Analysis of beer market in China (on Russian)
Beer market of Ukraine: big three losing weightIn 2016, fast increase of excises and resulting price spike stood in the way of the beer market stabilization. Most of competition (as well as mass sorts) moved to the economy segment of the market. The biggest losses were incurred by the leading three, especially Obolon, which again experienced pressure after reallocation of Efes market share. However, one should already speak of TOP-4. Group Oasis CIS (PPB) became a strong player and competitor to transnational companies. Besides the net sales of many regional medium breweries look rather good and 16-fold cost reduction wholesale trade license for craft brewers opens up a possibility of rapid growth in 2017.
Analysis of beer market in China
China’s transition to a “new normal” reality backfired on the brewing industry unexpectedly. Stagnation and subsequent market decline resulted from dynamic social and economic changes. There has emerged a “two speed” market where the medium class significance is growing, yet the share of main beer consumers, “blue collar” is decreasing. Also the inflow of consumers is shrinking, as demographics stopped being a growth driver. Finally, beer is giving way to other alcohol drinks....
Ukrainian malt producers
Malt production and market in Ukraine underwent several development stages, which were primary connected to beer market dynamics.
The first rapid growth stage continued from 2004 to 2005, when national malt producers could not satisfy brewers' demand and competed with import malt.
Thus in early 2000s the bulk of malt was produced by two enterprises. The largest producer in Ukraine, "Slavutskiy solodovenniy zavod", located in Khmelnitsky region, at that time belonged to Baltic Beverages Holding (the company which entered Carlsberg Group) accounted for about a third of the national production outputting up to 80 thousand tons of malt per year. Another malthouse with a capacity of about 30 thousand tons per year belonged to Sun-Interbrew (currently AB InBev), but it could not really meet the growing demand of the company. Besides, malt was produced at many medium-sized breweries.
Explosive beer market growth made big companies stop raw material production. There was a sense in it, for example Malteurop after modernization supplied products not only to AB InBev but also to "Obolon" and Slavuta enterprise, when it belonged to BBH, delivered raw materials to Sun-Interbrew and "Obolon". Obviously only the deficit of raw materials made brewers buy it from competitors. On the other hand, in order to have enough raw materials, Sun-Interbrew had to draw funds from the main business to a new big business project. That is why, in Ukraine neither Sun-Interbrew nor BBH repeated Russian scenario, where they produce malt for themselves. The malthouses were sold to partners, for whom this business was core.
As far back as in 2001 Sun-Interbrew signed a contract with Malteurop concerning selling of malting plant in Chernigov. This contract included an obligatory provision on constructing a malthouse in Kharkov (on the territory surrounding the brewery) as well as on malt deliveries to the enterprises which belong to Sun-Interbrew.
In 2004 BBH sold 90% of Slavuta enterprise shares to its raw material partner, a major world malt producer, namely, group Soufflet. The sale of raw material plant allowed the company to receive additional funds for investing into brewery construction in Kiev.
The second growth stage which started in 2005, was characterized by slower dynamics, as the current malt demand was satisfied. However, the rate was still high due to growing beer consumption. Besides, starting from 2005, Ukraine began acting confidently in the malt market of Eastern Europe, thus about 10% of production went for export.
The production expanded due to enlarging of the operating capacities and start-up of new capacities. So, in 2006-2007 Soufflet carried out reconstruction of Slavuta malthouse, which allowed doubling its potential from 80 to 160 thousand tons. That led to rapid growth of company output in 2008-2009. In general, 2008 was a big break for the company, as both the production rate and revenues doubled as compared to 2006, having reached $… mln and … thousand tons *.
* Исследование "Славутский солодовенный завод", опубликованное UFC Capital
Company Malteurop acted up to the promise given its partner and put into operation a malthouse with a capacity of 100 thousand tons in Kharkov. Besides, resulting from the modernization at malthouse in Chernigov the production capacity practically doubled, having reached 50 thousand tons per year.
