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Beer market of Russia 2010

Beer market of Russia 2010
The branch economy: dramatic excise change
Raw materials markets
Market segmentation
Beer sorts
Companies' positions 

  AB InBev

The branch economy: dramatic excise change

The brewing industry development and the dynamics of the Russian beer market in 2010 have been considerably different from other regions of Eastern Europe. While the markets of Ukraine, Kazakhstan, and Belarus started going out of the recession, Russia saw one more curve down and Russian brewing companies have reduced their sales both by volume and by value. There was a detention of recession as negative consequences of the economic crisis were aggravated by a sudden fall of beer affordability. This was caused by excise rate growth which has risen by 200% to 9 rubles per 1 liter since January 2010.

Average retail price for beer of Russian producers in 2007- 2009 ruble/liter

On the one hand the character of beer price changes coincided with the food price changes, but on the other hand it was much more dynamic. While during the first half of 2009 the beer prices index was comparatively at the level with the food price growth, starting from August 2009 it has been notably higher. Though at first this dynamics change could be explained by deflation on the food market. But the introduction of the new excise rate led to a high price leap during the period from January till May 2010.

Structure of retail beer price

If we compare the point of the price increase starting (October 2009) and the point of relative stability, we will see that the retail price for a liter of Russian beer has risen by 17% to 54.13 rubles/l or by 7 rubles during this period.
Although we now can see some gradual recovery of Russian economy, the beer price jump at the background of the obviously lesser inflation in the food market was not ignored by Russian consumers. According to the official data during the first half of 2010 the beer sales by volume fell by 6% to 515 mln. dal. By value there was a growth of the market by 9% to 265.8 bln. rubles or by 20% to $8.83 bln. Though this growth did not much exceed the rise of the excise payments.
Dynamics of beer and water (mineral, drinking) productionThe weather in the first quarter of 2010 has also contributed to the beer market shrinkage. The winter of 2009-2010 in the European part of Russia as well as the Ural region, Western and Central Siberia was very cold and snowy. But if we compare the seasonality impact on beer to mineral water which is even more than beer affected by weather changes, in 2010 the priority of the excise growth in the beer market retail will become obvious.
Independent research companies confirm the reduction causes but report even greater market shrinkage. Nikolay Miroshnichenko, expert at Nielson company comments on this situation: “In spite of the hot summer the beer market is now experiencing an obvious decline. The sale volumes during the period of January-July fell by 9.3% compared to the same period in 2009*. Inflation has also contributed to it: the dynamic excise growth raised the average beer price to 55.4 rubles which is by 20% higher than in July 2009”.

* Russian cities with the population of more than 10 000 people, retail outlets, not taking into account catering outlets.

According to the companies’ data the market shrinkage by volume has been more serious than it is presented by the official statistics. Thus Efes report says that the market decreased by 10.7% during the first half-year and by 9.4% during the second quarter and Carlsberg announces that the market lost 9% (and 7% in the second quarter). At the same time the head of Carlsberg Group Jorgen Buhl Rasmussen noted that the conditions improved a little by the end of this period and the consumption dynamics is getting more positive, which together with the warmer weather conditions has led to moderate market shrinkage of about 7% in the second quarter.

The production indices of the brewing companies have been affected by the increase of shipments to the distributors at the end of 2009 at the threshold of excise rate raise. For example if we take the fourth quarter of 2008 as the basis, then the shipment rise* is estimated at 117.8% (or 7.69 bln. rubles), and the beer production increase by volume was estimated at 6% (or 13.8 mln. dal.) though there were no market predispositions for this growth. Even if we account these excess volumes at the beginning of 2010, the indices will still be low due to the beer market falling. Thus, by the operating data of Rosstat, in the first quarter of 2010 the beer production fell by 21.7% (or by 47.3 mln. dal), and by value the shipments to the distributors went down by 28% (or by 11.46 bln. rubles).

