Dmitry Nekrasov’s Philosophy — on the Past, Present and Future of Ukrainian Brewing IndustryA meeting with Dmitry Nekrasov always turns into a training course: “Introduction to brewing business“. We are talking to a clever “playing trainer“ a person that can be called a godfather of the Ukrainian craft. He has a dozen of successful projects to his name. Dmitry told us about craft beer in Ukraine, on market cycles, on specifity of operating in retail and HoReCa, on union of Ukrainian brewers and certainly, how a brewery of his own, First Dnipro Brewery is doing.
The market of import beer in Russia: review and databasesThe market of import beer is rapidly growing and changing. But while in the past years it was growing due to brands variety, in 2019 major and affordable brands from TOP-10 were developing actively. It seems that the fact of a brand origin from far abroad counties, even if it is not well known but has moderate price and good distribution provides for million liters of sales in the territory of Russia. Among distributors AB InBev Efes was far behind, yet the role of Baltika and suppliers of the second row got more important. The boom of German brands was followed by stagnation of import from other traditional regions (and Belarus) instead the supplies from Mexico, Lithuania and Asian countries grew considerably.
Russia: Positions of Brewing CompaniesThe review contains an analysis of interim performance of brewers in the first half of 2019. There are rather dynamic changes behind a modest industry growth. Baltika is again experiencing a stage of volumes and market share slid due to competition with AB InBev Efes. Because of the price competition and presence expansion in the modern trade company #2. has come close to the leading position. At the same time sales of Heineken Russia have continued growing which makes the premium part of the portfolio heavier. The market premiumization trend had been also confirmed by import brands. MBC and Zavod Trekhsosenskiy have been the most successful among federal market players. The market share of independent regional brewers and Ochakovo have continued falling as they are being squeezed out by the market leaders at their competitive fields.
Ukrainian beer market 2019: companies and brandsIn 2019 beer production and market have been still fluctuating about zero point. However, the past season was successful for brewers judging by the sales profitability. The price mix has improved due to rapid general market premiumization, as well as its particular aspect, the growth of import beer sales. By the season end AB InBev Efes improved its positions considerably. It turned out that consumers had not forgot Efes brands that had to leave the market, but started to recover rapidly. Against the stagnating market that meant sales decline of other companies, in the first place Carlsberg Group that most of all beneficiated from Efes exiting the market. PPB turned out to be stable to branding activity of its competitor and Obolon kept the same volumes and at the moment it is the absolute leader of the economy segment. The share growth of independent producers took place thanks to leading craft breweries, that so far do not have a big market weight, but they are rapidly gaining it.
Brewing industry in Kazakhstan 2019During the first half of 2019, the majority of Kazakh brewers made their contribution into positive dynamics. Yet it was companies of the lower division, not the two transnational leaders that raised their production and sales. The shares of draft beer and aluminum can which is rapidly squeezing glass bottle out of the market, have been growing. The price segmentation has remained stable despite the substantial rise of retail prices and fluctuations of brand market shares, while the borders between segments have become blurred. The main events in the industry have been: the announced revision of the beer excise policy, launch of BeerKhan brand in the strong beer segment, and most important – purchasing assets of Shymkentbeer by Arasan.
The trend of complication of Russian beer market is going on and in several directions at the same time. The range has got wider, the import and small segments are growing, namely craft beer, alcohol-free beer and special flavor beer. At the same time, all ex-mega brands and light lagers by Russian brewers are experiencing a decline of their shares. AB InBev Efes, Heineken, MBC and Pivzavod Trekhsosenskiy have exceeded the market, Carlsberg was developing slower than the market and Ochakovo as well as some other mid-sized breweries have been cutting down their volumes. To a big extent brewers’ performance was connected to their ability to reach agreement with networks, sacrifice their margin and enter new markets. Craft brewers are facing a serious danger of producers’ registration introduction – de facto licensing. ...
1-2015 What is left after foam collapse? Changes on the beer market in Russia 2000-2014
Beer market in 2014
Economy vs state regulation
More money, more beer?
Motives for beer consumption
Who drinks, what is drunk
Decline of beer status in Russia
Beer during crisis
Money for beer
Beer and labor
Beer market in 2014
The rate of production and beer market decline remained high in 2014. Existing negative factors were aggravated by economic problems. However, the crisis manifested itself in Russian consumer activity trends in autumn 2014.
According to current Rosstat data, beer production fell by 8.9% to 81.3 million hl in 2014. At that, export of beer from Russia remained at the same level, having comprised 2.31 million hl, while imports accelerated the fall, having decreased by 23.5% to 2.19 million hl. As a result, trade balance, which roughly corresponds to the size of Russian beer market, declined by 6.4% to 84.3 million hl.
According to our approximate estimate, about 3.2 million hectoliters of beer were produced in late 2013, which can be considered an excess volume, intended for sale in 2014. Thus, brewers mitigated the increase in excise rate, which took place in early 2014.
