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 in Russia 2012
Year 2012 saw on-going slow reduction of beer market. However, producers significantly increased their revenues by higher selling prices. By the year end one can expect further beer market reduction by about 5% resulting from prohibition to sell beer in kiosks. Advertisement ban can drive market share growth of regional producers at the expense of large federal companies. At the same time the introduction of the limitations will promote price competition and fiercer “shelf fights” in network retail.
Market in the first half-year
Second half-year forecast
Consequences of prohibition to sell beer in kiosks
Consequences of prohibition to advertise beer
According to current data of Rosstat in the first half-year 2012 beer production was cut by 2.5% to 49.2 mln hl. Thus, a slow decrease in beer production, which began as far back as in 2009, persists.
However we should take into account that at the end of each year on the threshold of excise tax rate increase beer producers build a significant beer stock with their distributors.
According to our rough estimation, at the end of 2011 … mln hl of beer was produced, which might be regarded as surplus beer meant to be sold next year. Considering the increase in excise tax rate by 2 roubles/litre from January, 1, 2012 in comparison with 1 rouble/litre increase a year before, surplus beer volume in 2011/2012 was significantly greater than the volume in 2010/2011. Correspondingly, at the beginning of 2012 there was an abrupt decrease in manufacturing as regards last year's supplies which can be fully explained by the intention to reduce excise payments.
If we adjust beer production to stocking value, which has significantly increased, then we will find that the production remains at about the first half-year 2011 level – a real reduction has not taken place.
According to Federal Customs Service (FCS), Russian beer export in the first half of 2012 increased by ...% to ... mln hl. Belarus, the largest Russian beer consumer, was the main contributor to the increase in foreign supplies. A significant export growth was also seen regarding Ukraine, Kazakhstan*, Uzbekistan and at the same time there was a decrease in supplies to Moldova. Price competition and, in prospect, its reinforcement on domestic market will, in the nearest future, encourage export activity of Russian manufacturers.
* In article №1-2012 we gave understated export estimation as we did not expect supply to Kazakhstan to be so large.
According to our estimation, based on FCS data, beer import grew by ...% to ... mln hl in the first half of 2012. Ukrainian beer supply increased by ...% to ... mln hl, which might be considered a significant growth against the background of neutral dynamics in 2011. The situation with Belarus supplies was completely different. According to our calculated estimation*, in the first half of 2012 beer import from Belarus practically did not change, having comprised ... mln hl, while in 2011 the total supplies significantly increased. Far abroad countries, predominantly EU, increased import by ...%, which is ... less than the dynamics of 2011/2010.
* Under our estimation concerning beer import from Belarus we did not use FCS data which we consider to be false, instead we used current trends and combined data, including those of Belgospishcheprom enterprise.
Thus, basing on official and calculated data we can define total trade balance, which reduced by ...% and comprised about ... mln hl of beer. Our calculated dynamics are lower than the estimation provided by the research company Nielsen, which evidences of ...% beer market growth, according to brewers’ reports.
By June retail prices for beer produced in Russia have grown by ...% to ... roubles/litre according to Rosstat. And the biggest constituent of the price growth was the excise tax, which increased by 20% to 12 roubles/litre from January 1, 2012. To smooth over this effect, brewers increased average selling price gradually*, in November 2011 and in March 2012 after this event.
* Not taking into account VAT and excise tax.
Considering the fact that in June average income per capita grew by ...% to ... roubles, beer affordability index (share of one beer litre value in average income) rose insignificantly, by ... points to ...%. That is, if we refer to beer as a product category, then its affordability displayed an insignificant reduction.
At the same time, beer retail price dynamics outran general price growth rate for food products almost threefold (...%), which might have had a negative effect on its sales.
In money terms, basing upon our estimation of trade balance and Rosstat data concerning the dynamics of domestic and import beer retail price*, beer market increased by ...% to ... bln roubles in the first half of 2012.
* At this point one should keep in mind that market volume in monetary terms is an imputed figure, as about 8% of beer is sold in HoReCa establishments, where trade markup can vary but as a rule is much higher.
Given the rouble rate in the first half-year 2012, as compared to the same period of 2011, significantly reduced, calculated in dollars beer market practically did not change, having amounted to $... bln.
Producers’ price growth by June 2012 comprised ...% to ... roubles per beer litre. Basing on these data and the amount of produced beer, it is possible to give rough estimation of revenue which Russian producers could receive for their main activity. In the first half of 2012 it grew by ...% to ... bln roubles (not taking into account VAT and excise tax). Calculated in dollars, the growth was small, about ...% to $... bln.