* Without VAT and excises

Beer importers did not hesitate to fill their warehouses at the threshold of the excise raise. Nothing to be surprised about as the main part of Russian import is comprised by inexpensive Ukrainian beer (mostly produced by company “Obolon”) whose retail price is much dependent on the excise rate. That is why the import situation seemed much the same as the production situation. Thus, by volume the import shipments in the fourth quarter of 2009 grew by 5% (or by 4.125 thousand tonnes) to 81.482 thousand tonnes but in the first quarter of 2010 decreased by 20% (or 12.953 thousand tonnes) to 51.798 thousand tonnes.
By value about 46% of the total import of 2009 was taken up by Ukrainian beer. In this connection it is important to note the stability of beer shipments from distant foreign countries. Among the leading importers only Mexico decreased the volumes of imports to Russia. Instead we saw an increase of Czech (+6%), German (+1%), Belgian (+20%), Finnish (+12%) and English (+60%) beer.

The export of Russian beer has decreased significantly. For the most part the decrease resulted from falling of exports to Kazakhstan. On the one hand the economic recession led to lower sales of Russian beer positioned in the premium segment. On the other hand, the main importer Russian “Baltika” has integrated its subdivisions focusing on the local production of Russian brands. In our view this decision was caused by the fall of the local production, as well as the need to cut logistic expenses and excise payments in order to make the Russian brands more affordable.

As it was stated, during the first half of 2010 the producers’ prices not only had no growth but even went down compared to 2009. Accordingly the production rate by value was falling faster than by volume – by 16% to 95.4 bln rubles. In dollars the production decrease was not so dramatic and amounted to 7% to $3.12 bln.
In 2009 the revenue* of the brewing companies has grown by 1.7% to 245.21 bln rubles ($7.7 bln), and the cost fell by 5% to 127.86 ($4 bln). The revenue fell by 12% to 108.26 bln rubles over the first half of 2010.

* Without VAT and excises

Besides, one should note that practically all well-known regional producers have shown growth or maintained their revenue volumes, while only Efes among international companies has seen some growth. However the negative effect was compensated with the speed of cost falling which was higher than the revenue falling over the same period – it went down by 15% to 55.831 bln. rubles.

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The data on the revenue in 2009 by the types of brewing companies show an outrunning growth of small producers. According to the classification of Rosstat, a considerable part of regional companies belongs to large enterprises (more 250 employees and revenues more than 1000 mln. rubles) and they cannot be differentiated from companies of federal scale. But there is the following dynamics in the other categories:

  • Medium scale beer producers (101-250 employees and revenue up to 1000 mln. rubles) in 2009 increased the consolidated revenue by 33% to 3.932 bln. rubles which amounts to 1.6% of the general volume (1.2% in 2008) besides their number declined from 28 to 27.
  • Small scale enterprises (16-100 employees and revenues up to 400 mln. rubles) increased the consolidated revenue by 21% to 2.111 bln. rubles which amounts to 0.9% of the general volume (0.7% in 2008) and their number declined from 73 to 67.
  • Finally, micro-enterprises (up to 15 employees and up to 60 mln. rubles revenue) increased the consolidated revenue by 6% to 705 mln. rubles which amounts to 0.29% of the general volume (0.28% in 2008) with that their number rose from 119 to 129.


Due to the tough economic conditions and only partial production capacities utilization in 2009 the investments into the basic capital of the brewing companies declined by 39% to 17.37 bln. rubles or by 49% to $393.65 mln. (though these statistics do not take account of micro-breweries).
This year the companies have continued cutting their logistics expenses. According to the data of IA “Kominfo”, the volumes of beer deliveries during the first half of 2010 went down by …% to … thousand tonnes. The freight turnover of beer saw somewhat less serious decline – by …% to … bln. t/km. Beside the beer sales fall and distributors’ beer stock accumulation in 2009 one can single out one more reason for rail transportation volume. It is the decline of demand for expensive beer sorts of the large companies, which are produced at the key subdivisions and transported to other regions as well as the launching of these brands at the regional enterprises. At the same time there has been a rise of sales of economical beer sorts which are mostly motor-borne.