Whereas the excise rate on beer was frozen in 2014, so it was not necessary to form stocks at distributors by the end of the year. In this respect the year 2014 became the first exception for the last 6 years. It is against this background that beer production in 2014 dropped more significantly than the market.
The amount of revenue obtained by the brewers can be calculated on the basis of average producer price. In 2014 it collapsed by ...% to ... billion rubles or by ...% to $ ... billion due to ruble devaluation. However, this figure can be considered "technical", as surplus stocks of 2013 were transferred to 2014, while the stocks for 2015 were not being formed yet. Revenue adjusted for the stock fell by ...% to ... billion rubles.
Beer market in money terms*, basing on our estimates of the trade balance and Rosstat data on retail domestic and imported beer price dynamics in 2014, increased by only ...% to ... billion rubles.
* It should be noted that market volume in money terms is an imputation, since about ...% of beer is sold in HoReCa establishments, where trading margin may vary, but is typically much higher.
Since ruble exchange rate in 2014 fell abruptly in relation to 2013, in US dollars beer market declined by ...% to $... billion.
Economy vs state regulation
Prior to the beginning of the 2000s brewing industry was developing with virtually no state restrictions. However, in 2001 aggressive beer advertising on television attracted the attention of antitrust authorities and the State Duma deputies. Since then Russian politicians have made great efforts both to form a negative image of beer and to limit its intake.
The year 2002 can be considered the beginning of the anti-beer campaign in media, which until recently even intensified with the proposals to restrict beer advertising. At the same time politicians claimed in all the seriousness that beer is made of powder and alcohol, and eventually came to use the term "beer alcoholism", charging beer with taking a major part in succumbing of young people to alcoholism.
However, as will be shown below, such rhetoric on its own could not exert much influence on young people, as teenagers take interest in the words of opinion leaders, not politicians or substance abuse therapists.
Another initiative arose to limit the sale and places of beer consumption in 2005. Russian consumers were banned from drinking beer on the streets, in parks and other public places. Given the fact that ...% of beer drinkers drank it on the streets, one would expect a significant slowdown or recession in beer consumption. However, this was not the case and the market accelerated its growth rate instead.
Brewers themselves were also responsible for negative contribution to the formation of their own image at this period, aside from excessive advertising. Going behind the growing market, the largest companies started to optimize brewing technology by reducing process cycle and increasing the content of unmalted products, maltose syrup in particular. Consumers started to notice a change in the taste of mass brands.
Only since 2009 government regulation began to exert a direct impact on beer consumption, given a significant negative effect on two sensitive parameters, such as price and distribution.
Thus, the period of 2009/2010 became an important milestone for the development of beer market, with a threefold increase in excise rates against the background of economic crisis. The cost of beer produced in Russia increased by ...% or from ... to ... rubles per liter from October 2009 to June 2010.
Beer drinkers certainly noticed a sharp increase in prices. However, according to our estimate, beer consumption remained nearly the same in 2010 year-end. Moreover, beer cost variation assessment over a longer time interval and its comparison to the growth of salaries, show that the incident with the excise taxes would sooner present a problem for brewers than for beer consumers.
In any case, the question remains - why beer consumption growth dynamics was close to zero as early as in 2008 following such a rapid growth? The consumers began to realize crisis signs only in November 2008 and the crisis could not produce a significant effect on its results.
The fact is that until 2008, retail beer price dynamics significantly lagged behind the growth of salaries. Russians were getting richer much faster than beer rose in price. Beer affordability index diagram (beer cost share in salary) provides a distinct representation of this trend.
The turning point in the rapid growth of beer consumption was observed not in the crisis year of 2009, but coincided with stabilization of beer affordability, which almost did not change from 2008. End of the crisis in 2010 and good weather supported beer consumption, but the decline continued in 2011-2012, despite the fact that new severe restrictions were not introduced.
Beer distribution restrictions became another major challenge for consumers. Prohibition on the sale of beer in kiosks was introduced in two stages - partial prohibition in July 2012, which had an insignificant impact on beer sales, and full prohibition in January 2013.
According to a study performed by Sberbank SIB in March-May 2013, more than half of consumers (...%) did not reduce their expenses on beer, ...% cut expenses in part, and only ...% respondents reported a significant reduction in expenses on beer following the closure of kiosks.
According to various estimates, non-stationary objects of trade accounted for ...-...% of beer sales in 2010-2012. Comparison of these figures with a negative effect, revealed by Sberbank SIB, shows that the direct reduction in the consumption rate following prohibition on the sale of beer in kiosks could be as high as ...%. Elimination of kiosks, as the source of impulse purchase of beer resulted in a consumption frequency reduction for people who used to buy beer spontaneously or did not want to go to a sales outlet situated far from home specifically to buy beer.