Here we will also cite official data, which state that beer producers’ revenue grew by ...% to ... bln roubles. beer production cost price remained at the last year’s level, having comprised ... bln roubles.
Several factors are going to influence beer market development in the second half of 2012, such as: economy, weather and government control.
Economic situation in Russia are favorable to beer sales. Consumer confidence index has been slowly growing since the first quarter of 2011, according to Rosstat inquiry. A gradual increase in real available income per capita by …% as compared to July 2011 contributes to confidence reinforcement. However, the increase in income in the first quarter of 2012 could take place not at the expense of inherent economic processes but rather due to state expenses connected with presidential election.
Moderate increase in beer retail price should be expected in the second half of 2012, as excise tax rate growth has already exhausted its influence on producers’ revenue. Despite the predictable small growth of brewer's barley cost, according to market players, it is not going to exert any significant effect on the selling price. For instance, the president of Carlsberg Group, when meeting investors, announced an increase in price for the products of the company by 1% in August (before that the company had increased price in …, … and …). Thus, pricing policy of producers against the background of growing competition will probably have a small effect on beer affordability.
Weather conditions in summer 2012 were favorable to beer sales. According to meteorology center, May and June were extremely hot: average monthly air temperature during these months on Russian territory reached an absolutely maximum point for the years of regular meteorological watch carried out in the country. July though did not break the record of two years standing, but its average monthly temperature did exceed the norm. Only in the middle of August the positive climate influence on beer sales became neutral, as frequent weather changes set in.
As described below, prohibition to sell beer in non-stationary sales outlets will have a negative effect on the market. But, considering the above mentioned positive factors, it is possible to expect a decline in Russian beer market by about …% by the end of 2012.
Prohibition came into force in July 1, 2012 but for the time being the transitional provision is still in force, which stipulates that till the end of the year beer lower than 5% of strength can be sold in kiosks which are not situated in crowded areas or at many places, specified by the law. But from January 1, 2013 these outlets will also stop selling beer. The majority of street kiosks will not be able to receive a license for alcohol sale, as to achieve this, the square sales and storage rooms should comprise at least 50 m2. Besides, it is necessary to keep in mind the tight control of license issuing by the Federal Service for Alcohol Market Regulation and the cost of the license itself.
Small shops, including minimarkets, can become an alternative to kiosks. The role of specialized beer retail trade is going to rise as the majority of shops which sell beer on tap, belong to stationery sales outlets. In addition, some kiosks can be transformed into small street HoReCa establishment. It is also possible to expect an increase in the number of HoReCa establishments, per se, including the chain ones.
And indeed, to what extent can the negative result affect beer sale?
The president of Carlsberg Group when meeting investors to discuss the half-year results reported that kiosks share comprised about …% in the total volume of beer sales.
Efes cites Nielsen estimation in its reports, according to which kiosks made …% of sales in 2011.
We will also cite “Business Analytica” data for 2008, even though it does not reflect the current situation to the full extent, but it provides insight into the meaning of non-stationary sales outlets, as a beer sale channel.
As it is evident, the kiosk share in the total sales volume exceeds Nielsen estimation only to a small extent. It is also necessary to take into consideration that due to the activities of state authorities, the amount of non-stationary facilities which sell beer has been reducing over the recent years and their share has correspondingly become smaller.
Kiosks are considered to be places of impulse buy. Beer purchase in kiosk is often associated with street style of consumption. Furthermore, kiosks availability to some degree makes up for the lack of inexpensive HoReCa establishments. In the first place, it concerns Russian regions, as, for instance, a purposeful campaign against kiosks in Moscow has significantly reduced their share in total beer sales.
In the previous issue we analyzed social aspects of beer consumption in Russia. There we used the statistics of “Russian monitoring of economic status and population health” (RLMS-HSE). According to monitoring data, beer in kiosks is more frequently purchased by … consumers. The most active consumer group is people … years who drink about … of the total beer volume sold in Russia. At the same time, proximity of sales outlet to the place of beer consumption is of relatively minor importance for … .
People who … drink beer also prefer to buy beer in kiosks. Just on the contrary, sales outlet proximity to the place of beer consumption is important for them. However, the share of consumers, who …, is insignificant in the total sales volume.
Thus, prohibition to sell beer in kiosks will have the greatest effect on beer consumption in places with … among the category of … and people who …. However, the volume of beer consumed by these groups is … . That is why it is possible to expect that that …-…% of beer, which is sold in kiosks will be to a large extent redistributed to other sale channels. Negative effect exerted directly by the prohibition can be evaluated at …-…%.