реклама ЕвропакThe second half of 2010 is expected to be more positive for the beer market. For example Carlsberg Group expects the market to sag by 7-8% by the end of 2010. The improvement is to be caused by stabilization of retail prices, deferred demand and warm weather in the third quarter. At particular, Anton Artemyev, president of “Baltika” noted the positive tendencies during the talks with investors. He spoke about some recovering of the Russian economy and increasing of purchasing power of the population. At early stages people tried to save more than spend, even if their income was growing but now Russians tend to spend more and more which definitely can be called a positive trend. The positive for beer sales effects of hot weather were followed by negative effects of the forest fires and smoke. Finally at the moment when the beer market was undergoing the stage of price increasing, the vodka market faced the introduction of the minimum retail price which prospectively can promote beer sales (especially at the background of the expected indexation).
The mentioned facts produce deferred effect, which will be felt as early as in 2011, if the economy continues to recover and the beer market does not face new methods of regulation. But it is obvious that the final results of beer producers in 2010 will be affected by a relatively high base in 2009, when the distributors and retail networks got excess volumes of the production. Besides, the raw materials price growth will undoubtedly affect the cost and lead to new surge of growth of retail beer price which will increase as early as at the end of 2010 or the beginning of 2011. This process can partially level the growth of affordable beer, which appears when the purchasing power grows.

Raw Materials Markets

The situation in the malt branch has been developing in accordance with the existing trends. According to the statistics the malt output over the six months of 2010 sagged by 24% to 461.31 tonnes* in spite of the lingering downturn since 2008.
In particular, over the first half of the year most of the independent companies supplying their production to the market have cut their production volumes considerably, particularly “Russkiy solod”. By our estimate at three enterprises of this major producer the decline in production went down by …% to … thousand tonnes. The regional malthouses AB InBev have in aggregate cut their output of malt by about …% to … thousand tons. Instead the malt production continued growing at the enterprises of the two brewing companies. Thus by our estimate which is based on the regional statistics, Yaroslavl subdivision of “Baltika” has increased its output by …% to … thousand tonnes and Kazan malthouse Efes has expanded its output by …% to … thousand tonnes.

* Since January 2010 there has not been any production indices of Moscow in Rosstat reports, which is obviously connected to type of ownership change of "Muten's malthouse" controlled by Efes. In order to make the data correspond, the data on Moscow have disappeared from the assessments of production volumes over 2009.

However the demand may recover and the malt production decline can mean growth of the producers’ benefits. At the moment the situation on the raw materials market resembles one in 2007. Then the hot summer boosted the beer consumption but affected the crops. In summer 2010 the prices for malt in the US and Russia have also skyrocketed and will obviously continue growing. But this time the malt producers have large stocks of production, and the brewing companies have increased the capacities of their own malthouses and have decreased the malt use due to use of non-malting materials. Though the situation on the market may be dramatically changed by passing of law which bans or limits non-malt materials for beer production. In this case the demand for malt as well as its price will increase.

The Russian hop market is almost fully formed by import. For example “Baltika” reports say that hop import amounts to 100% of the whole purchase volume. The official statistics register foreign supplies of two categories – processed hop in granules or powder and hop extracts. As to the natural indices, over the 5 months of 2010 the volumes of extract supplies decreased by …% and granulated hop import increased by …% against the same period 2009. But by value the import declined in both cases - extract supplies decreased by …% and solid hop import fell by …%, which is indicative of considerable lowering of granulated hop price. Its estimated customs cost fell by …% from $... to $... for one kilo over the first five months of 2010. By the way, “Baltika” report for the second quarter of 2010 says that the prices for hop used by the company have went down by …% to the 2 year quarter of 2009. However gradual hop price rise is to be expected now.
The prices for glass bottle have been declining since autumn 2009. Brewers are the largest purchasers of glass package, but the recession of brewing industry coincided with production cuts of other glass bottle consumers. Accordingly Rosstat registers price sagging since autumn 2009. “Baltika” also reports that the prices for the bottle being used have decreased by 8.7% over the second quarter of 2010. At the same time, research company Plastinfo notes a slow but steady price growth of the competitive package –PET. Finally, in spite of a considerable reduction of can market share, its cost went up by 6.5% according to “Baltika” report.