Clearly defined negative dynamics of beer production in 2008, 2011, 2012 and 2014, against the background of stable beer affordability index and dynamics of 2010 give rise to the question whether there are other important factors of beer consumption, besides affordability and state regulation. With this aim in view, let us refer to social studies.
Are RLMS and Rosstat data on beer consumption adequate?
Our review is based on the data of "Russian monitoring of economic welfare and health of population (RLMS-HSE)" which is carried out by National research university - Higher School of Economics and CJSC "Demoskop" involving Population Center of North Caroline in Chapel Hill and Sociology Institute of Russian Academy of Sciences. (Sites of RLMS-HSE investigation are http://www.cpc.unc.edu/projects/rlms and http://www.hse.ru/rlms).
The monitoring program includes information concerning household structures, family budgets, living conditions, health conditions, food quality and so on. The research RLMS-HSE on current sampling is carried out annually by standard questionnaire consisting of several hundreds of questions. Such comprehensive data allowed us to analyze beer consumption by many aspects.
One important detail increasing RLMS-HSE research representativeness is removal of seasonality factor, which is particularly important for beer consumption assessment. All field reviews were carried out in "low season".
Prior to the employment of RLMS-HSE polling survey findings it is necessary to assess their adequacy, that is, to compare them with real data on beer market. Adequacy assessment was carried out as follows:
RLMS-HSE polling survey data on the number of times the respondents drink beer monthly and average amount of beer drunk, give a possibility to calculate the average volume of consumption per person. We took into account the data on all the respondents, both who drank beer during the reporting period and those who did not consume it. Female respondents sample size was greater than male sample, so the values were restated to comply with 1:1 proportion.
Resulting values were expectedly low since the survey was conducted during the cold season. Furthermore, respondents are known to under-report the consumption of alcohol, beer in particular (on average by 1.6). On the other hand, it is impossible to derive accurate data on beer market from polling surveys, yet we did not have this objective and in this article we are focused on changes in preferences and social portrait of a beer consumer.
Therefore, it is appropriate to compare consumption dynamics with market data rather than with absolute values. But that poses the question, which market data should be considered realistic? We assume that, due to insignificant amount of exports and imports, beer is produced for the domestic market and reflects the dynamics of consumption.
Since polling surveys were conducted at the boundary of years, these periods will further be referred to as 2008/2009, 2009/2010 and so on.
We used six data sets from the polling surveys, conducted during the following periods: 10.2008 - 12.2008; 10.2009 - 12.2009; 10.2010 - 03.2011; 10.2011 - 02.2012; 10.2012 - 12.2012 and 10.2013 - 02.2014.
Data on volumes of beer production were calculated as average volume of production over these months.
It would indeed be better to use the Rosstat data on the dynamics of retail beer sales. If it were not for the ambiguity of the data. Thus, according to Rosstat, since 2009 beer market has undergone only minor variations, and for all that time retail beer sales fell by only 2.3% to 1.001 billion dal in 2014. However, for the same period, Rosstat shows a decline in production by 25% to 813 million dal, which was reportedly the reason for the closure of a dozen of industrial enterprises belonging to the four market leaders.
Data comparison shows that the dynamics of production and consumption in 2009/2010 stand in marked contrast, but is roughly the same in other years. However, the discrepancy at the boundary of 2009 and 2010 is easily explained by a three-fold increase in excise taxes on beer from 1 January 2010. A sharp expansion of production was associated not with an increase in consumption which, quite the opposite, fell due to a rise in prices, but rather with the formation of large stocks at distributors to pay less tax.
Thus, data comparison shows that RLMS-HSE polling surveys adequately reflect changes in beer consumption in Russia for the considered period.
Demographic factor is sometimes assigned a key role when explaining the decrease in beer consumption. Reduction in core consumption is accounted for a demographic "pit", that is a crisis conditioned by a sharp decline in birth rate, which began during the collapse of the USSR and continued until 1999.
Given that men over 20 are the main consumers of beer, we do see significant changes in their population size since the beginning of the 2000s. Until 2010, the core of mature consumers continued to grow at the expense of young people born during the "developed socialism" period. If we take census data as the reference points, then from 2002 to 2010, male population aged 20-39 grew by ... million and young male population aged 15-20 decreased by ... million people. To sum up, approximately ...% of the market growth in the period since 2002 was conditioned be a natural increase in the number of active consumers.
The period from 2010 to 2014 resulted in a direct reduction in beer consumption core by about ...%. By 2018, it will further reduce by about ...%. As is obvious, despite the effect of demographics on beer consumption dynamics, there is a gradual entrance stage and the contribution of demographic crisis in the fall of beer market is yet insignificant.
In order to understand the reasons conditioning the reduction of beer market, it is necessary to specify the portrait of beer customers.
Depending on the amount of beer consumed in the past month, consumers were divided into 6 groups. The group of people who did not drink beer for a month was the most numerous. Those people who drank up to 800 grams of beer in the past month were assigned to the second group named "tried". Those respondents who drank more than 5 liters of beer (it should be reminded that the surveys were conducted during the cold season) in the past month were assigned to the sixth group called "much".
