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.
Diageo feels the pain of China slowdown
Diageo’s slight rise in sales yesterday was just enough to appease investors who have become impatient after two years of lacklustre performance.
However, Questor is concerned about the impact from a collapse in the value of currencies in important growth markets such as Brazil, Mexico and across Asia.
Emerging market slowdown
Investors in the spirits group, which is best known for Johnnie Walker whisky and Smirnoff vodka, have enjoyed fantastic returns over the past two decades, with the share price more than doubling.
The FTSE 100 company benefited after emerging markets got rich on the Chinese-driven commodity boom. As disposable incomes grew, businessmen across Latin America and Asia reached for bottles of Johnnie Walker to toast their success.
Diageo is now suffering from a reversal of those good fortunes as the Chinese economic slowdown and strength of the US dollar cause a sharp devaluation of currencies across Latin America and Asia.
Venezuela is a small part of the Diageo business, but it offers an example of the issues facing the wider group.
The company sold 7pc more bottles of spirits over the past 12 months, while overall sales jumped 39pc as prices were increased. However, all this is largely academic when the Venezuelan currency has collapsed from 50 bolivars to the US dollar to 200 in the past year. The black market rate is closer to 900 bolivars to the US dollar.
Diageo’s sales in Venezuela for the six months to the end of December fell 94pc from the same period a year earlier.
The spirits and beer maker showed organic net sales growth – which excludes currency and acquisitions - of 1.8pc, and sold 1pc more bottles of alcohol in the first half of 2015.
However, this was all eaten up by falling currencies. The reported net sales declined by £294m to £5.6bn, while operating profit before exceptional items was down £122m to £1.7bn.
Kathryn Mikells, the new chief financial officer who replaced Deirdre Mahlan last year, said the problem of distributors in Latin America and Asia buying up stock ahead of currency falls has now largely cleared. The destocking was a painful process that led to a sharp slowdown in Diageo’s overseas trading last year.
Ms Mahlan is now in control of the North American market that remains Diageo’s largest, contributing a third of total sales. Strong whisky and bourbon revenues offset a 40pc slump in Ciroc-flavoured vodka.
Europe remains an incredibly tough market, with sales across the continent – and in nearly all key brands – declining in the first half.
The sale of the Red Stripe lager brand and US wine interests saw net debts fall to £9.2bn at the end of December, from £10.7bn a year earlier. That is against shareholder equity of £8.1bn.
Diageo’s shares have largely gone sideways for the past three years. The company is showing some signs of improvement, but not enough to warrant a rating of 21 times forecast earnings.
The shares are no better than a hold for the income.
29 Jan. 2016