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.
China Resources Beer has bigger M&A fish to fry
"We no longer pay attention to smaller players," Chief Financial Officer Tomakin Lai Po-sing said at an earnings briefing. "What remains are the biggest players," after a series of consolidation moves.
When the company waded into the mainland beer market with its Snow brand in 1994, there were two clear industry leaders -- Tsingtao Brewery and Beijing Yanjing Brewery -- and myriad local breweries scattered across the country. As overall beer demand surged, industry consolidation picked up, elevating Snow to the pinnacle by 2006. But even then, the top five players controlled less than half of the market.
At the end of last year, the top five had a 73.7% market share, with China Resources Beer retaining the top spot, at 24.6%.
Two domestic and two global players round out the quintet: Tsingtao, Yanjing, Anheuser-Busch InBev and Carlsberg. They would surely qualify as "big targets," but large acquisitions naturally come with hefty price tags. Lai expressed confidence about the funding side of things as well.
In July, the company announced a rights issue to raise about 9.5 billion Hong Kong dollars ($1.23 billion). The main objective was to fund the purchase of SAB Miller's 49% stake in a joint venture, to create a wholly owned subsidiary. Lai, however, explained that the move was also in preparation for "potential M&A opportunities."
By limiting its borrowing, the company has kept its total loans outstanding at 4.53 billion yuan ($680 million) as of June. That is roughly on par with its cash and bank deposits, placing it in a virtual net-zero-debt position.
Banks seem keen to extend loans, probably, given the company's healthy M&A appetite and relatively solid financial standing. Lai revealed that prior to the rights issue announcement, "many European and Japanese bankers came to our office every day asking to lend to us." Some offered over HK$1 billion, he added without naming names.
"Of course, PRC (China) is the market that we are very familiar with," Lai continued. But he also stressed a few times that China Resources Beer is "open and prepared for everything," suggesting international acquisitions are not out of the question.
Waiting to pounce
Companies have all sorts of reasons for seeking nonorganic expansion, but slower earnings growth is often a motivator. In the case of China Resources Beer, revenue for the January-June period shrank 2% on the year, to 15.2 billion yuan. Total beer sales volume fell 1.9%, to 6.12 million kiloliters, due to a combination of the economic slowdown, weaker consumer spending and bad weather.
The company managed a 45% increase in net profit attributable to shareholders, on a continuing operations basis. But the amount -- 606 million yuan -- put its net profit margin at only 4%.
Even as it looks to make a splash in the M&A market, China Resources Beer is carefully watching its yuan. Vincent Tse Tan-hon, its investor relations director, said the company "is not spending more [on marketing] than previous 'sports years,'" even though events like the Rio Olympics and the UEFA Euro 2016 soccer tournament are ideal for raising a brand's profile.
The July and August heat may have put beer sales back on a growth trajectory, in the "low-single digits," but Tse made it clear that management is "not spending excessively." It apparently wants to keep the books in order, should the opportunity for a big outlay arise.
The earnings announcement was made during lunchtime. At the end of trading in Hong Kong on Friday, China Resources Beer's stock was slightly up 0.25%, at HK$15.68.
22 Aug. 2016