. If we add approximate revenues of restaurant breweries and companies with mixed type of activity, this figure can reach ... billion rubles.
Continued rapid growth of prices and volumes in 2015, makes it possible to expect the revenue growth from small brewers by around ..%, to ... billion rubles (or up to .. billion rubles taking into account non-core brewers).
In 2014, .. out of 424 small core producers had revenue of more than 100 million rubles. They are easy to enumerate: Varnitsa, Vasileostrovskaya Brewery, Suzdal Brewery, Crop-Pivo Brewery, Kozhevnikovo Brewery, PSG-2 (restaurant network), Alpina, Polevskaya Brewery, Admiral Kolchak Brewery, Anfas (Do vstrechi) and Kamensk-Ural Brewery. In total, these minibreweries accounted for ..% of the total turnover of small producers.
In 2014 the turnover of .. small breweries was from 50 to 100 million rubles as follows: Amarant (Kosouhoff), Rzhevpivo, Fudlayn 1 (Frau Muller restaurant), Shcherbakovskaya Brewery, Siberia Brewery (from Ulan-Ude), Koniks, Valar , Brewery , Bavaria Brewery from Velikiy Ustyug, Rugen Brewery (GK Tarkos), Bents (Abbatskoye), Brewer (De Bassus restaurants), Torgovyy dom Zolotaya Sova (Novokemerovskaya PBZ) and Gletcher (SVAM Group). These companies have provided one-fifth of the revenue of small producers.
There are .. small brewers with revenues from 10 to 50 million rubles, which accounts for ..% of revenue, and ... breweries with the lower revenue and the share of ..%.
In 2015 small breweries had risks of profitability reduction or even the cessation of work due to the implementation requirements of the USAIS system. It is likely that these risks will not affect the outcome of 2015, but they do not give reasons for optimism in 2016.
Based on the official revenue and average selling prices of about 60 rubles per liter, it is possible to estimate that only ..% of producers sell more than 300 thousand decaliters of beer per year. However, the Federal Service for Alcohol Market Regulation (FAR) takes into account only the capacity of the equipment. It is calculated as the total effective volume of the fermentation tanks based on the number of process cycles (according to the documentation for this sort of beer).
Since the potential output is usually several times higher than the actual, at least ..% of small brewers have to buy counters, i.e. the group the official turnover of which was more than 10 million rubles.
Note that the financial results of small brewers vary greatly and even ..% have declared losses in 2014. But the costs of installation and connection the USAIS equipment estimated at 0.25-1.25 million rubles. Since the equipment costs are approximately 750 thousand rubles, only every … brewery with a capacity more than 300 thousand decaliters will be able to pay it from the profit. And given the fact that today, the equipment costs could grow, and brewers’ revenues are declining, the introduction of the USAIS can be a sentence for many of them.
If the largest microbreweries are likely to continue their work, for small breweries it means a possible closing of … of medium-sized enterprises, which are not in the privileged group (with the capacity less than 300 thousand decaliters) and are not be able to carry out the full-fledged implementation of USAIS. A typical configuration of the brewing equipment in this group: boiler capacity of 1000 liters and fermentation tanks with a total volume of 7-20 thousands liters. In total production of beer by small brewers this group share is about … .
Today it is quite clear that the potential problems of the USAIS implementation (as, indeed, and the deterioration of the economic situation) led to a slow growth of the number of small breweries. At least, a substantial increase in output in 2015 was no longer the result of the growth in their numbers, as in previous years.
Between autumn 2014 and autumn 2015, about .. industrial breweries were registered for the first time, i.e. at the place where previously there was no brewery. Moreover, other .. breweries have registered in the official structures that allow beer producing. If we do not consider these manufacturers to be new (because they could not interrupt their work), it appears that relatively 2011 the number of breweries and microbreweries doubled. But with the end of 2014 the number of industrial breweries such as increased by only .%.
The growth dynamics of restaurant breweries numbers was weak, here we can speak of stagnation or even decline. Although, the breweries with a capacity less than 300 thousand decaliters do not need to install the USAIS equipment, they have to for the connection to the informational system and the organization of reporting. There is a high probability of additional checks and big fines. Therefore, the investment activity in the segment of restaurant brewing has almost stopped. We estimate that only . restaurant breweries started working or preparing to start work between autumn 2014 and autumn 2014. Furthermore, not all restaurant breweries were able to continue the production of beer due to the specifics of business and the negative expectations. The profitability of many projects could fall to an unacceptable level.