Pressure of regional producers and beer market reduction have significantly intensified the competition between federal brewers. Advertising, one of the main tools for beer sales support, is now almost totally prohibited, which makes situation even worse.
The budget for promotion (it comprises … bln roubles or $... mln a year) will considerably decrease. Partially it will be drawn as sponsoring support of various events but for the most part, it will probably be spent on advertising in retail networks and enlargement of shelf space. Besides, the cost of retail service will most likely grow (retailer representatives have already suggested that), so will the cost of a shelf place in supermarkets.
Perhaps, it is possible to expect rather creative ideas concerning the package of beer brands or even launching of new beer brands which would have to be sold without any active advertising support: new original tastes, geographic binding, limited editions, devoted to some events, short shelf life beer or beer in afterfermentation containers and so on. That is, they will draw beer consumers by all available methods on the points of sale.
And of course they will use such competition tool as price, which might result in a decline in profitability, first of all for large producers with large product line. In the first place there will be an increase in the number of economy and “bonus” package and also different combined propositions. However, now it will be difficult to explain to a consumer of mass beer sorts, why one “eurolager” sort is noticeably more expensive than another one. It can result in a reduction in the range and cost price growth, as different beer sorts will have to be clearly differentiated according to their taste characteristics. Otherwise, price segmentation will gradually become indistinct, brand value will reduce, as added value, which they generate will reduce too.
The prohibition to advertise beer will, of course, promote the sales of independent regional producers who could not spend large sums of money on their product promotion. But those regional brewers who sell a significant part of their products in retail networks can experience negative influence of the prohibition to advertise beer due to the discussed above reasons. Competition can also become strengthen in HoReCa segment.
On the other hand, as mentioned above, it is expected that sales in specialized beer retail trade will increase, as local beer sorts of small producers are mainly sold there.
This year Carlsberg Group has managed to stabilize its sales and market share after their lingering decrease. The obvious negative dynamics of 2011 was conditioned by regional producers’ activity. But in 2012 the company has succeeded in pressing other large federal players and taking away their market share.
According to the report for the first half of 2012, Carlsberg Group sales on beer market have increased by …%. At the same time, shippings to distributors reduced by …% due to carryover storage formation at distributors at the end of 2011. According to our approximate estimation, general setback in production of the company comprised …%.
Baltika revenue declined by …% to … bln roubles* or by …% to $... bln due to rouble weakening. Net income of … bln roubles, which the company received in the first half of 2011, gave place to net loss of … bln roubles due to an increase in “commercial” and especially in “other” expenses. The increase in this item might be associated with the purchase of Holsten by SABMiller company**.
* According to “Baltika” report on Russia Accounting Standards.
** According to Russia Accounting Standards the item “Other” includes “expenses, associated with granting rights, originating from patents for an invention, industrial patterns and other types of intellectual property on the fee paid basis”.
Recently there has been observed a decrease in individual brand share of the company on the market and, correspondingly, in the profile. According to Nielsen estimation, total “Baltika” brand share comprised …% for nine months of 2011 and for the first quarter of 2012 it amounted to …%, with a tendency towards growth renewal, though. The sales of key sort, “Baltika #3”, were probably declining quickly, as expensive subbrands remained relatively stable.
In particular, according to the company data, premium “Baltika #7” has increased its share by … p.p. and keeps its stable position with …% of the market in 2012. “Baltika Razlivnoe” plays even more important role, it grew by … points by the fourth quarter of 2011 as compared to the end of 2010. This sort probably continues to increase its market share slowly, also due to its new varieties, for instance, “Baltika Razlivnoe Pervyi Urozhay”. However, it is evident, that “Baltika Razlivnoe” beer is not closely associated with umbrella brand – its sales hardly reflect brand dynamics.
Thus, the reduction in the market share of the company was essentially associated with competing inexpensive sorts produced by regional producers. In attempts to withstand them, Baltika demonstrates a high level of branding activity: in the first quarter of 2012 it created such brands as “Arsenalnoe Bochkovoye”, “Samara Bochkovoye”, “DV Risovoe”. During the second quarter the company launched “Yarpivo Dva Khmelia”, “Don Domashneye”, “Priazovskoye”, “Zhigulevskoye Voronezhskoye Zhivoye”. As it is evident, the latter two sorts are not associated with the current brands of the company.
