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.
India. Will continue to grow ahead of the market: Shekhar Ramamurthy, MD, United Breweries
ET Now: Walk us through what impacted your numbers this time?
Shekhar Ramamurthy: What I would like to do is actually put these numbers in perspective, if you look at our full year performance, we have had a revenue growth of over 8%, we have had an EBITDA growth of almost 17% and PAT of close to 14%. So I would not look at just the Q4, I would look at the full year results and say that actually our results have been very good or if you look at EBIT margins, our EBIT margins have actually improved over last year from about 11.1% to about 11.8%.
So overall we have had a very good year. Q4 is sometimes is a result of cost pressures we have had and as you know the first three quarters of last year, the cost were under control because commodity prices were, however, and commodity prices are strengthening particularly but if you and you will see little later the price of barley has increased, the price of sugar has increased. So there has been a little bit of pressure on cost. However, overall our results I believe have been very very good.
ET Now: What is the game plan for FY17? And if we have to compromise on one between pricing and volumes, what would you do and do you?
Shekhar Ramamurthy: This is a very classical question, the compromise or the trade off between price and volume and what makes this question more complicated in our business as you know we are state specific business so our prices vary across states. In many of the states our prices are dependent on what the state governments allow us. So in about 60-65% of the markets we sell to the state government who are the first point of sale and they control the price at which they buy from us. Having said that they keep increasing their duties so the consumer pays more but that is not the case for us.
So going back to your specific query this is a classical trade off and it has never one against the other, it is a combination of many factors. We believe that the industry will show modest growth going into 2016-2017 anything about 5%, if again you recall the first half of the last fiscal 2015-2016 the industry was flat actually there was a marginal decline, however, for the full year there has been a modest growth of 3% to 4% and we believe that it will this growth will sustain going into 2016-2017 and we would continue to grow ahead of the market.
Our pricing will depend on, it also depends on a state mix so we are quite confident that we will be able to maintain the balance that we have had over the last several years as you know we are perhaps the only beer company in India which makes the profits all the others make a loss. So we have a healthy mix of states, we have strong brands, we have good pricing and if the volumes grow as we believe they will this year, we will have a healthy combination between volume growth and profit growth.
ET Now: Has prohibition in Bihar or law change in Kerala affected you and are you worried about the fact that more and more state governments now are echoing the fact that there should be complete prohibition that seems to be on the manifesto even of AIDMK?
Shekhar Ramamurthy: Yes, this is indeed a worrying factor. However, I would like to say that all of us who have been in this country for many years that prohibition has never worked. You might recall that two decades ago the then undivided state of Andhra Pradesh had imposed prohibition, however, within two years they had to revoke it. Similarly the state of Haryana had imposed prohibition and within a year they had to reverse the decision and the main reason for that is all the revenues from excise on sale of beer and spirits accrues to the state, the centre does not get any share of that.
By virtue of that a large percentage or proportion of states' revenues comes from the beers and spirits. However, having said that I would like to also state that as the beer industry we are sympathetic and we understand the compulsions that wherein the state governments want to protect the weaker sections of society from abuse of alcohol and herein we believe lies the opportunity for beer we are a low alcohol beverage. In India the per capita consumption of beer is less than 2 per litre whereas the global average is around 30. In fact even a country like Vietnam has a per capita consumption of 40 and therein lies the opportunity wherein states can balance in a responsible way.
ET Now: For FY17, would you within the beer market gather more market share and will that lead to a 15% kind of revenue growth YoY that people are pencilling in right now?
Shekhar Ramamurthy: We do not put out forward looking numbers so I would not like to comment on that. However, it has always been our objective to grow ahead of the market and we will definitely, we are very confident that we will do that which will result in adding share and if we look at our performance over the last five-six years we have consistently delivered revenue growth ahead of volume growth.
Notwithstanding the pressures that may be there in the industry, we recognise that there are headwinds of prohibition. We also believe that whilst there is a big impact in some states we also recognise and believe that most of the state governments will take more pragmatic, more responsible approach to it and the beer industry and I am speaking here as a beer industry welcomes the opportunity to enter into a dialogue with various states and work on progressive excise policies.
16 May. 2016