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The Market Segmentation

Half year reports of all producers register a negative mix-effect, which affected their financial results. The consumers tend to opt for cheaper beer sort or their usual brands but in a more efficient large package. These changes took place as early as in 2009, that is why the dynamics of the price market segmentation in 2010 has been flatter. The half year report of Carlsberg Group cite data on stabilization of the economy segment (the bottom segment + cheap beer) at the level 50% with a rather small premium segment reduction and mainstream segment growth in the second quarter. In the second half year Carlsberg Group is to see further improvement of the sales structure in favor of more marginal sorts.
Such expectations are also foreseen by experts of FMCG sector. For instance Anastasiya Goncharova, analyst of Euromonitor International says that the “before-crisis” trends have been getting actual again since 2010 in her report “New trends on the market package products”. The growth of the majority of product categories is loosing momentum but remains steady after the fall in 2009. At the same time the demand for products with high value-added, that is primalization is becoming the primary trend again on the food market. That is why we are likely to see product range widening and sale growth of premium brands with high value-added.
The beer sale structure by distribution channels has seen notable changes – half year report of 2010 by Carlsberg Group says there was a steep increase of supermarkets share – from 18 to 22%. This took place at the account of kiosks, and shops selling food products. The trend of retail consolidation has existed for a long time already, but the recession sped it up, as it forced customers to plan the purchases and in a supermarket you can buy larger volumes of beer for less.
The changes of consumers’ preferences by the price segmentation led to changes in segmentation by package types. Nikolay Miroshnichenko, Nielson expert in beer market gave his comments on this trend:
“What makes the Russian beer market different from many other foreign ones is a large share of plastic PET package. This segment holds the key position (a half of all retail beer sales by volume in urban Russia in January-June 2010) and it has been steadily growing for many years: from 47.6% in the first half-year of 2008 to 48.7% in the first half-year in 2009 and to 50.0% in the first half-year of 2010.

* Russian cities with a population of more than 10 000, retail outlets without HoReCa.

One of the drivers of popularity growth is the good price: the retail price of beer in 1 liter PET is by 10-15% lower than the same volume in the standard (0.5 liter) glass package. And if one takes a larger package, 2,5 l, than the price difference between the conventional “plastic liter” and glass liter can reach 25-35%.
PET package has been traditionally associated with a lower price product category – by value its share amounts only 35.8%. However its share is growing in more expensive price segments too”.

Beer sorts

Since January 2010 Rosstat has been publishing data on different beer sorts production. According to the data for the first half of the year the share of non-alcoholic beer as well other beer sorts with not standard flavors in the total volume amounted to …%. Here we should note that we are taking large and medium producers into account. The beer output by micro-breweries and beer restaurants are not included into the official statistics though they as a rule produce unfiltered and special sorts of beer. Indirect data (revenue volumes and average prices) suggest that their share in the beer market exceeded …% but has not reached …% (that is the sales came to … mln. dal). That is why we can assume that the share of the usual lager in Russian beer market account for about …% and about …% is taken up by not standard flavors.
Among the large and medium enterprises Baltika and SABMiller lead in the production of not standard beer sorts. In particular, according to the regional statistics Kaluga enterprise of SABMiller (the key brand is Velkopopovicky Kozel Cerny) ranks the first in the segment of the dark beer with the share of …%. A significant share is also taken up by Baltika and Tomskoye Pivo. The largest Russian producers of unfiltered beer are Baltika (the key brand is “Baltika #8”), AB InBev (Hoegaarden), Heineken (Edelweiss Weissbier) and “Fifth Ocean” on the same brand. The absolute leader in the segment of non-alcoholic beer is Baltika with their sort “Baltika #0”. The main volumes of special beer are produced by Baltika (brand Eve) and SABMiller (Redd’s and Essa). SABMiller is also leading in the semi-dark beer production with brand “Zolotaya Bochka Viderzhannoye”

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Companies positions

In the first half of 2010 the competitive situation on the market saw considerable changes. Efes continued increasing beer sales, company AB InBev finally managed to stop the negative trend, Carlsberg climbed a little down and Heineken continued its dramatic loss of market share.