According to the company estimation, the new launched brands “Zhatetskiy Gus Domashniy iz Taverny” and “Baltika Cooler” in 2.5 l PET stipulated positive dynamics in the second quarter of 2012. By the way, “Baltika #3” was launched in package of the same capacity at the same time as “Cooler”. Consumers usually associate 2.5 l package with inexpensive beer. Consumers are suggested to buy beer for future consumption, in a supermarket not to look for it afterwards in the nearest kiosk (which by the way has already been prohibited to sell beer).
“Efficient activation” of the company brands in the largest retail networks became yet another reason for the share increase during the second quarter of 2012. It is necessary to note here that sales stimulation at the expense of “renewed bonus system” occupied the first place in the policy of the company. It is highly probable that retail network stimulation became the main trigger of Carlsberg Group share growth against the background of bitter competitive struggle. Such a policy is becoming yet timelier due to redistribution of sales for the benefit of retail network.
In the second quarter of 2012 the company reinforced its positions in superpremium segment, having bought the rights for production and selling Holsten beer in Russia. According to the president of Carlsberg Group, the brand saw its market share reduced to about …%, while it was in SABMiller profile. However, this share can increase due to a well-developed distribution network of Baltika and in prospect, this famous brand can exert a positive effect on the market share of the company.
An alternative area of Carlsberg Group activity is kvass production and beer import. Kvass brand “Khlebniy Kray” is obviously experiencing severe pressure from its competitors. According to our estimation, based on regional statistics data, in the first half of 2012 Baltika reduced kvass production by about …% to … mln hl in addition to that total kvass production in Russia reduced by …%.
According to Baltika report, export programs are developing on a more stable basis. In the first half-year foreign supply volume increased by …% and comprised … bln roubles. It amounts to …% of total revenue of the company. Customs Union opened its boundaries and supplies to Kazakhstan became profitable again. Judging by statistical data on shipping operations provided by Information Agency “Kominfo” Carlsberg management decided to resume its export and load Russian enterprises, first of all, ... branch.
Transfer of SABMiller assets to be managed by Efes became the main event on Russian beer market. Different growth variants at the expense of merging and absorption of each of the companies have been discussed for quite a long time and their joint perspectives were also repeatedly considered by foreign analysts. But until recently Efes management preferred to keep its independence not denying a possibility of merging with a more powerful player in future. It is quite possible that the attitude of management has changed due to a recession on the second key market – in Russia. Despite the efficient marketing policy, the potential of inherent growth proved to be depleted.
The efficiency of new integration will be discussed in four dimensions: position on the market, marketing, Geography, and raw materials sources employment.
Before recently Russian positions of the two companies looked good as compared to those of their competitors. But by the end of 2011 Efes sales fell by …% to … mln hl. Such performance cannot be considered satisfactory as the market in 2011 declined by …-…% according to different estimates.
The dynamics of SABMiller sales in Russia looked quite unusual according to the published data for some time past. The sixth-months report (up to September 30, 2011) states that the company raised its sales to distributors by …%. But as early as in the annual report the company informed about …% decline of sales to distributors for the past 11 months (over the period from March 2011 to February 2012). Obviously, during the cold season, probably in the middle of autumn, not long before the announcement of the integration process, there was a serious decline of wholesale dispatches. However, in spite of wholesale dispatch cutting, according to the annual report, the company reinforced its positions on the beer market and increased sales to ultimate consumers by …% (the financial year of SABMiller started in March 2011).
On the one hand, such multidirectional dynamics can be explained by attempts to load the storehouses completely and to fulfill the mutual obligations between SABMiller and their distributors at the beginning of asset transfer process as soon as possible. On the other hand, the cutting of dispatches to wholesales can be attributed to substantial raise of selling price by the company subdivisions. And the company was ahead of time, as the Rosstat data show that the main product price growth of the company took place in September (Kaluga +…%) and in October (Ulyanovsk +…%), while large competitors gradually raised prices during the year or did it later.
But how did the merge influence the sales?
We would say rather negatively. Efes report for the first half-year performance informs of a minor decline of international sales, namely by …% to … mln hl. And for assessment uniformity the companies’ performance results before the cooperation start were compared too. Having made minor assumption* one can speak of sales decline of Efes and SABMiller alliance during the first half-year by …% to … mln hl.
* According to the joined company data, its share in
Russia in the total sales volume in the international subdivision equaled 71%
during the first six months of 2012. Basing on the fluctuation dynamics in this
share we assumed that during the first six months of 2011 it constituted 73%.