USAIS can clip the wings of craft brewing which is based not so much on reasonable planning of business, but on enthusiasm. The brewing of small batches of beer, constant experimentation with the technology, formulation, packaging and names is poorly compatible with the licensing system of the FAR in affirming the range and control of each movement of products.
Another key issue is to connect the wholesale to USAIS. The turnover, balances, allowances and return of the beer in distributors will be strictly regulated starting from . January 2016. Upon detection of mismatching the confiscation of products, big fines and prohibition of activities can follow. The possible (and very probable) failures of the accounting system require stopping the sales. The requirements to the warehouses are becoming stricter.
Alexei Nebolsin, a member of the Bureau Opora Rosii, noted that beer distributors are afraid of high prices for software, the lack of specialists and other difficulties. He estimates that about 2500 of the wholesalers are ready to exclude beer from the portfolio, mostly small and medium-sized enterprises which account for about 12.5 % of all beer sold in the country. Vedomosti reported that according to Opora Rosii assessment half of Russian beer sales is provided by 10,000 distribution companies which have no other alcoholic beverages in their portfolios (e.g. wine and vodka are already included in USAIS).
Small wholesalers mostly work with small breweries. If these wholesalers withdraw from the market, it does not mean that large distributors will want to take their customers.
Positions of brewers in the regions
In 2015, Central region was one of the most stable markets since it showed only a moderate drop. Although a number of regional breweries with solid production volumes have popped up in recent years, but due to vast size of the market their share is relatively small. The brewers from the Volga region and other regions of Russia add about .-.% to the share. At the same time, Central region is the leader by sales volumes of microbreweries and their number.
Central region is characterized by gradual exclusion of the market leaders not only from the economic segment and not only because of draught beer. The activity and the share growth in the modern retail trade with increasing demand for regional product become a powerful driver for growth of the regional brewers.
This is understandable given the low share of draught beer (about .% of the market) and a relatively poor coverage of specialized beer shops in the capital. In particular, in Moscow the number of beer shops per 100 000 population in May 2015 was .. while in other cities there were on average .. outlets per 100 000 persons. The share of the beer shops is large enough only in Belgorod, Kursk, Voronezh, Tambov and Lipetsk (more than .. per 100 000 population, in descending order).
The struggle for supermarket shelves between the market leaders changed the power outlook in 2015. We estimate that Baltika has managed to press its federal competitors in retail trade. It should be noted that for some time past “Baltika” has been connecting its prospects in Russia with a focus on modern retail. This evidently has given an important effect on the capital market, but in other areas of Central region the sales of Baltika have dropped according to the statistical data of production.
The absolute domination of large companies in the market is slowly ebbing since medium-sized and small producers continue to develop rapidly. We estimate that the share of the . largest national companies (including Ochakovo and MBC) in Central region has decreased from ....% to ....% over three years.
The three largest regional brewers have one key brand of their own that has become their “calling card”, but also several traditional and non-branded “nostalgic” sorts carry a lot of weight.
We estimate that “Russian brewing company “Hmeleff” (Ryazan city) have continued to increase the production volumes at the same pace and may increase its production by .% to .... million decaliters by the end of 2015. Affordable products by the company has already gained popularity in Moscow largest market and in other regions not only in specialized retail. Approximately half of sales is provided by Zhigulevskoe beer and almost half by nominal brand Khmeleff.
Even bigger growth is expected of Lipetskpivo company that also focuses on medium-priced production in PET and kegs. The company also develops its sales outside of Lipetsk region. We estimate that the company’s own brand Priyatel accounts for most sales. Based on year-end results, the production of the company may exceed ..% and reach about .-. million decaliters, under our estimation.
Afanasiy-Pivo company from Tver focuses specially on mid-price segment and competes directly with large companies under its own brand Afanasiy. We estimate that the growth rate of beer production will also exceed ..% and the production volume will be about . million decaliters.
We estimate that a double-digit growth of production of Bryanskpivo to about ... million decaliters is to be expected. According to the company’s data its market share has significantly grown in the home region. Despite relatively small volumes of production, its range of bottled beer is very diverse by sort and price.