According to Baltika report on RSFR, the revenue of the company in the first half of 2010 declined by …% to … bln. rubles. With that one can see the growth of the main activity kind i.e. “beer production and sale” in the volume of the net revenue from …% to …%. This means that the revenue decline in this item was not so dramatic – …%.
Carlsberg does not reveal the natural indices of Russian sales but their consolidated report says that the sales went down by …% that is why the decline exceeded the general market recession. By our estimate the market share of the company shrank from … to …%. In particular, according to Baltika report as compared to 2009 there has been a share contraction of the largest markets of the country, i.e. Moscow and Saint-Petersburg.
As Anton Artemyev, the company president reported, the average retail product price grew by …% which was the main cause of the market contraction in December-January. Besides, the market share contraction was associated with different stages of new product launching by Baltika and its competitors. Based on the competition situation we can say that the deterioration of the market positions took place due to the sales growth of economy and regional brands of international companies and small Russian producers. The company itself points out that in the second quarter of 2010 the economy segments and beer in PET have continued to lead the mix of sales.However Baltika’s focus has shifted to more marginal brands which is not quite in tune with the present market situation, but can pay off when the demand recovers. At least the branding policy is built on this logic.
In particular, in the first quarter of 2010 the company launched 4 economy brands out of the total 5, besides 3 of them were regional ones (“Uralskiy master ledyanoye”, “Bolshaya kruzhka yachmennoye bochkovoye” and “Sibirskiy bochonok zhivoye”). But in the second quarter all of the launches were mainstream or premium beer sorts of the company (“Yarpivo ledyanoye”, “Nevskoye imperskoye, “Baltika razlivnoye” and “Zhatetskiy Gus Cherniy”).
Besides in respond to beer slumping sales Baltika launched a variety of products of other categories. One can see the analogy with Coca-Cola strategy which used its developed distribution network to promote juice sales when faced with soft drinks decreasing sales. However sweet carbonated drinks of series Crazy or water “Zhivoy Ruchey” are less marginal products than beer and these categories are already saturated with the supply. Natural products launches appear to be more perspective namely new kvas sort “Khlebniy kray” (the hot summer of 2010 multiple increase of kvas sales) and introduction of brand Somersby into the incipient cider market. Additional competitive advantage is using the technology of fermentation like in beer production. However in the nearest future these drinks cannot change the company’s general indices considerably. At the moment the share of “non-beer” category amounts to a little more than …% of the total sales volume.
There have been signs of a serious decline in the export direction of Baltika. Thus railway statistics of IA “Kominfo” show a decrease of shipments abroad by …% from … to … thousand tonnes. With that the export to Kazakhstan fell by …% from … to … thousand tonnes. This decrease resulted from lower demand for expensive Russian beer and subsequent transfer of production of brands “Baltika” and “Nevskoye” to Kazakhstan. There have been decreases in other directions but not so serious.

In the first place the export decrease affected sub-division “Baltika-Samara” which had to cut its railway shipments by …% to … thousand tonnes. The similar dynamics is shown by the data of the regional statistics. Though there has not been a dramatic decrease in the domestic directions of Samara sub-division and the production there went down by …% by our estimate. Instead the situation in Saint-Petersburg sub-division was the opposite. Basing on the regional statistics one can assume that its export has not seen any shrinkage, but its production “buffer” of 2009 and the domestic demand sagging resulted in a sharp decline of beer output specifically by …%. Equally dramatic production decline was experienced by the third key enterprise, namely Yaroslavl sub-division of the company. It has considerably cut its railway shipments to Volga region and to the Ural. The fourth biggest sub-division “Baltika-Tula” decreased the production by …% over the first six months of 2010.