Such performance cannot be called good, as it is lower than the branch average dynamics. Nielsen data (cited in Carlsberg Group report) also show deterioration. While starting from the … of 2011 and till Efes sales season end it was possible to speak of some recovery of the company’s positions, as early as in the … of 2012, when integration was in progress and the new high season began, the company share fell substantially. The same attributes to SABMiller company, which is so far considered as a separate company by Nielsen. Until recently SABMiller was slowly increasing its market share. But in the … of 2012 its marker share began decreasing rapidly, having gone considerably down in the … .
According to Efes own assessment the sales fell because the price rise for its products was bigger than that of the competitors, besides it was necessary to cut warehouse stockings to smooth the way for integration.
Neither Efes nor SABMiller targeted at the leading market positions thus, each of the companies focused on subsegments where the market leaders could not actively compete with them.
Efes brands blurred the formed segmentation and value of competing brands as Efes offerings though being stylish as a rule looked more economical. Such aggressive strategy was rather successful prior to excise rise and beer price increase which made price difference more marked. Besides, in our opinion Efes product range was designed to compete with major companies. At the same time over the past years successful regional producers became much more serious competitors in the economy market segment. The synergy of these facts has probably driven sharp decline of Efes sales in 2011.
One of the reasons for comparative stability of companies’ sales is active advertising support of brands. Unlike its competitors Efes in the first half-year practically did not cut promotional budget thus, according to Aegis Media it went down by …% to … mln roubles which is for example not significantly less than that of “Baltika”.
Over the years past SABMiller has been striving to balance the product range but it polarized as due to severe competition in the medium price segment the share of “…” decreased and the share of inexpensive beer (“Tri Bogatyria” and regional brands) grew.
According to the company’s annual report good distribution into retail sales was made by premium sorts. In particular, due to can version launching the sales of female brand Essa grew. Besides brand Velkopopovicky Kozel continued growing, despite fiercer competition in the segment of “Czech” beer. Local economy brands of SABMiller showed dynamics that exceeded the average for the segment. Though the positions of brand “Zolotaya Bochka” which is supposed to be located at the upper boarder of medium price segment have become worse. To some extent the decline was offset by launch of new brand Zwei Meister, which is positioned at the boarder of economy and medium price segments.
We should note that Efes company seems to stake on Zwei Meister development. Federal service for protection of consumer rights issued permission for this brand production in Ufa, Novosibirsk and Rostov. Besides, it is notable that in presentations for investors “Austrian” brand is mentioned among such key brands of medium price segment as “Staryi Melnik” and “Zolotaya Bochka” which has been included into the portfolio.
The idea of using geographic attributes is becoming more topical due to full advertisement ban, because the consumers need no explanation why for example German or Austrian beer is good. That is why Efes at the threshold of restrictions decided to add new sorts to its portfolio.
By the way, in spring, the company was probably getting ready for launching of a new beer sort with a now popular geographic link. If not for Zwei Meister, there would have appeared (though it is possible they will appear anyway) “Mexican” beer … and “European” … which have been permitted to produce by Federal service for protection of consumer rights. We do not know anything about brands with such names, that is why license was out of question, but … is a well known genre of Mexican music and … is a silver coin, which used to be in circulation in many European countries. Besides, at the end of 2011, Novosibirsk Efes plant got permission for beer “…” production.
At the same time “old” brands constituting the bulk of SABMiller sales can be optimally integrated into Efes portfolio. Its content differs from that of SABMiller which is mainly formed by more expensive beer sorts in each subsegment. That is, SABMiller offerings are more trendy, and Efes ones are more rational. Accordingly, if we speak of license and premium brands, than Efes seems to have benefited from SABMiller resources and according to the report immediately got to the leading positions in the premium market segment.
The geography of operation activity
Regarding the regional alliance development, positive effect can be expected in two directions – in Moscow due to strong SABMiller positions in the capital as well as in the Siberia (possibly in the Ural region), resulting from Efes resources employment.
Thus, joined portfolios of the two companies and developed distribution allowed the alliance to become leaders of the biggest and the most marginated in Russia market. Beer sales in the capital according to Rosstat data can be evaluated at … mln hl and at least at $... billion*. Under our estimation, not less than a quarter of this volume was contributed by Efes and SABMiller.
* Under assumption that beer price in HoReCa equals
the average price levels for beer in Moscow as they are published by Rosstat.
At the same time from the logistics point of view it is not likely to get any significant positive effect from SABMiller production sites using. The geography of its main production location in our opinion cannot be much benefited from. Let us analyze the current situation.