The dynamics of this distribution suggest that the reduction resumed gradually once again following a sharp decrease in all groups of beer consumers during the period after the 2008/2009 crisis and subsequent stabilization.
The groups of beer consumers were formed to the intent that they were roughly equal in number. Naturally, the specific volume of beer drunk sharply increases during the transition from a group of people who "tasted" beer to the group who drink "much". About ...% of beer drunk accounted for people who drink "much", that is more than 5 liters per month. Their share reduced from ...% to ...% from 2008.
Preservation of consumer group weight depends on the number of people who 1) moved there from other groups, 2) drank beer at about the same level, 3) left the group.
The group of consumers who drink "much" of beer is characterized by a constantly fluctuating inflow, which is on average less than ...% per cent, along with a relatively steady outflow at ...%. In other words, recruitment of the main group of consumers who drink "much" of beer is not sufficient for compensation of their outflow from the group.
Now let us analyze the inflow and outflow of consumers in terms of age. It is well known that age has a major influence on the volume of beer consumption. In all groups of consumers, from those who "tried" beer to those who drank "much" of it, the greatest weight accounts for a group aged 30-39. After this milestone the number of beer consumers and its consumption volumes are reduced almost linearly with age.
The number of middle-aged and older people, who left the drinking "much" group, expectedly exceeds the number of those who started drinking a lot of beer. This group will preserve its weigh stability if the outflow of middle-aged beer consumers is compensated by the inflow of young people.
RLMS-HSE survey data showed that the outflow of people who crossed the threshold of middle age, was not straightforward, but in general, had taken place. However, the group of people who drink a lot of beer was not found to have an influx of young consumers, as a matter of fact it underwent a reverse process.
More money, more beer?
Economic crisis and a sharp rise in the cost of beer after 2009 could play a key role in the reduction of beer consumption for low-income people. This behavior can be considered rational in optimization of costs and translation of degrees into rubles.
The significance of alcohol cost for a consumer can be judged by the period of 2012/2013 boundary, when a sharp increase in the price of vodka from 125 to 170 rubles resulted in a reduction of consumption, but with a simultaneous short burst of beer and homemade vodka consumption. This is well illustrated by RLMS-HSE data, since the survey was conducted within the period of vodka price rising.
Let us remark here that this burst did not exert a particular effect on the results of the whole 2013. As in terms of pure alcohol it was still much more cost-efficient to buy vodka or homemade vodka, than to drink a lot of beer.
There is also an inverse relationship, when with the growth of income not the price, but the taste and quality of the drink, as well as pleasure brought by the process of consumption, play an increasingly important role. For example, consumer group segment of 2013/2014 shows a distinct dependence: the larger the size of the monthly income (salary), the higher the volume of beer consumption.
Thus, there are only ...% of beer consumers among people who earn small amount of money, including ...% of those who drank a lot of beer during the previous month. At the same time, there are ..% of those who drink beer in different volumes in the group of people with high salary, at that ...% drank a lot of beer.
However, this is a static segment. The pattern will be opposite, if we estimate the impact of the financial situation on beer consumption over a long interval of time.
The group of people who improved their financial situation was found to undergo a gradual increase in the number of those who did not drink beer during the reporting month, or even quit drinking alcohol. At the same time, a reduction in beer consumption was observed in all groups, regardless of the improvement or deterioration of financial situation.
Let us proceed to separate consideration of the outflow of people from the group who drank "much" of beer. This usually occurs when they move to other groups with smaller volume. But the share of people who quit drinking beer in the reporting month was gradually growing, even if they drank a lot a year ago. During the period of 5 years the number of cases when respondents reported abstinence from beer increased from ... to ...%.
During the period of 2008-2014 there was a very rapid increase in the proportion of wealthy consumers in this group. If in 2008/2009 people with a salary of more than ... thousand rubles accounted for ...% of drinking "much" consumers, then in 2013/2014 the number grew to ...%. However, we considered an absolute, not real growth of salaries (adjusted for inflation).
Thus, along with rapid growth of salaries the group of consumers who drank a lot of beer underwent a fast outflow of people. As the number of working men is higher than working women, we separately compared the responses of men drinking "much" and men in general. Distribution in both cases shifted to income growth area, but the picture did not change fundamentally.
Between crises beer price growth occurred simultaneously with the increase in consumers' income. At that, smoothed out price difference between beer and various categories of elite alcoholic beverages, which were becoming increasingly popular, even among people with average incomes.
RLMS-HSE surveys do not give a very clear picture of elite alcohol consumption, as whiskey and cognac were joined with liquor with separation of this group only in the last two polls. However, these two waves are also indicative of expensive beverages weight gain.
It's worth noting that from the point of view of pure alcohol consumed, the growth of strong drinks consumption is compensated by an eightfold reduction in the consumption of beer. Thus, beer was found to have a lot of high-profile and tasty alternatives.
