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.
Beer market performance
Production and sales
Before speaking of the data published in the official reports by National Bureau of Statistics of China (NBSC below), let us pay attention to one peculiarity. Firstly, they can change significantly due to updating. Secondly, the percentage figures of the production or sales dynamics, calculated basing on the published volumes can differ considerably from the published growth/decline rates. By the way, significant discrepancies can be found not only in China but also in the neighboring countries for example Vietnam or India.
The changes may have been caused by delay in getting or processing data from enterprises. Probably, the data first come from the major producers and the performance of the minor ones is accounted in the operational data, and added later.
That is why one can either calculate the data on her own or rely on the official estimations of growth and decline and stay in “the official frame”, despite the obvious discrepancies in figures.
Year 2015. According to the official data by NBSC, in 2015, the beer production fell by 5.1% to 471.57 mln hl.
Besides, NBSC publishes data on beer sales. According to the official data, they decreased by 0.7% to 469.37 mln hl. At the same time, the estimate shows a 5.0% decline, as in 2014 the sales totalled 493.93 mln hl.
Besides, basing on the foreign trade data, we can calculate the trade balance, which would theoretically reflect the size of the domestic market (production+import-export).
In order to make the estimation independent from updating, we calculated the production volumes for 2014 taking into account new data on the 5.1% growth dynamics. Then the result of the trade balance in 2015 will be less by 4.7%. That is, the estimated market decline was a little less than the production decline due to the fast increase of import supplies.
First half of 2016. Last year saw an uninterrupted decline, yet it was the deepest during the first half of 2015. Potentially, it should have led to the low base effect and positive trend in the first half of 2016. However, according to the official data by NBSC, the beer production decrease in China is continuing approximately at the same rates. From January till June 2016, the decline stood at 4.3%, which means the persistence of the negative factors.
If we compare the operational data for 2016 to the volumes of 2015, the estimated production decline will be twice bigger, that is, 8.4%. Such difference can again be explained by the operational data being not final and liable to addition. That is why the production decline calculated by comparing the old updated figures and new operational ones, seems to be underestimated.
The market dynamics, estimated as the trade balance in first half of 2016 is -4.1% that is, reflects the continuation of the fast growth of beer import to China.
Prices and market by value
According to the monitoring data for 36 major cities in China, in May 2016 as compared to May 2015, retail prices for beer in a glass bottle of 650 ml went ...% up to ... yuan per liter. During the same period, the average prices for a beer can of 350 ml fell by ...% to ... yuan for a liter. Whereas the retail price for beer in a glass bottle was growing rather steadily and the price for canned beer remained practically at the same level during most of the year.
However, the market–value-weighted average for beer in 2015 was growing rapidly driven by the premiumization trend (see the next chapter “Market segmentation”). Under our estimate, it increased by ...% to ... yuan for a liter, that is why, continued growing at nearly the same rates.
Because of the yuan devaluation, the beer price increase in dollars amounted to ...% to $... per liter.
The sold beer price increase allowed complete compensating of the natural volumes decline. By value, the beer market in 2015 expanded by ...% and reached ... bln yuan, under our estimate. In dollars, the market increased by ...% to $... bln.
Under our estimate, based on data from produces and research companies, ...% of the Chinese market belongs to the economy segment, that is, sorts averagely costing less than 8 yuan per liter. By value, the share of inexpensive beer amounts to ...%. The economy segment is rapidly shrinking by volume, which is the sole reason for the Chinese beer market decline. Under our estimates, it went ...% down by volume and ...% by value, that is, the decline rates remained at the level of 2014.
Other segments, where average beer price exceeded 8 yuan, showed growth. And there was a direct link between the growth rates and beer price. The middle-priced Chinese brands went on growing at medium rates and licensed international brands enjoyed a rapid growth. Mainly it resulted from sales redistribution of various sorts of the same brands. For instance, “draft” and “fresh” beer in bottle is still taking share from economy “usual” sorts. There was also a fast sales growth of licensed international brands, Budweiser and Tuborg. Import beer shone out particularly, as it has already become a significant market growth driver in monetary terms.
As to the places of beer purchase and consumption, the Chinese market is currently divided in two parts. In the on-trade segments, that is, approximately half of beer by volume is drunk at HoReCa establishments. For instance, according to AB InBev in the first half of 2015, about ...% of the market accrues to restaurants of different scale and class and ...% to “night life”. Accordingly,... of the sales is retail (off-trade).
Among the beer outlet channels, off-trade suffered the most. Thus, in retail the sales fell by ...% compared to 1H2014. In the off-trade the situation was stable. Restaurants registered only a minor decrease amounting to ...%. Night clubs demonstrated an excellent growth of ...% in contrast to other big channels.
By value, the on-trade segment is much bigger than the off-trade due to different traders’ margin. Naturally, the markup depends on the price segment, the format of the establishments selling beer, and the consumption style. It is one thing when beer is bought to wash down a meal at a cheap diner and quite another if it is bought to spend time at a night club. One can specify only the average and approximate difference. Thus, in HoReCa, mass medium-priced and economy brands cost usually ...% more than in retail. Licensed premium beer is twice more expensive than at a shop and the superpremium brands are three times more expensive.
The current fast growth of expensive beer sales is attributable not only to HoReCa. To a big extent it resulted from the modern retail which is striving to compensate the decrease of natural volumes by means of expensive beer. For example, just several years ago, the main sales channel for imported beer in Beijing was the night life market. But now the situation has changed, as import beer brands are easy to find in the retail.
There is also a clear dependence of beer sales in HoReCa on its price. And it has a very easy explanation – amid other people, during public recreation, it is important to emphasis one’s status and drink an expensive branded beer. Import, premium, licensed (and currently craft beer) in many Chinese’s opinion reflects the modern Western consumption style and good taste and allows casting oneself as a successful person.
At the same time, when we speak of the on-trade segment, we mainly mean not the draft but bottled beer. In China draft beer is considered to be fresher and tastier, but its market share is only ...%. And in the total volume of the on-trade sales its share is only about ...-...%.
The relatively low popularity of the draft beer can be explained by its high average price, which sometimes exceeds bottled beer multi-fold. The filling equipment from kegs is not affordable for many small HoReCa establishments that sell inexpensive beer.
Besides, two other major problems are controlling the rotation and shelf life of keg beer (which is much shorter than that of bottled beer) as well as adequate logistics of returnables. Complex and multileveled sales system is a famous peculiarity of the Chinese market.
Thus, prospects of the keg beer sales are so far mostly connected to brewers’ searching for the ways to increase the gross profit.
Though the exact numbers of canned beer sales on the Chinese market are not available, judging by companies’ reports, it has been actively ousting bottled beer from the market. The can share under our estimation exceeds ...% already.
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21 Sep. 2016