Until now beer production at SABMiller enterprises was reallocated for the benefit of Ulyanovsk plant and the enterprise in Vladivostok, at the expense production shortcuttings in Kaluga. Thus, in 2011 under our estimation the production at Kaluga enterprise was cut by …% approximately to … mln hl. However Ulyanovsk enterprise output … as much production having reached … mln hl. This resulted from Ulyanovsk SABMiller subdivision having increased its significance in production structure and logistics not only as regional site but also for development of Eastern sales direction.
Thus, according to our assessment based on railway transportation (information agency “Kominfo”), over the first half-year 2012, shipping of Ulyanovsk enterprise production to the Siberia direction almost doubled reaching … tons of beer which is … more than the shipping of Kaluga enterprise. In the Ural direction about … tons were delivered from Ulyanovsk and only … from Kaluga.
During the first six months of 2012, under our assessment, the production decline in Kaluga …, and the output in other subdivisions … . This process can be to some extent explained by share growth of inexpensive local brands in the company sales structure.
But presently the role of the enterprise in Ulyanovsk which used to be staked on in SABMiller development should be evaluated in terms of operational activity of the alliance. And then it turns out that the net capacity of the company in the Volga region became inadequately big. It reached … mln hl, while the whole Volga region in 2011 drank about … mln hl of beer according to Rosstat data.
In particular, there is a large but only by …% loaded Kazan Efes enterprise having a capacity of … mln hl and a brewery in Ufa with a capacity of … mln hl of beer per year. According to our assessment based on Rosstat data Ulyanovsk subdivision of SABMiller allows to produce up to … mln hl of beer per year, but its capacity was only used by …% in 2011.
Besides, production and promotion of key SABMiller brands in the Siberia and probably Ural region are likely to be taken up by Efes. It is not rational to use only Ulyanovsk brewery for shipping to the East.
Here we should note that beer volumes that SABMiller supplied to the Siberia market were very small even if we assume the shipping was made not only by rail. Thus, SABMiller had much weaker positions than even many local market players.
The Siberia consumer is less willing to pay premium for license and image of the product rationalism plays the major role here. So, cheap and mainstream beer sorts of SABMiller could not compete in price here and premium brands as they are could not form the basis of strong market positions. Thus, today growth of market share can be comparatively easily secured by lower price and using production and distribution base of Efes, in particular Novosibirsk subdivision of the company. Apparently, much expectation is set on brands Velkopopovicky Kozel, «Zolotaya Bochka» and Zwei Meister – at least they are the brands the plant in Novosibirsk is allowed to produce by Russian service of consumer rights.
Raw material base
By 2009, company managed to supply enough malt for itself which was very important in view of big production volumes of economy beer sorts and became particularly important due to the growth of raw material prices. Significant investments in modernization of the company’s four malthouses allowed to increase their net capacity to … thousand tons per year. In view of production cutbacks these capacities were likely to fully satisfy Efes needs in 2011.
SABMiller unlike Efes and other big market players was the only brewing company without a raw material base of their own. Diversified company Cargill was SABMiller’s partner and the main supplier of malt for Russian subdivisions. Cargill malthouse in Tula was capable to fully satisfy SABMiller’s needs which under our estimation totaled less than … thousand tons per year. Not large volumes of malt were also sold from other Russian producers and abroad.
Efes malthouses are optimally located for raw material delivery to all enterprises of the alliance. Obviously the three Kazan malthouses could supply enough raw materials to its own enterprise as well as breweries in Ulyanovsk, Ufa and Novosibirsk. Though Moscow malthouse “Solodovnya Mutena” is able to only partially meet needs of breweries in Moscow and Kaluga.
AB InBev performance on Russian market can no way be called satisfactory. The first wave down was during the crisis, and then there was a period of some stabilization. In 2011 AB InBev market share was fluctuating and sales fell by …%.
Premium brand “Sibirskaya Korona” yielded its positions. The company addressed competitive pressure in mainstream segment by active promotion of “Klinskoye” brand. Not so much competitors but regional producers laid claim on the share of economy brands which weigh much in AB InBev portfolio. As a result, starting from the third quarter of 2011 the company market share began shrinking rapidly and stabilized only in the second quarter of 2012. Over the first six months of 2012 the sales declined by …%.
AB InBev reported that the market share slump took place due to selective price rise at the beginning of the year and various initiatives connected to taxation (probably distributors’ stocking up at the end of 2011is meant) as well as promotional campaigns for production in key realization channels carried out by competitors.