AB InBev
According to the report of AB InBev the volume of Russian sales fell by …% in the first half of 2010 which is better than the market in general. With that the sales decreased only by …% in the second quarter. By that time the company managed to overcome the results of the excise rise and increase revenue from one liter of beer (here one should take into account the effect of ruble adjustment). AB InBev also reports sizable investments to support the key brands, which affected the net profit.
The production decline has obviously reached the bottom too. By our estimate in the first half of 2010 the sub-divisions of AB InBev produced more than … mln dal of beer and cut their output by about …%, which is notably better than the average brand dynamics. In particular, the key enterprise of the company, namely Omsk brewing giant had its output cut by about …% but here we should note that a significant part of its supplies was taken over by a new enterprise in Irkutsk region. Both Volga and Saransk sub-divisions saw considerable declines (…% and …% respectively). Instead Perm, Kursk and Novocheboksarsk sub-divisions showed a net production increase by …%.
Relatively good indices are shown in the growth of company’s market share. By our estimate in the first half of 2010 it increased from … to …%. In our opinion the trend of market structure recovery and the low base effect of 2009 are the main reasons of improving company’s positions in the first half of 2010.
Carlos Brito, CEO of AB InBev during his interview to RBC daily gave his comments on the results of the first half of 2010 and the company strategy: “The consumers seek for new things to try, they are becoming more demanding and this applies to beer as well. This is the trend we keep in mind while developing all our brand portfolio, we try to invest more into brands of the mainstream and premium segments”.
AB InBev provided its key brands with a serious marketing support. Brands “Klinskoye”, “Sibirskaya korona” BagBier and Stella Artois got especially wide TV presentation. Beer “Tolstyak” was restyled again which was in fact returning to the old brand image (both in the proper and figurative sense). Besides there have been many sales promotions, consumers were offered efficient packages. However the Russian product range of AB InBev had until recently relatively slight changes which could not affect the company’s position considerably. The new launches were made not a very long time ago and will yield their results in the future.
Thus, brand Bud launching into the Russian market took place in the threshold of football FIFA World Cup with the support of TV and internet advertisement. According the company’s report the first results of Bud sales are already quite impressive. Carlo Brito commented its introduction: “We believe in market recovery and Bud is one more proof for it. Russia was chosen the first country to see the launching of this brand after merger of Anheuser-Busch and InBev in 2008 and we’ve invested much into the launch”.
One more novelty is unfiltered beer “Klinskoye Fresh” which integrates some attributes of quite amorphic for a consumer image of “live” beer into the youth image of brand “Klynskoye”. The result to our mind turned out to be very original and unusual. These are some of cites from press release:
“Until now unfiltered beer was mostly heavy and sold in dark plastic bottles… ‘Klinskoye Fresh’ is unfilterted and light at the same time, it is beer with fresh and pure flavour… ‘Klinskoye Fresh’ preserves the freshness of newly brewed beer in every bottle over the whole shelf life even in hot sunny days. This is one of the peculiarities of the novelty. One can see light-gold colors of unfiltered ‘Klinskoye Fresh’ through transparent green bottle”.

By the end of 2009 the Russian sub-divisions of Heineken cut their production by …% to … mln. dal and the company’s sales level had almost the same decrease which is significantly lower than the industry average indices. In the first half of 2010 Heineken sales sagging was notable too and amounted to more than …% by our estimate. Accordingly the company’s market share was decreasing dramatically. For instance, in Baltika’s report there are data with reference to “Business Analytica” which demonstrate that in the second quarter of 2010 Heineken’s market share shrank by …%, while in the fourth quarter of 2009 it amounted to …%.
One can also note that in majority of regions where the company’s enterprises are located there was a considerable decline of beer output. In particular, by our estimate the key enterprise “Volga” in Nizhniy Novgorod cut its production by about …% over the half year. To some extent this decline is connected to the high base of the beginning of 2009 and a little surge of beer output dynamics in December. But in general the production indices of the enterprise have not reached a very high level since April 2009.
Obviously the largest sub-division in Saint-Petersburg has also experienced a significant reduction. Thus, railway statistics of IA “Kominfo” over the first half year show shrinkage of beer shipments from the parent enterprise by …% to … tonnes. By the way, this year significant volumes of production were transported from Saint-Petersburg to Novosibirsk sub-division of Heineken.
Yekaterinburg “Patra” did not have high indices either as it cut its beer output by …%, though in November-December its workload was similar to summer indices. The breweries in Irkutsk, Novosibirsk and Khabarovsk cut their beer output by more than …% over the last 6 months. The production of beer at a small brewery “PIT” in Novotroitsk has nearly stopped. Earlier Heineken announced its closure and transferring of the production to “Shihan” and “Patra”. “PIT” enterprise in Kaliningrad decreased its output by …%.
By our estimate, the company’s revenue over the 6 months, declined by …% and amounted to about … bln. rubles. However, according to competitors’ assessment, the beer price growth of Heineken was the greatest in Russia. Perhaps this was one of the main causes of fast market share loss by the company. Heineken report explains this loss with the production optimization, SKU reducing and controlling the expenses.