Beer by hundred of small producers of Central region is uniformly distributed across the price and taste spectrum of the beer market. The specialization of the companies is also very diverse.
For example, a new large microbrewery Varnitsa in Smolensk oblast produces both Zhigulevskoe beer for the local market and special niche varieties. Many brewers are focused on traditional tastes and on the premium segment of the market, like Suzdal Brewery. In fact, these two companies pour their beer not only in kegs, but also in glass bottles. The Amarant company with brand Kosoukhoff also offers traditional and fairly inexpensive alternative to mass beer in Moscow market.
About a fifth of minibreweries of Central region become notably diverse. These are in the first place breweries of Moscow and Moscow oblast including major ones. Gletcher Brewery being the part of the Swam Group (distributor of imported beer) serves as a good supplement to its product range by brewing special beer varieties (e.g. Belgian kriek) including craft sorts. Novorizhskaya Brewery, company Craftbir (Stamm beer), Molt (1 tonna) and some other smaller companies are working in the craft format.
Most of small breweries, that is, .. objects (including . restaurant breweries) have emerged in Central region since the end of 2014. The small breweries mainly emerged in medium-populated regions, because except of Moscow, the Center of Russia is far from the first place by “specific weight” of minibreweries. At the same time, judging by the rapid growth of the regional brands, the alternative beer has a great potential.
Belgorod oblast with two industrial and one restaurant brewery was especially notable in the dynamics of opening of new breweries. However, three new industrial breweries probably focused on the capital market were also registered in Moscow oblast.
Siberia is the largest market of “alternative” beer judging by sales volumes of medium-sized enterprises. The region is also distinguished by large sales revenues of small producers due to blurring of boundaries between local medium-sized breweries and minibreweries.
There are very strong positions of the regional beer and the tendency of consumers to abandon popular federal brands in Siberia. The beer patriotism here is supported by powerful specialized beer retail, which is outrunning other regions of Russia by coverage and the number of outlets (on average .. per 100 000 population)
The share of draught beer in the regional market is about ..%. This can be explained by the fact that keg beer takes up about half of the volume in the sales structure of medium-sized and the majority of small enterprises.
Note that according to Rosstat there is a rapid drop in beer sales in Siberia in recent years which is confirmed by market participants. However, this drop was almost fully due to federal companies, the marker share of which has been reducing rapidly in the recent years in Siberia. While in 2013 the leading top six (including Ochakovo and MBC) controlled ....% of beer sales at year-end 2015 their share will be reduced to approximately ....%.
For example a development of the local beer market in the report of Barnaul Brewery for the year 2014 was estimated as follows: “The share reduction of federal companies results from the redistribution of sales volumes from packed beer to the keg, and the largest share in the structure of federal producers belongs to bottled beer. The marketing and trade activities, namely, permanent reduction of the price for popular SKU, the shelf space payment and installation of cooling equipment, the additional lay-out of goods, as well as promotional package design and others are the reasons why federal companies are still among leaders in the market of Barnaul”.
The federal company with the largest drop was AB InBev that once claimed to be the leader in Siberia. Today, focusing on marginal brands, AB InBev is inferior in other segments. In consequence, by the end of 2015 we can expect the drop in sales by ..%.
The positions of “Baltika” in Siberia are also ambiguous, but it keeps an evident distance in the market share with competitors. On the one hand, the company enjoys a relative stability due to the domination in the growing marginal segment (especially Baltika #7 and Baltika #9). On the other hand, it tries to play in the same field with local producers at the expense of economical regional varieties (especially Zhigulevskoe) and disproportionately large share in the market of draught beer for federal companies. According to our estimates, the drop in sales of Baltika in Siberia will be more than ..% by the year-end.
The place of AB InBev in the leader board was quite confidently taken by Tomsk Beer. Judging by the regional dynamics, in 2015 its volumes of beer production may grow by about ..%. Note that the keg beer is half of the company’s production volume. And the bulk of sales are provided by brands Krueger and Zhigulevskoe that obviously lead in the Siberian segment of draught beer. Moreover, in accordance with the general market tendency Zhigulevskoe begins to dominate in sales of the company. However, these sorts of beer today are experiencing the growing pressure from not only federal, but other Siberian regional producers.