At the same time it is reported about market share growth in premium segment. Besides there is a rapid sales increase of the recently launched beer Bud - over the second quarter its growth reached nearly …% and brand Stella Artois grew by …%. By the way, the statistics of railway transport (information agency “Kominfo”) also indirectly reflects growth of marginal beer sorts. In the first six months of 2012 … subdivision saw …% rise of shipping to the ….
The … itself witnesses a rapid setback in production. The largest subdivision of the company situated in …cut its beer output by …% to … mln hl. This year the production cutback has been even greater – by the year end its output can equal about … mln hl.
In 2011 AB InBev had obviously good performance in the … region. At least the regional statistics reflects positive production dynamics of the company’s subdivision in the …, and probably in the …. Though … subdivision has reduced beer output significantly, the brewery in Perm worked stable against the background of general beer production decline. However, in 2012 even the … region saw distinctly negative general trend.
We cannot precisely evaluate the performance of the company’s subdivision in Klin (Moscow region) but taking into the account high activity of “Moscow brewing company” (“Mospivo”) one can assume harder pressure on the capital market.
The general decline of the company totaled about …% according to our rough evaluation. In view of this not very inspiring performance AB InBev made a decision to suspend operational activity of the brewery in Kursk.
This subdivision perceptibly reduced beer and malt production in 2011, though by the season of 2012, production volumes grew probably for stocking up. Kursk enterprise supplies production to the markets which were not major beer outlets, so its functions can be taken by Klin subdivisions and other not fully loaded enterprises.
Company Heineken continues making up for what was lost in the past years. The company market share has been growing steadily since the fourth quarter of 2010 and has increased by … p.p. The sales during the first half-year 2012, under our estimation grew nearly by …% and equaled about … mln hl of beer.
According to our estimation, the revenue of the company (without considering VAT and excise) during the first six months of 2012 grew by …% and reached nearly … billion roubles. Due to rouble weakening the growth in dollars looked not so great and totaled …% nearly to $... mln. The cost value of the production grew by far less fast by nearly …% to about … billion rules (or by …% nearly to $... mln.)
The company reports: “In Russia the sales remained level with the previous year. The volume (of sales – author’s note) in Russia showed two-digit growth, which drove further increase of market share. The volume growth was primarily fueled by success of brands “Tri Medvedia”, Heineken and Amstel. The revenue growth was generally in line with the volume growth, and the price growth was offset by separate negative sales figures”.
The positive sales dynamics of the company’s margin brands is indirectly confirmed by railway statistics data given by information agency “Kominfo”. Under our estimate, shipping from … to the … and the …region increased more than …. The general shipping volume of the company went …% up.
Heineken was rather active in developing their regional brands, which obviously contributed much into the positive sale dynamics. And striving to support the sales of federal brands, the company focused on the special beer sorts output.
Economy brand “Tri Medvedia” which was marked by growth, following the latest Geography tendency, got “Czech” sort Tri medvedi z pivnice with Zateс hop, openly appealing to Carlsberg Group innovations. Considering beer advertisement ban the company’s idea of depicting Andrey Arshavin, captain of Russian football team on the label of “Tri Medvedia” seems interesting too.
The company in promoting its brands stood out against the competitor having actively employed outdoor advertisement practically without placing it on TV space. Thus, according to Aegis Media data, the advertisement expenses in the first half-year went much down and reached only … mln roubles (less than $... mln), which is … against the background of competitors’ expenses.
Judging by the data of regional statistics, there was a further growth at all key enterprise of the company, namely in …, …, …, besides, … enterprise production began growing. Thus, the company’s positions are probably improving … . Though the general dynamics is not as high as in the first half-year 2011 when there was high growth rate.
Since 2007 there has been rapid market share growth of producers that are traditionally referred to as “others”. Import beer as well as two federal scale players and a lot of regional enterprises usually belong to this category.
According to Nielsen estimation, published in Carlsberg Group reports, the share of “others” in 2011 totaled …% and in the second quarter 2012 – …%. Though in our opinion it is not quite correct to rank such noticeable producers as “Ochakovo” and “Moscow brewing company” among “others”.
According to our estimations the common market share of import and “other” producers in 2011 equaled …% and in the first half of 2012 it reached …%. At the same time, the import beer share has grown not much – to …% and the share of not large regional producers has, accordingly, increased from … to …%.