Although whiskey, rum, gin and tequila competed primarily with the growing cost of vodka, but with beer as well (at any rate as part of cocktails). If in the early 90's only Hemingway's admirers were no strangers to daiquiri, now this and other cocktails are usual drinks on club card or party event attributes.
Beer was being actively replaced into low-profile alcohol periphery since the beginning of the 2000s. During this period the import of strong elite alcohol beverages increased by several times, up to about ... million dal. This is by all means a very small volume of sales for Russian market. But high price and the style of elite alcohol consumption, especially in the form of cocktails, are in stark contrast with the price and style of beer consumption.
This does not necessarily mean that wealthy consumers switch from large amounts of beer into smaller volumes of beverages, such as whiskey or cocktails. Expensive alcohol competes with beer, also due to the formation of younger generation of consumers loyal to elite alcohol.
So, for example, the study "Structure of alcohol consumption as a social group indicator in modern Russian cities" [Economic Sociology V. 15. No. 1. January 2014], based on Romir monitoring data, suggests that whiskey is most typical for men aged 20-34 and women aged 20-24. Tequila and low-alcohol cocktails are most typical for young people of both sexes aged 16-24. Therefore, even small in absolute terms, the increase in sales of premium beverages is a marked change in preferences, predominantly among young people.
According to our estimates, elite alcohol took about ...% of beer market since 2008*. This share is quite small for such a long period, there are apparently other reasons conditioning the reduction in core beer consumption on account of the youth.
* The evaluation was based not on RLMS-HSE findings, but on the data on the volume of imports and the assumptions that:
1) Half of the people, increasing consumption of high-profile alcohol, replaced other beverages, and the other half replaced beer.
2) Elite alcohol consumption volume in terms of pure alcohol was half as much as in beer share due to the price and different styles of consumption.
Proper consideration should be given to the trend towards complete abstinence from alcohol and to the fact that the outflow of young people from the group drinking a lot of beer occurred in all groups, though it was more noticeable in wealthy consumers.
Yet the question remains - why do young people generally drink less beer?
Motives for beer consumption
It is obvious that for people over 20 the desire to increase the frequency and volume of beer consumption coincides with their capabilities. But why did we observe a decline in the core consumer group of young people, if they received more financial resources? This question is of fundamental importance for the assessment of beer market outlook. To find the answer we should turn to scientific research and consider that adolescents and young people have recently become known to consume alcohol.
Surprisingly, many different countries have simultaneously begun to develop an anti-alcohol trend. The reduction in the share of young people who drink a lot of beer in Russia, reflected the global trend of reducing the frequency of alcohol consumption by adolescents, recorded in 2006.
Data on the change in the trends are given in the article "Decreases in adolescent weekly alcohol use in Europe and North America: evidence from 28 countries from 2002 to 2010", which was published in the spring of 2015. The authors based their findings on sociological research "Healthy behavior among schoolchildren" (Health Behavior in School-Aged Children (HBSC)).
The authors pointed out that even in the countries of Eastern Europe, where there was a steady growth in alcohol consumption trend among schoolchildren in the period of 2002-2006, weekly consumption of alcohol decreased from 12.3 to 10.1% in 2006-2010.
To understand the causes of this reduction it is necessary to determine key motives for alcohol consumption. DMQ-R questionnaire, consisting of 20 questions that can be grouped into four groups of factors: social, enhancement, coping and conformism, is considered to be a recognized standard for the assessment of motivation.
Various studies show that external social motives rank first for young people, i.e., a person drinks to socialize better, enjoy parties and celebrations, create a joyful and friendly atmosphere of communication or celebrate special events in the team.
Internal enhancement motives are of equal importance, when a person drinks to get pleasure and joy, to find oneself in a pleasant and exciting intoxication.
Coping factors for adolescents and young people, regardless of the region, are one third as important as social or enhancement factors. Coping group includes such motives as efforts to forget the worries and problems, relieve stress and depression, cheer up when in a bad mood, increase confidence and self-esteem.
Conformism motive is another less important factor for young people, when members of the group make people drink or make fun of those who do not drink. They also have to drink to please someone and not to be "black sheep". Conformism matters about half as much as social and enhancement factors.
It should be noted that enhancement motives for alcohol consumption can rank first in northern type countries, while maintaining high importance of social motives. In any case, both of them play a key role in consumption motives. This feature is pointed out by the authors who provided the study "Drinking Motives and Links to Alcohol Use in 13 European Countries" [J Stud Alcohol Drugs. 2014 May; 75 (3): 428-37]. Although the study was not conducted in Russia, Eastern Europe is traditionally referred to northern type of alcohol consumption.
It is important to note that social motives are usually associated with moderate alcohol consumption and a lower degree of intoxication than enhancement motives. This was proved by the authors of the article "Why do young people drink? A review of drinking motives" [Clin Psychol Rev. 2005 Nov; 25 (7): 841-61.] These conclusions are confirmed in subsequent studies.