A strong growth of medium-sized breweries of the Altai Region has slowed in recent years, but their share continues to grow against the falling market. Barnaul Brewery and Bochkarevskiy Brewery are well presented in the local market, but the most of their production is sold in other regions of Siberia. Borihinskiy Brewery plays an ever increasing role (its brand Sladovar is gaining popularity). The brewers of the Altai Region, which have gained a foothold in the market of draught beer, gradually expand their presence in the retail network.
The usage of the same “traditional” geo-referenced stamps is a special feature of the Altai producers listed above. In particular, Nemetskoe (German) and Cheshskoe (Czech) beers have a large weight in the portfolio of each company.
Ayan company (Abakan city, the Republic of Khakassia) shows a good dynamics among other medium-sized enterprises. By the end of 2015, the volumes of its production will amount to about ... million decaliters with a growth of ..% compared to 2014. Like other producers, the company mainly focuses on the home market and neighboring Krasnoyarsk Region, although connects its prospects of growth with expansion in other areas of the region. It is interesting that the share of bottled beer of Ayan is much higher and it continues to grow, i.e. the company places its stake on retail rather than specialized beer shops.
The small brewers of Siberia mostly play on the same field with medium-sized breweries and to determine the exact boundary between them is not always possible. This is partly due to location of many breweries in remote regions, where they have a challenge not only to find a special niche, but to provide the demand for local, fresh and draught beer. In this respect, the majority of minibreweries are focused on the production of mid-price beer. For example, almost all large minibreweries of Siberia have Zhigulevskoe beer and sorts with traditional links in their product range.
The majority of new minibreweries of Siberian region that have emerged since the end of 2014 are located in rural areas or small towns with population up to 50 000 persons. Only . of . objects are registered in the regional centers of Novosibirsk and Omsk.
Volga region, as well as Siberia, stands out the national backdrop by the great weight of independent breweries, which are rapidly squeezing out federal producers from the market of economy beer. This is not surprising, because most of the major regional breweries are located in the Volga region, and their production volume is also the largest in Russia. We estimate that the share of the . largest national companies in the region has reduced from .... to ....% for three years. In 2015, the recession of sales and market share has affected all multinational companies.
According to the estimates of regional enterprises many of them dominate their home markets or figure prominently in the list of leaders. However, the share of keg beer in the region is about .%, under our estimates. This is less than might be expected and apparently this is due to the fact that in Volga region, with the exception of Samara region, specialized beer retail is relatively underdeveloped. Accordingly, the main competition between regional and federal producers is in the food retail.
In ...., there was a merger of two medium-sized breweries in Volga region, when Cheboksary company Buket Chuvashii purchased Bulgarpivo company (Nabereznye Chelny city). A boost in power and its upgrading gave a long-term impetus to the sales growth of the merged company, which is still ongoing. A wide range of brands and sorts of these two companies seems only to contribute to the growth of holding which has quickly become the second Russian regional brewery by sales volumes (after Tomsk beer).
According to the data presented by market participants Zhigulevskoe beer in kegs of Buket Chuvashii company and Pyatnitskoye beer of Bulgarpivo company have been placed among the first in the draught segment even at the national scale. At the same time, very affordable title brand Buket Chuvashii in PET, glass and can, as well as many sorts of Bulgarpivo take the market share from federal companies in the segment of packed beer. According to the estimation of Cheboksary company, in 2014 its share on the market of Chuvash Republic reached ..%.
We estimate that in 2015 Buket Chuvashii and Bulgarpivo will increase the production volume to ... million and . million decaliters of beer, respectively.
In fact, another regional group was formed in 2009, when Penza company Visit has purchased a rather large minibrewery Koniks, which is located in the same part of the region (Kuznetsk city). The range of products of these companies is similar, but a large part of Koniks’ beer is sold not in the local market, but in Moscow. According to our estimation the total production volumes of Visit Group is about ... million decaliters of beer.
We estimate that the largest regional company Zhigulevskoe beer has increased the growth rate and will reach the production volume of about . million decaliters in 2015. The title brand Zhigulevskoe and mainstream brand Fon Vokano are the basis of the company’s sales which are mainly sold in the local market. A well-developed in Samara region specialized retail obviously stabilizes the company's sales, while the weight of packed beer is increasing. More than a third of production is available in kegs, but still about ..% of draught beer is transported in tankers and the share of such an unusual format has been growing.
