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.
Beijing Yanjing Brewery Co., Ltd. (further Yanjing Beer) was founded in 1980 and is the only big brewing company, which never had connections with transnational groups.
Beijing Yanjing Beer Group Corporation (Yanjing Group) is the majority shareholder of the brewing company, its stake totaling 57.39%. On its turn, Yanjing Group is controlled by state-owned Beijing Enterprises Holdings (Beijing Holdings).
Beijing Holdings shares have been since 1997 traded at Hong Kong stock exchange, where a company gets an access to foreign capital. Besides, since 1997, А-shares of Yanjing Brewery have been traded at Shenzhen Stock Exchange.
As far as we know, Yanjing Beer encompasses 41 businesses producing beer in 13 provinces of China with a net capacity of about 80 mln hl.
Production dynamics of Yanjing Beer has been for a long time uneven. As far back as in 2012, before other market leaders, the company posted a substantial output reduction, having grounded it with the economy slowdown and anomalously bad weather. In 2013, on the contrary, the weather was abnormally hot and taking into account the low base effect, Yanjing Beer outran the market in two. But as soon as in 2014-2015, the company’s volumes went into the red, for instance, over 2015, the decline equaled 9.2% to 48.3 mln hl.
In IQ2016, the company’s output was falling not faster than the market, but at the level with it (-4.6%).
Total operating income of Yanjing Beer in 2015 went 7.15% down, to 12.54 billion yuan. Net profit fell 16.1%, to 588 mln. In IQ2016, the dynamics remained negative, though it improved, as the operating income fell by 1.2% and net revenue faced a 11.1% decline.
Upswings and decline of the dynamics can be explained when analyzing Yanjing Beer’s reports by regions and brands.
Regions and brands
Yanjing Beer definitely dominates three China’s regions where it controls more than half of the market. In the north the company is especially strong in Beijing and Inner Mongolia, while in the south its positions are the strongest in Guangxi. In turn, these regions are the locations of major Yanjing Beer’s capacities and they account for nearly 2/3 of beer output.
Quite logically, competition growth results in the first instance, in Yanjing Beer’s sales decline in the regions, where the company share is the highest and markets are the most attractive.
According to the company report, in 2014, its revenue went down substantially in the north and south of China. The negative dynamics was partially compensated by growth in Central China. There good performance was achieved in Hunan province, where the company managed to move to the fore. Yet the three national producers who are also present in the region as well as beer consumption shrinking hindered Yanjing Beer from consolidating the positive dynamics.
In 2015, according to the report all five regions experienced a revenue decline totaling from 7 to 9%.
The company’s brands core is traditionally described by formula 1+3, that is, main brand Yanjing + 3 regional brands Liquan, Huiquan, and Snow Dees. As data on Yanjing are published separately, we can study the brands’ dynamics.
Sales of beer Yanjing, proved to be the most stable, having declined only by 1.9% to 35.5 mln hl.
Yanjing is named after an ancient city located in modern Beijing. The key brand accounts for about 70% of the company’s beer sale. According to Gfk surveys, in 2015, 7% of the Chinese named Yanjing as their favorite brand, which roughly corresponds to the popularity level of beer Harbin. But despite the national status, Yanjing in the first place remains a local leader and dominates Beijing market.
Comparatively good dynamics of Yanjing in 2015 is connected with a variety of sorts, different tastes and positioning. The brand range includes three sorts of “draft beer in bottle” (“Fresh”, “Refreshing”, and “Draft”), sorts Weissbier, Alcoholfree, and others, including a range of special sorts.
In 2015, sales were boosted by Yanjing Fresh Beer the volumes of which grew 5.2% to 13.2 mln hl. The annual sales volume of canned beer achieved 5.35 mln hl, up by 16.25%. At the same time, under our calculations, small regional brands saw a dramatic sales fall by 43% to 3 mln hl.
Thus, one can speak of a positive product mix achieved in 2015, which allowed the revenue to fall slower than sales in liters. According to the report, Yanjing brand intensified its investments in the central and western regional markets and also distinguished its resources allocation. Including from arising internet consumption.
However, the report for the first quarter of 2016 shows that slower decline of beer sales was achieved not so much due to the core “1+3” but due to small brands.
In the South, Yanjing Beer is powerfully supported by Liquan (or liQ), which accounts for nearly 15% of the company’s sales. The range of liQ is represented by a variety of beer sorts with different positioning, including premium beer. In the home region, the brand is leading the market, with a share exceeding 70%, under our estimation.
liQ is produced by subsidiary of Yanjing Brewery (Guilin Liquan) Co, Ltd. in Guangxi province. The subsidiary started operation in 2002, and today it encompasses breweries in Guangxi and neighboring provinces with a net capacity of 16 mln hl. The company’s strategy is based on production modernization and market consolidation in Guangxi as well as active expansion to other provinces Yunnan and Guizhou, where at the moment a manufacturing network is being developed.
Judging by the press publications in 2015, Guilin Liquan subsidiary cut down the output volume to 12.2 mln hl., that is, it manufactured approximately a quarter of Yanjing Beer volume.
Besides, in the country’s south, in province Jiangxi, there is Yanjing Huiquan Beer (Fuzhou). This subsidiary and regional brand Huiquan make a 4% contribution in the sales of Yanjing Beer. Here the company faces a growing pressure from AB InBev, which probably has become the key reason for revenue reduction in the southern region.
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21 Sep. 2016