Evidence that in countries with northern type of consumption teenagers drink less frequently, but get drunk more often is consistent with the prevalence of enhancement factors in Eastern Europe. These conclusions are given in the article "Drinking motives mediate cultural differences but not gender differences in adolescent alcohol use" [J Adolesc Health. 2015 Mar; 56 (3): 323-9].
Having identified the key motives, we will try to understand how they could affect the transformation of consumption in the young group. Let us consider the two main motives - social and enhancement.
Who drinks, what is drunk
What do we know about consumption and beer status in youth subcultures? It is obvious that youth leaders of the 90-ies and the social environment that generated currently "disappearing core" of beer consumers, differ greatly from the new generation considering the volume and style of alcohol consumption as well as drink choice.
Alcohol consumption is one of life aspects for young friends. Their behavior and choice - what and when to drink, is determined by the group leaders. The key role of leadership in alcohol consumption is described in research Popularity as a Predictor of Early Alcohol Use and Moderator of Other Risk Processes [Journal of Studies on Alcohol and Drugs, 75(6), 919-928 (2014)].At the same time, at a higher hierarchical level, alcohol, tobacco and drugs consumption is determined by popular people who form behavior stereotypes.
Nearly half of all teenagers by the age of fourteen get affiliated to a certain subculture and belong to the same group till the adulthood. Basing on the chosen subculture there appears a social group which is "hermetic" for outer influence. Parents and other teenagers who do not belong to this group, have little impact on probability to consume alcohol, according to research Protective factors of substance use in youth subcultures [Addict Behav. 2012 Sep;37(9):1063-7].
It is worth paying attention that alcohol is a mighty factor which promotes social bonding at stages of group formation, thus, we all know phrase "Welcome company". The information confirming the role of alcohol can be found in broader research Alcohol and group formation: a multimodal investigation of the effects of alcohol on emotion and social bonding [Psychol Sci. 2012 Aug 1;23(8):869-78].
If we combine the results of various researches, we can say that by the age of 16 beer in certain subcultures receives a social role, that is, promotes group formation and friendly atmosphere.
The fact that certain subcultures to a varying degree involve teenagers in alcohol consumption was proved by research Dance Is the New Metal: Adolescent Music Preferences and Substance Use Across Europe [Subst Use Misuse. 2012 Jan; 47(2): 130-142.]. conducted in Europe. Though in this research alcohol and drugs were not considered separately, which does not allow to differentiate their popularity by groups. However that kind of analysis was conducted earlier.
Thus, in 2002 in the USA, the link between certain subcultures and preferences of young people aged 20-25 was explored and the results were published in article Music, substance use, and aggression [J Stud Alcohol. 2006 May;67(3):373-81.]. The article showed that there was a distinct connection between choice of a certain music subcultures and probability of various alcohol kinds consumption.
The research results cannot be directly applied to Eastern Europe of the present time due to different structure of the subcultures. But they are very interesting as they allow to form a preliminary opinion concerning the way stimulator choice differs from one subculture to another.
Rap is the "heaviest" culture as to psychostimulators being consumed - among its fans one can find lovers of alcohol of any strength as well as marihuana and synthetic drugs.
Techno as a style was popular at the time of the research (2002), but then it transformed into other trends of dance music. Partially, house became its successor. This research as well as many others pointed out high popularity of synthetic drugs and various alcohols among night club goers.
Reggae adepts see all psychostimulators in a positive light, but certainly they mostly favor marihuana, which possesses a sacral significance in their subculture.
Country fans are never against having a glass of something, probably preferring beer to stronger drinks, and surely you are not likely to find a lover of ecstasy or marihuana among them.
Rock music in the USA along with well known rock classic includes a lot of other genres, and its fans are in general prone to consume strong alcohol.
We can not say that subculture of heavy metal rock in the USA promotes alcohol consumption, however there is synthetic drug use.
Among alternative music lovers one can rarely find those who smoke marihuana or drink strong alcohol.
Besides, fans of melodious R&B less than representatives of other cultures need alcohol and drugs.
American punks prefer marihuana and not much care for alcohol and synthetic drugs.
Among lovers of world genre which includes music of different ethnic groups and cultures, it very difficult to meet consumers of marihuana and alcohol among them.
How did the audience of these subcultures change?
We recommend to those who are interested to turn to Google Music Timeline service. In short we can single out the following world trends of the decade - the first position in the list is shared by three genres: dynamically growing Rap/Hip-Hop, Pop music that has somewhat enforced its position, and Alternative/Indie, which on the contrary, yielded its positions. Starting from the 2000s, Rock has been yielding its positions to the competitors. Its audience is almost half as big as that of any of the mentioned genres, though if we sum it up with also "slimmer" Metal audience, it will equal them. There are comparatively not many fans of Dance and R&B (obviously, it is a limited age group), but their share is growing. Country regaining its popularity back.