The market share of Trehsosensky Brewery has been growing steadily fast in recent years. The original design of products, activity in the retail network and the growing demand for affordable regional beer allowed the brands Trehsosenskoe, Iskusstvo Varit, and Zhigulevskoe to gain popularity not only in the domestic market. The brewery was even one of significant beer exporters in the past years. According to our very rough estimate, based on regional financial statistics, the production of beer of Trehsosensky Brewery will increase by more than ..% in 2015 and will reach about . million decalitres.
The list and achievements of regional producers in Volga region is not limited to the mentioned companies. Approximately the same production volume accrues to .. other local producers, that showed different growth dynamics, but in general, are also increasing sales.
The market share of small brewers in Volga region is still lower than Russian average. The local beer market with the exception of Samara region, is difficult to work in for small producers. Here consumers are more sensitive to the availability of beer, which is associated with a large share of economic segment, and a large number of medium-sized producers that offer many affordable "alternatives" only reinforce this trait.
This may be the reason why small enterprises work on “export”, seeking their own niche, and strive to work in the format of craft brewing (or declare such intention), i.e. they try to distance themselves not only from the mass brands, but also to go beyond the traditional "regional" format. For examples, in this group we may also include the distributor of its own production Valar (Kuznitsa Znatnogo Piva craft brewery), Bents Company (brand Abbey), BPK and Koniks which supply beer to Moscow, as well as Malz and Hopfen (with a range of craft sorts) and some other. But they account for about one fifth of the production and most of small enterprises compete for local consumers’ attention with medium-sized and large companies.
According to our data, .. new breweries have opened in the Volga region (including . restaurants) which looks good, but this is due to the relatively weak development of small brewing in previous years. As far as we know most beginners except craft Private Brewery Butch&Dutch and a rather large project Triton (Craft) are focused on "traditions" in the style of brewing.
The Southern region is still dominated by the large companies the share of which has remained rather stable in recent years, that is, about ..%.And the positions of the federal producers are changing. The weight of other large companies, primarily AB InBev, reduces with the growth of Baltika and Ochakovo. However, by the end of 2015 the Southern region will probably show the largest decline in beer consumption – more than ..%.
The regional brewers in southern Russia are represented by . small enterprises, which are mainly focused on the economy segment of the beer market and work in their region. According to our estimates, based on the statistics of the revenue and the production of beer in the 2013-.. biennium the general dynamics of the regional producers showed their instability. However, the rate of production decline was slower than the rate of market decline. Furthermore, the brewers of the North Caucasus supply considerable amounts of beer in the region.
The relatively law figures can be explained by the fact that specialized retail is underdeveloped in southern Russia – about .. outlets per 100 000 population. If there was no Krasnodar where their specific number reached .., this figure would be even lower. Focusing on the sales in PET and glass bottle, many regional enterprises feel the pressure from Ochakovo and Baltika which also have medium-priced beer with regional bias in their range. At the same time, the prospects of small and medium-sized producers may be related to the recent rapid growth of the segment of draught beer from about .% in 2013 to .% in 2015.
The vast majority of small brewers of Southern region is not seeking a specific niche, but rather strives to satisfy the need for a fresh draught beer on its small market, often working in the economic segment. The Krasnodar Territory has already become the center of small brewing in the region, which stands out in the number of small enterprises (.. breweries).
Krasnodar minibreweries of various sizes occupy more than ..% of the beer market in the region, but small producers poorly mastered other areas of the Southern region. Probably, for that reason, . new minibreweries appeared in small towns of Rostov and Volgograd regions and the Krasnodar territory keeps the interest in the resort area, where . new breweries have been registered (including craft Endemic Mountain Brewery).
The large companies continue to level the market shares. This is primarily reflected in the declining share of Heineken, which has historically kept a strong position in the region. It is pressed by other major players like Efes, AB InBev, MBC, and Ochakovo. The small and medium-sized producers that were growing against the backdrop of the falling market and were able to increase its share (thus, by the end of 2015 it will reach ...%) are playing an increasingly important role.
Note that the weight of St. Petersburg and the Leningrad oblast, where large companies dominate, in total sales volume in the North-West is not so big, amounting to about ..%. However, there are not many independent producers with large production volumes in the region and their volumes are “lost” in the market.
