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.
China’s breweries expect short-term boost from European football championship
Investors are betting on Chinese breweries to score big, riding on the one-month UEFA European Football Championship, market commentators said.
“No beer, no football” and “Watch football, drink beer” are slogans used in advertisements that have already been seen everywhere in China, which boasts the world’s largest audience for the world biggest game. The one-month event will kick off in France starting Saturday Hong Kong time, with 24 national teams from around Europe competing to reach the final at the Stade de France in Paris.
“Breweries usually see their beer sales increase in the traditional peak season from June to August, not to mention during the European Championship,” Hanna Li Wai-han, a strategist at UOB Kay Hian Hong Kong said. “Speculators will certainly see the great football tournament as a new casino on expectation of a rally in breweries.”
Shares of the major breweries listed in Hong Kong jumped recently, with China Resources and Tingtao Brewery Company both gaining more than 6 per cent over the past fortnight.
“I think speculation on the European Championship is the main driver for their recent rise,” said Li. “And you may see a continuing but small gain for Chinese breweries in the coming month.”
Victor Au, chief operating officer at Delta Asia Securities, agreed, saying that the recent rise in breweries’ shares is heavily based on the “football tournament” speculation.
Au said the decline in raw material costs is also a contributing factor to the improvement of Chinese breweries’ business. Tsingtao increased its earning at 2.47 per cent year on year in the first quarter of 2016, mainly driven by lower raw material costs.
However, the top four players in China’s brewery industry, including CRB, Tsingtao, AB InBev and Yanjing, all reported flat or declining sales volumes in the first quarter of 2016, indicating market demand is still sluggish.
Data from the National Bureau of Statistics shows China’s beer market continued to decline. The full-year output of the industry was 471.6 million hectolitres (hl) in 2015, down 5.1 per cent from the prior year, and a trend that showed negative growth for two consecutive years.
Li from UOB Kay Hian warned the rally may retreat after the football games are finished, with the brewery business expected to move towards polarisation.
“The giants, with the bigger market shares in China’s brewery industry, will further dominate, contributing to product mix upgrades,” Li said. “The small brewers are likely to continue losing their market share due to more intense competition.”
The competition is fierce in China’s brewery sector, she added. Players in the lower-and-middle priced market segment are facing pressure from the giant domestic beer makers, while premium brands compete with foreign breweries, she added.
Sun Mingbo, the chairman of Tsingtao Brewery, said competition in the industry will be fiercer following moves by foreign players to increase their investment in China.
“The rapid development of surrogate products including imported beer [and] ready-to-drink (RTD) will take away some share in the domestic beer market,” said Sun a statement.
Daiwa Capital analyst Anson Chan said shifts in market share are now an important indicator of the upside for long-term operating margins. “Foreign brands are better positioned in the beer segment due to young customers’ preference to consume these types of beers,” Chan said in a report.
With intensive competition and sluggish demand, China’s brewery sector will see more mergers and acquisitions (M&As), he said. “Most domestic beer players have a strong cash balance and are looking for M&A targets. M&A remains the major swing factor for China’s brewery sector.”
However, Chan said he sees no meaningful M&A targets outside of the top five players that could stimulate volume growth because the other breweries have weak brand recognition nationwide.
Au from Delta Asia Securities agreed, saying that most industry majors are looking for M&A targets, but they have not seen many such opportunities in China’s brewery sector so far.
However, Au said he expects that the possible deal between China Resources and fast food giant McDonald’s will boost the business of China Resources Beer.
McDonald’s is targeting private equity firms, including Bain Capital, MBK Partners, TPG Capital Management and Chinese state-backed conglomerate China Resources, for its planned sale of 2,800 restaurants in North Asia, according to Reuter’s report.
China Resources Beer is the Hong Kong listed subsidiary of China Resources. Chen Lang, chairman of China Resources Beer, said in a statement that the company will “explore synergies from mergers and acquisitions”.
13 Jun. 2016