Having all this in mind, let us analyze the transformations of Russian subcultures and their connections to beer consumption.
Decline of beer status in Russia.
We have analyzed the lyrics of 914 songs, released after 1990, containing word "beer". If the context was negative or neutral (for example, there was simple enumeration of drinks), the lyrics were excluded from the beer status assessment. The final list included 161 lyrics with positive attitude to beer or accent on its consumption by the song hero.
Beer consumption traditions, formed in 90-ies, went beyond the cultural groups that were their centers. Due to high availability of beer, low price and absence of other "light" psychostimulating products, beer became a popular drink among Russian youth.
If we take music in general, the highest status was given to beer in 1999, when there appeared 11 popular songs with positive context. During 2000-2004, beer status in music remained high.
However, the period of high beer status, reflected in song lyrics, ended approximately in 2005. The status was gradually falling from 2005 to 2008. In 2008-2010 the leaps of positive beer mentioning can be explained by the economic situation and beer consumption dynamics, when maximum uprise of the beer market changed into fall and stabilization. Since 2010 the beer status has remained at low level.
As subcultures have certain music genres, it is easy to find out how popular beer in each of them*. We have singled out eight music genres, which had rather distinct limits.
* The song lyrics search was carried out on specialized musical sites bard.ru, woos.ru, russianshanson.info, and rapnax.net as well as on general musical sites textmusic.ru and musicov.net.
1. Rock, including folk and metal. This group revealed most songs with positive attitude to beer, i.e. 52 songs or 32% out of the total number. Most of them became popular during the period from 1990 to 2003.
In youth rock culture which saw the peak of its popularity in 1980-ies and the early post-soviet period, beer had a special role and was consumed in large quantities. Yet, metal fans prefer foreign music, that is why we managed to find few lyrics of well known songs in Russian, which mentioned beer.
We have to remember that there is an "accumulation" effect to values development of rock music. Although rock is also subject to time and fashion, quite often, its fans listen to old songs. This means stronger influence of the songs on beer status.
Recently ethnic rock music originating from traditionally beer Celtic countries have been gaining more and more popularity. Many modern bands play in genres "beer folk", "Irish pub folk" and others, which are very appropriate in beer HoReCa. An example of beer folk is band "Troll Gnet Yel" ("Troll bends fir"). However, German and Czech beer cultures are little developed by modern bands.
2. Urban, including rap and hip-hop. This genre started gaining popularity in mid90-ies and still retains it among youth audience. The influence of this culture on lifestyle and consumption of young people is very big.
The spectrum of consumed psychostimulators is wide and, judging by song lyrics corresponds the results of the research conducted in the USA, in 2002 (see above). Beer is also included in the "consumer basket" of rappers, but doesn't have a status position there. At least in song lyrics, beer is sometime mentioned in negative context (but still more often it is mentioned in positive context) or in enumeration
Urban is represented by many Russian speaking singers, yet we managed to find only 28 song lyrics favoring beer, that is, 17 % of the total songs number. An important role here is played by the singer's personality as his/her character and consumption style is reflected in songs. Simply speaking, some rappers like beer and some - not. In general we can consider the attitude to be neutral.
Urban genre had its special development rate in the general development of beer theme. At the time Rock category saw beer status lowering, Urban, on the contrary, experienced its growth and supported the general trend of high beer status in 2005. Until 2010, the active development of beer topic in Urban genre partially set off the decline in other categories.
In 2008, the peak year for beer market, there appeared as many as 6 songs favoring beer against the background of sharp interest fall to beer topic in other subcultures. However, this trend is in tune with the development rate of Russian Urban, which exceeded its popularity peak in 2008-2009, according to Google Trends.
3. Russian Chanson, art sons with criminal zest. This trend started forming many years ago, but its highest popularity was in 1995-2005, when there appeared a lot of Chanson musicians. There appears few new songs today and the interest to criminal romantic has somewhat fallen. This is connected to the fact that Russian Chanson is an aging genre, and nearly a half of its fans are people of middle and older age, while the share of young fans is only 10%. Google Trends reflects the peak popularity of Russian chanson in 2010 and its perceptible decline from 2011.
Russian chanson is less than other genres dependent on fashion, and here we can observe the effect of status accumulation. The status drink in criminal environment is vodka. Cognac, wine, and beer are usually taken for attributes of good life and are often mentioned in enumeration. Sometimes we can find attitude to beer as to an "unserious" drink.
4. Author genre is bard's songs which is mostly popular in intellectual environment. This genre was in its zenith even before the fall of the USSR, that is why, most of author song lovers belong to the older generation.
After the 90s, there are not so many well-known singers, and their songs seldom become famous. Timur Shaov became one of the few exceptions, both, considering the popularity and declared love for beer. This ironic singer has a lot of beer mentioning in his song lyrics.