For example, Novgorod company Deka indirectly influences not only the regional, but the national beer market. Having become one of the leaders in the market of kvass, the company has maintained the production of beer. The company is focused on the economic segment with such brands as Zhigulevskoe, Bolshoye Pivo and Megabier. Having gained the confidence of the largest Russian retailers, producing kvass private labels, Deka signed contracts for draught beer. And, thus, contributed to two key tendencies in the beer market - the growth of the share of private labels and the share growth of modern trade. According to our estimates, the company has steadily increased beer production and it will grow significantly by the end of 2015 amounting to about . million decaliters. At the same time Deka is looking at ways to modernize the brewing industry.
Syktyvkarpivo company also had plans to expand the production. We estimate that in 2015 the rates of beer production will be double-digit and it will reach about ... million decaliters. A lot of the company’s brands are represented mainly in the economy and mainstream segments. Most of the beer sold in the Republic of Komi and the share of Syktyvkarpivo on the domestic market is about ..%. About one third of supplies accrues to other areas of the North-West region.
The third largest regional company Hvoyninsky Brewery is currently in an ambiguous position because of the bankruptcy of the owner of the state company NOPO Oblpotrebsoyuz. The popularity of Khvoyninskoye beer and understanding that the brewery can operate efficiently give hope for a quick rehabilitation and development when legal disputes are settled.
There are many other small regional enterprises in North-West region that will show double-digit production growth by the end of 2015, although their market share will remain insignificant. The vast majority of small brewers in North-West region operate in German/Czech traditional style, although St. Petersburg is considered to be the capital of craft brewing in Russia.
Having survived a period of quantitative saturation and decline of beer consumption, the market of St. Petersburg began to develop in a quality way. This was facilitated by enthusiastic brewers, who concluded contracts for brewing of their own beer both with restaurant breweries and with industrial minibreweries. Today the producers are themselves shifting their focus on niche and craft sorts, such as Russian largest minibrewery Vasileostrovskaya Brewery, Knightberg and several small companies.
The share of craft and niche beers in the market of North-West region is about .% and in the total minibrewery production volume is ..-..%, although considering the blur of definition of craft beer, there can be different estimates.
Two out of four new small breweries in North-West region that have emerged since the end of 2014 are located in Pskov oblast. The new industries have been also registered in Arkhangelsk and Leningrad oblasts.
In the Ural region we can see a stable position of . federal companies. It can be expected that their share will decline by ... percentage points to ....%. However, this is against the backdrop of the general market decline.
For the Urals it is rather difficult to talk about a common scenario of ousting the market leaders from the economy segment because there are not so many medium-sized enterprises. Rather, due to the relatively small weight of regional producers, the market is not polarized, but compressing, it shifts towards the premium segment. Probably for this reason, the share of AB InBev was growing in the Urals.
The draught segment of the beer market and specialized retail are well developed in the Ural region. We estimate that the share of keg beer here is gradually increasing and by the year-end results, it can reach ..%. The average quantity of beer shops in the region is slightly above the national, that is, .. outlets per 100 000 population, and in Tyumen and Chelyabinsk their specific weight is especially large (more than ..). However, large federal companies in this case effectively played on a field of regional breweries and managed to create several strong regional brands, which in addition to many varieties of Zhigulevskoe, have anchored in the draught segment. For example, one of the regional leaders in 2014 was “Chelyabinskoe” beer by Baltika. However today, there is a tendency of small producers’ share growth and medium-sized enterprises in the segment from other regions.
In the Urals there are two rather large regional enterprises Tagilskoe Pivo and Zauralskie Napitki, the approximate production volumes of which by the end of 2015 were ... and ... million decalitres, respectively. According to our estimation based on regional statistics, in 2015 the production of these enterprises will develop better than the market, probably it will even increase a little. Both companies are mainly focused on selling packed beer.
In the Urals there are a lot of breweries with limited production volumes and revenues, which, although are not related to medium-sized ones, but also operate in usual for regional producers style (however their beer is more expensive). The small producers are growing rapidly and are already having a noticeable impact on the beer market. At the same time, in the region, there are not many small enterprises which are focused on niche production, craft companies Etalon-Product (Jaws), Bafet (Connoisseur) and some others are among them.
