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.
AB InBev Will Try to Keep SABMiller’s Stake in China’s Snow Brand
The idea flies in the face of analysts' expectations that AB InBev would be forced to divest Snow, the world's No. 1 selling beer by volume, in order to secure regulatory approval in China for its roughly $108 billion takeover of SABMiller.
Snow, a mild domestic lager, is mostly sold in China, so few people know of it outside the country. Yet it could be the most strategic asset SABMiller holds. Snow has grown rapidly as Chinese have increased their beer consumption to an average of 45 liters from 7 over the past 25 years, according to Deutsche Bank.
Keeping the business won't be easy. China Resources has the first option to buy out CR Snow and has hired Nomura Holdings Inc. as an adviser, according to a person familiar with the hiring as well as one of the people familiar with AB InBev's plan. Nomura valued SABMiller's 49% interest in CR Snow at $3.6 billion in an analyst report.
AB InBev declined to comment. China Resources didn't respond to requests for comment.
"China Resources is in the driver's seat here," said HSBC analyst Carlos Laboy. "It has to decide: Do we want to keep (AB InBev) as partners or try and buy back our equity stake at an attractive price?"
But AB InBev thinks it can make a case that both sides would benefit by consolidating—which would increase prices—in China, one of the world's largest and most competitive beer markets.
AB InBev has an estimated 18% market share in China with its Budweiser and Harbin brands while CR Snow has a 30% market share, according to Seema International Ltd., a Hong Kong-based alcohol beverage consulting firm. They compete against Tsingtao Brewery, Beijing Yanjing Brewery Co. and Carlsberg A/S.
Beer prices are so depressed that brewers struggle with profitability. Earnings before interest and taxes per hectoliter of beer in China is $2, a fraction of the global average of $19 per hectoliter, said Glen Steinman, president of Seema International.
SABMiller gets 2% of its operating profit from CR Snow, and China Resources reported $97.6 million in profit from the business in 2014.
AB InBev typically is averse to holding stakes in companies it doesn't control, said one of the people familiar with the company's plan for CR Snow. But in this case, the Belgian brewer would be comfortable with China Resources owning 51% or more of the company provided AB InBev operates it, the person said.
In addition to expanding Budweiser's distribution, it could cut costs and eventually boost CR Snow's earnings before interest taxes, depreciation and amortization to $1.5 billion, the person said.
AB InBev has been moving quickly to complete divestitures around the world so it can close its takeover of SABMiller by the second half of the year. The company already has agreed to sell SABMiller's interest in the U.S. joint venture MillerCoors LLC to eliminate antitrust concerns. It also is in the process of selling the Peroni and Grolsch beer brands to appease European regulators.
But finalizing a plan for Snow is expected to take longer because the process regarding mergers in China is less straightforward and discussions with China Resources, a state controlled company listed on the Hong Kong exchange, will take time.
"I imagine this transaction will receive very significant scrutiny because of its sheer size," Ronan Harty, a partner at Davis, Polk & Wardwell LLP, who has worked on antitrust matters in China but is not involved in this one. "The (antitrust) review period itself can be extremely, extremely lengthy."
28 Jan. 2016