реклама РусПромIn order to stop the market share shrinkage, Heineken has strengthened the activity in the economy segment. As early as in 2009 inexpensive strong beer “Okhota” became the key brand with popular big package. But the company’s focus has shifted to even cheaper sorts. In the first place this applies to the big family of regional brands (“Stepan Razin”, “Okskoye”, “Shihan”, “Volnaya Sibir”, “Strelets”, “Ostmark” “Amur-Pivo” and “Bereg Baykala”), all of each have acquired “live” sub-brands, and put much effort to renew the taste and expand the assortment.
Heineken has done much to support national economy brand «Tri Medvedya» which got a renewed package and powerful promotion. At the moment of the article preparation the parent enterprise and two regional subdivisions was getting ready for launching sort “Tri medvedya kristalnoye”. The company will confidently face the expected premium segment recovery with brands Zlaty Bazant and Doctor Diesel the marketing support of which have not got weaker.

According to report of Efes Breweries International, the Russian sales of the company over the first year half grew by …% to from … to … mln. dal. By our estimate such indices against the background of sales sagging of the leading players, have resulted in company share growth by 10% to 11%. Efes market share have been growing for many years and if the company keeps exceeding the market at this speed, then it will be able to rate the third in the list of the leaders, having left Heineken behind.
However, the revenue has been growing much slower than the market share. By our estimate compare to the first half of 2009 it has grown by several per cent and amounted to … bln. rubles. This dynamics hardy corresponds to the announced by the company report …% of average prices growth from November 2009 to July 2010. However, in our mind this discrepancy can be explained with company’s products belonging mostly to economy segment.
Inexpensive beer selling prices were the most sensitive to the excise rise. Efes had to keep them down and give up some of its margin. Besides big share of economy brands meant big negative mix-effect, which evened the growth of the natural indices. Nevertheless the revenue preserving can be considered an outstanding result at the background of its competitors, especially with excellent results in dollars due to ruble strengthening.
In our view Efes success on the Russian market is not to the least extent conditioned by good financial support of the Russian sub-division during the recession. The Russian beer market is known to have the key significance for EBI as it provides for …% of beer sales. The financial resources concentration must have permitted the company to beat the competitors who have wider geography and might have other priorities in resources distribution. For instance we should mention particularly high marketing expenses of the company. By research companies’ estimate in 2009 the company’s advertisement budget grew by …% to … bln rubles, which was more than Heineken’s expenses and just a little lower than AB InBev expenses. However all the competitors have cut their promotional expenses to a varying degree.
One more driver of Efes success is flexibility and prompt reaction to the present situation. One should remember that before the recession Efes was the first to have innovations in the mainstream segment having launched its series of “draft beer in a bottle” under the brand “Staryi Melnik”. In 2008-2009 years the company started actively diversifying its range of affordable products in large packages Gold Mine Beer, Green Beer. The launching of economy youth brand Green Beer in the package “party size” was quite indicative and rather straightforwardly repeated licensed Tuborg. At this time the companies were working hard to support the loyalty to the mainstream and marginal beer sorts, though they were not too successful in it. In 2009-2010 Efes tried to keep up consumers’ interest to economy brands having launched sorts with nonstandard flavours (Gold Mine Beer Fresh Lemon, Dark and Light), and renewed the packages of beer sorts Gold Mine Beer and “Belyi Medved”.
Efes has recently renewed the design of Gold mine Beer, Green Beer and “Belyi Medved” glass bottle having made them more premium and thus called the consumers’ attention to the main sorts of the key brands. Besides in June the company has obtained Rospotrebnadzor* permission for launching of beer sort “Staryu melnik iz bochenka Barkhatnoye” which soon appeared on the shelves and took the first place among dark sorts in the brand range. Though for some reasons its launching was quiet and had no promotion.