Explosive beer market growth in 2007 and the deficit of malting barley made agricultural producers and malthouses overestimate the production volume needed for the market in 2008. The decline of 2009 resulted from both malt overproduction and a drastic reduction of beer consumption. However, as the production returned to the level of 2007, this decline can be considered a correction.
The malt overproduction was mainly caused by brewers' efforts, particularly, "Obolon" company, to secure their stability in the market of raw materials. Several small malthouses belonged to the company, but they did not suffice to cover the company demand. The plant construction started as far back as in late 2004, against the background of fast market growing. Operation start of the first phase of the malthouse took place early in 2008, and by the year end the second one was put into operation, so the production potential of the plant amounted to 12 thousand tons. "Obolon" became the first large brewery with a malthouse of its own. Though the situation has changed considerably since 2004, the beer production fell and prices for malt reduced - a raw material base of its own allowed "Obolon" to win firm positions in the cheap beer market and to give some stability to the company.
In 2009-2011, after malt market correction, the production dynamics started corresponding to the beer production, that is, it remained approximately at the same level.
According to the data of operational statistics by Goskomstat, in 2012 the malt production grew by …% to … thousand tons. Under our estimation, the positive dynamics was showed thanks to Malteurop production growth coupled with stable indices of Soufflet and "Obolon". At the same time the malt consumption (trade balance) practically remained at the level of 2011, having amounted to … thousand tons.
High prices for malting barley till the crop of 2012, as well as large crop volume led to severe malt production fluctuations. At the year beginning and even in summer the analytics and branch experts were pessimistic as to the crop prospects. The malt stocks at the end of the beer season were sold at comparatively high prices and brewers took wait-and-see stand. Agricultural producers were for a long time trying to keep high prices, but the harvest and its quality was much better than in failure 2011. But in the course of grain delivering and its price decline, the malthouses were increasing their purchases of the necessary volumes. Consequently, their production grew sharply in the fourth quarter.
The major market players are three companies, namely, Malteurop, Soufflet and Obolon. The key directions of their deliveries are generally obvious. Malteurop and Soufflet mostly sell their production to the old partners, AB InBev and Carlsberg Group correspondently.
For example, "Slavutskiy pivovarenniy zavod" supplies Ukrainian subdivision of Carlsberg Group with …% of demanded malt, according to the company report. The volume of malt purchases, under our estimation, equals about … thousand tons.
Besides, a … enterprise which has recently come under control of …, also purchases the bulk of its malt from Soufflet. However, Efes does influence the malt production so far. Basing on the announced … mln dal output in 2012, the enterprise's malt demand can reach about … thousand tons, which were perhaps bought from … plant. Small production volumes have been in recent years bought by … enterprise abroad, from …
One should note that both …and … were successful in the Ukrainian market in 2012, same as in previous years. That is why one could observe a significant growth of … malthouse production in 2011, besides positive dynamics can be expected in 2012. However under our estimation, the company saw serious export cuts. That is why the malt volume production under our rough assessment, in 2012 reduced by …% to … thousand tons.
Malteurop production cutbacks in 2011 and output growth in 2012 can be connected to the raw material overproduction in 2010 against the neutral dynamics of AB InBev beer production in 2010-2011. Interestingly, despite malt output cutbacks, Malteurop sales in 2011 grew. Thus, Malteurop Ukraine (Chernigov) in 2011 obtained … mln hrn income from realization, which is by …% more than in 2010. East Ukraine company "Malteurop" (Kharkov) in 2011 increased its realization income by …% - to nearly … mln hrn.
The company's share in the total volume of malt production in 2012 increased from …% to nearly …%. Thus, we can say the national malt output was almost equally divided among the three leading market players. Nevertheless in 2013 reductions of … malt production can be expected if the company caters only its key partner, as in 2012 … sales under our estimation sharply reduced.