According to the data of the regional statistics company “Ochakovo”, after protracted decline, has managed to stabilize the beer production and even achieved some positive dynamics in 2012. Most likely by the year end the company’s market share will be a little more than …% and the beer output will equal more than … mln hl. For some past “Ochakovo” has been staking on the development of economy sort “Yachmenniy Kolos” which like “Zhigulyovskoye” brand cannot belong to any company but has deep historical roots.
Not large but the most prospective Russian beer market player is surely “Moscow brewing company” (“Mospivo”). It appeared as a strategic project of American businessmen of Russian origin – Eugene Kashper and Alexander Livshits.
In 2011 the sale volume of “Mospivo” was growing very fast and according to our rough estimations reached about … mln hl of beer. This figure includes the realization of import brands, which constitute a large part of company’s portfolio. In the first half of 2012 the growth rates slowed a little but are still high. According to Carlsberg Group estimation which was obviously based on Nielsen data, the market share of “Mospivo” has reached … %. It is known that in 2010 it totaled …% and in 2011 – …%. This, by the way means that the enterprise is approaching its declared production potential – … mln hl.
Special attention should be paid to enterprise group of the Siberian region, which not only compete with the federal companies but also quite rapidly take up their share on the local markets.
In particular, in the west Siberia the production of “Tomsk beer”, the largest producer of the regional scale is growing, though today the company even has federal ambitions.
In 2011 the production volumes of “Tomsk beer” increased by …%, having reached … mln hl of beer, and the regional statistics reflects …% growth in the first six months of 2012. The company revenue in 2011 reached … bln roubles and the first six months of this year saw …% growth. In the future “Tomsk beer” intends its positions in the segment of draft beer and “take-away” beer, where the main competitors are other regional producers.
The Altai region can be rightfully called a region of alternative brewing. A lot of medium-size and small breweries represented not on the local market but in other Siberia regions are located there.
The largest Altai producer outputting nearly a half of regional production volume is “Barnaul brewery”. In 2011 this plant produced … mln hl of beer, which is …% higher than in 2010. The revenue in 2011 comprised … bln roubles. Half of the beer is packed in kegs and nearly half of the production is realized outside the Altai region. The company plans in 2012 to increase beer production by …% by means of production modernization and regional expansion. Judging by the regional statistics the planned figures will not only be achieved but also much exceeded.
In the South Siberia company “Ayan” (city Abakan, the Hakasia Respublic) performs well. The bulk production is realized on the small local market on Krasnoyarsk Territory. The perspectives of “Ayan” development are also connected into the markets of Kemerovo, Novosibirsk, and Tomsk regions. In 2011 the enterprise’s beer production grew by …% to … mln hl. The regional statistics of the first half-year evidences of the steady positive dynamics at the level of …%. The company’s revenue in 2011 reached … bln roubles and during the first six months under our estimates it grew by …%.
Not only in the Siberia, but also in other Russia regions most of local enterprise had positive performance both in 2011 and in the half-year on 2012.
“Russian brewing company “Hmeleff” located in Ryazan is one of the major medium-sized brewing enterprises. Thanks to vicinity of Moscow market, the company has possibility to supply it both with packed and draft “live” beer. In 2011, under our estimations “Hmeleff” produced about … mln hl of beer having grown by about …%. During the first half-year, the growth rates doubled. The company’s revenue of 2011 equaled … bln hrn. By the year end, substantially better financial performance can be expected.
Cheboksary company “Buket Chuvashii” is the largest independent producer of the Volga region. According to the company report its investment program of 2011 became the largest in the company’s history - the investment volume comprised more than … mln roubles (about $... mln). “Buket Chuvashii” has substantially increased its production capacity. The company plans to raise beer production from … to … hl in 2012 and continue production modernization. Most likely, the production plan will be exceeded. The company revenue in 2011 comprised … bln roubles having grown by …% and in the first half-year of 2012 according to our estimation based on regional statistics, it has grown by …%.
Finally, it is necessary to mention rapidly growing share of industry minibreweries. In particular, Rosstat outlines a group of brewing companies belonging to small businesses with staff up to 15 people. During the first six months of 2012, their net output volume grew by …% to … mln hl. Though the output volumes of more than half of small beer producers are not accounted in the official statistics.
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The article materials were prepared using Rosstat data and railroad transportation statistics provided Informational Agency “Kominfo” (www.kominfo.ru).
The data on companies’ production and sales, financial and economic indicators of enterprises of RF after 2010 as well as their interpretation are our assessment based on the regional indicators and the current trends in case the source has not been named.
We do not guarantee that the given information is absolutely correct, though it is based on data obtained from reliable sources. The article content should not be fully relied on to the prejudice on your own analysis.