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.
InBev-Miller Deal Signals Tougher Merger Scrutiny In China
For the first time, the Ministry of Commerce (MOFCOM) distinguished between mass-market and premium brands, and defined the geographic market to be anything smaller than China itself when conditionally approving a merger.
“If a merger or an acquisition triggers the threshold of merger filing in China, the parties should pay particular attention to the definition of relevant market, e.g. whether the proposed relevant product market should be sub-segmented as high-end and mass-market; and whether the relevant geographic market is regional taking into account the distribution area and the transportation cost of the relevant product,” Kate Peng, a partner and antitrust specialist at King & Wood Mallesons in Beijing, told Bloomberg BNA in an e-mail.
Refined Market Analysis
MOFCOM defined the relevant product market as beer, but segmented the market into “mass brands” and “mid-to-high-end” brands based on price, defining the line between them as 75 cents (RMB 5 yuan) per 500 milliliters, according to an Aug. 8 Jones Day client alert.
MOFCOM also determined that competition among breweries usually takes place at a provincial level within China, the first time one of its published merger decisions defined the market narrower than the national level, the Jones Day client alert said.
In a phone interview, Zhang Yizhe, a partner with Jones Day in Beijing said the decision was likely to set a precedent, particularly for consumer items.
“It could happen to other products, as well,” Zhang said. “It makes sense from a certain perspective because under the antitrust law, products need to be considered as substitutable by consumers to be included in a single relevant market.”
An example might be mobile phones, Zhang said, with some consumers tending to purchase high-end ones and unwilling to consider low-end as a substitute. “The question is how large that group of consumer is,” she said. “If a sufficiently large number of consumers see high-end and low-end products as substitutes, they arguably should be included into a single relevant market.”
Province Markets Tapped
In its written decision, MOFCOM cited the ease of transportation as a consideration in setting the geographical market.
“As both AB InBev and SABMiller are active in the production and sales of beer in China, MOFCOM focused its assessment on the 24 provinces where the parties have horizontal overlaps,” it said in its July 29 decision. “Meanwhile, with the further improvement of the infrastructure, the transportation has become more convenient and the geographic scope where beer is sold tends to be expanded. This is especially true for premium/super-premium beer.”
The decision took note of China's highly concentrated beer market, where the top five brands consume 80 percent of the market, Jones Day said. Snow Breweries and AB InBev are the biggest and third-biggest players and have a combined share of 41 percent in mass brands and 52 percent in premium brands.
As a condition of the merger, InBev had to divest SBA Miller's 49 percent stake in Snow Breweries, which was done even before the formal merger filing.
“The combined entity would have substantial market shares in both product segments in many individual Chinese provinces, in some with combined market shares of more than 70 percent,” Jones Day noted.
Going forward, foreign brands may be implicated in reviews that look at more segmentation, Jones Day said.
“For most products, foreign companies tend to offer higher quality and better service at higher prices, while most domestic Chinese competitors offer commodity or generic products and have to compete on price,” the firm said. “The beer decision thus may lead to narrower ‘high-end’ market definitions in which foreign suppliers are attributed higher market shares than in the overall product category.”
Companies, of course, do their own analysis and sometimes segment the market and take proactive steps before filings to improve their chances of regulatory approval for mergers, said Michael Gu, a merger and antitrust specialist and partner at Beijing's AnJie law firm.
MOFCOM has considered market segments in the past, he said — just not in cases where mergers were approved with conditions.
For that reason, “We would think it is quite normal and reasonable for MOFCOM to subdivide the relevant market in SABMiller/AB InBev case,” he told Bloomberg BNA in an Aug. 16 e-mail.
China has been on an overseas buying spree in the past couple of years, as its own economy slows from the breakneck growth of just a few years ago. Some analysts said the MOFCOM decision could affect outbound investment.
“As the decision on Anheuser-Busch In-Bev/SABMiller was published, it will serve as a reference for MOFCOM's merger review in the future,” Peng told Bloomberg BNA. “Moreover, the overseas antitrust authorities will also take it as a reference to some extent, when reviewing Chinese firms' merger or acquisition of companies overseas.”
18 Aug. 2016