Obolon produced raw materials at many plants. For example at the modern large malthouse in Chemerovtsy (Khmelnitskiy region), medium sized malthouse in Kiev and three small enterprises in Diatkovtsy (Ivano-Frankovsk region), Bershady (Vinnitsa region) and Akhtyrka (Sumy region). Before production in Chemerovtsy was started, the old plants accounted for about … thousand malt per year, which was certainly not enough for Obolon.
Over the last years, Obolon malt production fully reflected the negative dynamics of company's beer output. In 2010 and 2011 when the production was nearly at the same level, Obolon ranked first among beer producers in Ukraine. However in 2011 Obolon severely weakened its positions in the beer market, that is its production fell by about …%. The malt output dynamics was even sharper, under our assessment the decline totaled about …%. Then the situation stabilized. According to the company communication, in 2012 it raised beer production by …% (to … mln dal) as compared to 2011. The company' malt production remained practically at the same level.
Several other small producers supply malt to Ukrainian market. The largest among them is "Berdicheskaia solodovennaia compania", which after modernization has capacity of … tons per year. For example in 2004 the production of Berdichev malthouse exceeded … thousand tons. The bulk of production was then delivered to Obolon. Later, when the company started producing its own raw materials, Berdichev malthouse became a non-negligible raw material exporter. However, over the recent years, the company demonstrated a very unstable production dynamics and practically did not affect the market.
"Zhitomirskiy LVZ" produces about … thousand tons of rye malt - mostly for baking industry needs. But the enterprise also supplies malt to beer and kvass producers. There are also quite small malthouses, which realize all production on the market. For example, "Zalozetskiy spirtzavod" (Ternopol region), which supplies production to small brewers in West of Ukraine. Or enterprise "Bel-Ger" (Kharkov region) formed on the base of former brewery, which delivers raw materials mostly to small beer producers.
A small contribution into Ukrainian malt production, that is about …% of the total output volume is made by small breweries with malthouses of their own. "Khmelpivo", Mikulentsy "Brovar", "Mukachevskiy pivzavod", "Lisichanskiy pivzavod", "Umanpivo" "Berdichevskiy pivzavod", "Slavutskiy pivzavod" and some other quite small plants supply malt for themselves on their own.
In 2010 Russia, Moldova, Georgia, Armenia and Azerbaidzhan together bought about … thousand tons of comparatively inexpensive malt from Ukraine. This volume was historically big for Ukrainian producers. The main exporters were … and …. However in 2011-2012 due to barley stockpiles rebuilding market saturation of near abroad countries, there was a considerable fall of supplies on these directions.
The main exporter of Ukrainian malt, accounting for about a half of delivered volume is Soufflet plant in Slavuta. Like in Ukraine the enterprises' malt is mostly purchased by … branches located in Russia and Azerbaidzhan. Besides, the old partner on Soufflet is … in Moldova. The sharp decline of supplies to Moldova which had been importing big volumes of Ukrainian malt for several years in a row (in 2011 they exceeded … thousand tons) was the main reason for such a striking import slump in 2012. Interestingly, Moldova cut the import of Russian malt as well.
The malt import to Ukraine also decreased substantially after some supply increase which began in 2010. It is fair to say that the structure of malt import has considerably changed over the last 10 years. While during the period of material deficit early in 2000s, the raw materials for brewers were delivered mainly from the far abroad countries, by 2007 the share of expensive European malt shrank considerably. It was replaced with more affordable Russian import. In the height of economic recession, the trade fell considerably. However, in 2011 Ukrainian producers imported a sizable volume of comparatively inexpensive malt from …. In 2012 the market saturation resulted in a sharp fall of import purchases, for the exception of small volumes of malt from Western Europe.
As the import fell more than export, the total of trade balance (production+import-export) was better than the malt growth dynamics. Provided the trade balance reflects the condition of Ukrainian malt market, then we can say that the inner consumption in 2012 practically did not change. However we can also speak of stabilization after a small consumption growth during the post-crisis period.
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