* Federal Service for Oversight of Consumer Protection and Welfare

In the future Efes can enter the market of alcohol-free products. In May 2010 the company obtained permission for launching pilot consignment of kvas “Belyi medved” in kegs and PET bottles. This perspective segment has already been developed by brands of Baltika, SABMiller, Ochakovo, Deka and many other regional brewing companies. Though serial production was not started in summer, perhaps this process requires long-term realization or there was no available vacant production capacity.
One should note that in 2009 the company was able to fully provide oneself with malt, which was especially important due to large production volumes of economy beer sorts and will be even more important in view of raw materials price growth. Obviously their own malthouses were one of the factors of keeping the prices down. And perhaps it is not a coincidence that Efes has recently taken a decision to purchase shares of Moscow “Muten’s Malthouse”.
We should also note the changes in the regional structure of production and supplies. By our estimate, basing on “Kominfo” data, railway shipments in the first half of 2010 grew by …%. The large companies in Ufa and Kazan experienced loss of their workload wile there was a notable increase of shipments from Novosibirsk brewery which shipped large volumes to the domestic Siberia region and the Far East. Nevertheless Kazan enterprise increased its beer production by …% and a significant output growth obviously took place at Moscow enterprise of Efes too.


Company SABMiller is focused on the premium segment of the Russian market that is why the decline in consumers’ earnings has seriously affected its positions. But the major negative effect was overcome as early as in 2009, and in 2010 the company’s production and sale indices were relatively not bad. The market share of the Russian SABMiller subdivision remained nearly at the same level – which is about …% by our estimate.
In our view the company’s production over the first half year shrank by …% to … mln. dal and the revenue saw the same sagging …% to … bln. rub. Such proportional dynamics can be explained with SABMiller focus on the premium brands too. These brands were less affected by excise rise and accordingly the company had to give up less of its margin in order to even their retail price growth. At any rate, the selling price calculated by us (the volumes of shipments of Kaluga enterprise in rubles divided by the volume outlet) declined significantly only in January and February of 2010, but then restored again to the level of the end of 2009. One should take into consideration that the average selling prices of Kaluga subdivision are about twice as high as the average in Russia and can be compared only to the prices of Baltika in Saint-Petersburg. At the same time the calculated average selling prices of Ulyanovsk subdivision of SABMiller are notably lower and only a little surpass the average Russian ones.
By our estimate in the first half of 2010 Ulyanovsk brewery provided for more than …% from the total output volume and the small brewery in Vladivostok produced about …% of the whole volume, that is the new objects are already playing an important part in the company operation. Obviously, SABMiller capacity growth, at the background of output decline, new breweries in less wealthy regions of Russia and changing consumer preferences resulted in company’s attention to cheaper beer sorts. Thus the strategy of SABMiller emphasizes the geographic expansion focusing on the economy brand “Tri Bogarytia” which is now bottled in PET. In the future the product range of this range may widen in April 2010 the company obtained Rospotrebnadzor permission to launch “Tri Bogarytia Barkhatnoye”. Besides as Ulyanovsk brewery started operation in the fall 2009 the company’s range was enriched with local brand “Simbirskoye”.
In 2010 the company decided to enforce its positions in the niche of “female” flavored beer, having introduced new brand Essa, which was supported by a comprehensive promotion. The launching of Essa is associated with brand Redd’s market share shrinkage and dynamic growth of young brand Eve by Baltika.
Other directions of the marketing activity in 2010 were not very well-developed. In 2009 SABMiller reduced its advertisement volumes notably and in 2010 it has been less promoted than its closest competitors. Mostly the key brands were promoted. The campaign “Bochka Vpechatleniy” (Barrel of Impressions) supported the promotion done for beer “Zolotaya Bochka” and at the same time it was correcting the brand image which shifted away from the conventional one and became a beer sort for travelers. The company also renewed the label of Velkopopovicky Kozel, having made it more appealing and ”Czech” and June saw an unusual promotional campaign of the brand. It was offered to beer drinkers to make their own mix of lager and dark sorts of beer in different proportions “as it is done in Czech Republic”.

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The article materials were prepared using Rosstat data and IA «Kominfo» data. A number of estimations is based on info provided by research companies «Nielsen Russia» and «Business Analytica», publications in «Komersant» and «Vedomosti» as well as in other mass media.
The data on companies’ output and production sales, financial and economic indicators of enterprises of RF after 2008 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.



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