Since the end of 2014, . new industrial breweries have been registered in the Ural region. If earlier the number of breweries was growing faster in Chelyabinsk region, now it is catching up with Sverdlovsk region. The potential of the Ural market is related to the open niche for small brewers – consumers’ demand for a quality regional beer and a smaller share of economic beer than on the average in Russian.
Far East region
In the Far East the market share of federal producers is the most stable and it has decreased only by ... percentage points to ..% since 2013. And this reduction can be explained by the ousting of AB InBev company which does not have its own production in the region. The stability of large companies that have their own production is related both to the remoteness of the region, which complicates the work of "expats" and to less pressure of independent producers than in other regions.
This isolation from the all-Russian context can be explained by the underdevelopment of specialized beer retail and the draught segment in the Far East. We estimate that the sales of draught beer in 2015 amounted to only .-.% of the market. However, local residents often prefer beer packaged in PET, which accounts for almost ..% of sales. In May 2015, the average number of beer shops in the region amounted to only .. outlets per 100 000 inhabitants. These conditions together with high transport charges of raw materials are the limiting factors of medium-sized breweries.
At the same time, the Far East is in the lead in the number of minibreweries in terms of population due to the Chinese suppliers of cheap brewing equipment and the stratum of well-off people. There are a lot of small enterprises which are focused on the economic segment of the market and beer “traditions” often with a maritime colour and Eastern accent. According to our estimates the total share of small producers in the region is the largest in Russia and reaches about .%, which is primarily due to the small size of the market.
We estimate that the production of Kamchatskoe Pivo – the largest independent brewer, can reduce by more than ..%, to approximately .... million decaliters, by the end of 2015. The operational statistics results show both the reduction of production and a decline in revenues. About ..% of company’s beer is packaged in kegs. Thus, its major volume is sold through its own sales network in the domestic market, where Kamchatskoe Pivo is focused on the economy segment. Under the strong pressure of the federal companies, Kamchatskoe Pivo is experiencing a fiercer competition from other producers of draught beer.
In other isolated region, Sakhalin Oblast, the leading position is taken by Kolos Brewery, which is mainly focused on the production of packed beer. We estimate that the company’s production volumes amounted to about ... million decalitres of beer and in 2015 its production is likely to be stable or grow slightly.
The rapid development of small brewing has slowed in recent years, as according to our estimation only . new breweries have emerged in the Khabarovsk Territory since the end of 2014.
The peculiarity of the North Caucasus region is the dominance of large companies, in spite of a number of medium-sized breweries and the relatively small size of the market. According to our approximate estimation, the share of . federal producers here is rather stable and is about ....%, due to the focus of the medium-sized breweries on other regions, where packed beer is mainly sold.
The beer markets of the North Caucasus are very small with the exception of Stavropol Territory. For example in the most populated Republic of Dagestan the beer consumption is only 2 litres per person per year. According to the data presented by market participants Baltika absolutely dominates the North Caucasus, with its share of regional sales higher than the Russian average.
Stavropolskiy Brewery with its advanced range of economic brands (Gubernskoye, Zhigulevskoe, NaBerlin, Stavgorod, Anton Grubi) accounts for about ..% of the total beer production in the North Caucasus region. It is likely to increase beer production by several percentage points to ... million decalitres, by the end of 2015. But the main company’s sales volumes (..% in 2014) are in the neighboring Krasnodar region, rather than the home region, where federal producers dominate. According to our estimation, the market share of Stavropol Brewery in the market of Krasnodar region is about .%. Therefore, the development of the company is mainly due to successful regional expansion.
In the North Caucasus there are still . regional breweries, which are well known outside the region. If you factor out the fluctuation related to the purchases of beer as raw material by producers of beer beverages, we can say that regional producers are gradually increasing their market share in the North Caucasus and in Southern region.
In the North Caucasus all . new breweries have opened or will probably soon begin to produce beer in Stavropol Territory. This region is becoming a new center of the small brewing in the south of Russia that is normal in view of the large number of minibreweries in the neighboring Krasnodar Territory. The neighboring and local medium-sized breweries diversified a range of products and expanded the requests of Stavropol beer lovers, thereby paved the way for the development of their own small brewing. Besides, small brewers can rely on a large number of draught beer shops in Stavropol and Krasnodar Territory.
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19 Jan. 2016