All in all among "status" songs lyrics, bard account for 12%. In this genre we can also observe repeated listening effect and value accumulation effect.
Bards mentioned beer seldom but in positive context, thus the influence of this genre on beer status is neutral.
5. Pop is chart and variety pop music which can include different styles, but is targeted at mass audience. According to the world tendency, Pop is gaining ever more musical space, integrating into subcultures. Popular music is the main choice by nearly one third out of all people regardless of age and additional choice for most of people. Men prefer pop music less than women.
Peculiarity of Pop genre is rapid outdating of released songs. Regarding beer topic this means no "accumulation" of beer status. Lively beer hits by bands "Dyuna", "Academia", and "Diskoteka Avaria" left the rotation in some time and were wiped out from listeners' memory by new hit flow.
Active support of beer status by Pop was formed in the 90-ies and ended after the 2000s. Due to the vast quantity of music product, only 15 of status songs or 9% seem to be even less significant.
In popular music the status drinks are considered to be elite alcohol, club cocktails, sometimes wine, cognac, and vodka. Active lifestyle implying absence of alcohol is often demonstrated. Thus, the influence of Pop music on beer status is more likely to be negative.
6. Punk. In the second half of the 90s there appeared a range of popular new punk bands that play energetic and hard-line music. This youth subculture, being thin at the beginning, started attracting ever more teenagers. Surveys, conducted among school students reflected high popularity of punk bands among them.
Despite the comparatively low number of songs (13 lyrics with positive beer context or 8% out of their total number) we can say that punks in eastern Europe have respect for beer. Particularly many songs favoring beer appeared in 1999-2004. However, since 2008, the interest to punk has been falling, which is particularly reflected in Russian survey by Google Trends.
7. Obscene Russian punk is represented by brutal "male" songs, actively using Russian swearing words.
In the 90-ies, "Sector Gaza" won a huge popularity among teenagers, and in the 2000s the same success was attained by band "Leningrad". Belonging to punk subculture by definition, the leaders of these bands have the image of cynical and sharp-tongued common men. The music is in opposition to show business laws and its spreading takes place mainly due to virus spreading.
In Obscene Russian punk lyrics the attitude to alcohol (and beer) is obviously positive. If we sum up all the albums and songs of the brutal genre, we will see that despite the very small absolute number, they are represented by 11 lyrics favoring beer (8% out of the total songs number). Having reached its peak at the beginning of the 2000s, starting from 2005, the popularity of Obscene Russian punk was going down and stabilized by 2008.
8. Dance, including house, trance, techno styles of club music. This genre is represented in our list by only one song lyrics which can also belong to Urban genre. On the one hand, such a low involvement is connected to foreign singers' domination. On the other hand, dance music usually contains very laconic voice-part to fill up the melody.
Status drinks for dance music lovers are club cocktails and elite alcohol. Besides, because of the club subculture alcohol drinks and beer received less healthy competitors. Fully adapted representatives of wealthy youth and middle class can prefer amphetamines, that became popular on the rave culture in the late 90s. In total 6% of all teenagers and young people have tried synthetic stimulators. They are often not considered to be drugs but they are much stronger by the psychostimulating action than alcohol.
Let us sum up: there was a share decline of subcultures favoring beer, in the first place - rock culture, against the background of other trends expansion which have neutral attitude to beer, and of pop music which influences beer status rather negatively.
However, we have to remember that there are non-musical subcultures, where beer is still a status drink. The major among them is fans of football teams.
Judging by texts and videos, most of opinion leaders of the modern youth have an active lifestyle; they value physical and social wellness. Consumption of big amounts of beer (and alcohol in general) is frowned upon as it stands on the way to personal success. Alcohol and psycho active substances now have a lot of alternatives - from computer games to extreme sports. Teenagers' entertainments often demand such level of concentration that can not be attained while alcohol consumption.
The process of beer consumption plays a lesser role in socialization of teenagers. Most of young people give top priority not to retaining their social connection but to personal success. This life vision stands in contrast to often destructive or closed subcultures of informal fringe leaders or 90s heroes, that give much significance to alcohol consumption.
But how can we describe the process of beer status decline in figures?
Let us match the end of the "status" stage for beer and the social parameters of a consumer drinking "much" beer, basing on the data of 2013/2014. Thus, the typical age of men who drink "much" beer is 22-33 years old, and active inflow in this group starts from the age of 21.
Let us consider that the beer status is formed under the influence of subculture at the age of nearly 16. Then in the generation of "disloyal" consumers, for whom the beer status was low, the period of entering the age group of drinking 'much' beer (crossing the line of 21) started in 2010. In other words, the consumer core is shrinking with growing speed because of the low beer status among the former teenagers of the 2000s (born in the late eighties).
By 2017, the consumer core will be by half represented by generation of people who do not find beer to be a status drink. And the average age of the consumers' core is likely to grow. Besides, it is worth mentioning that older consumers are also influenced by absence of positive context and beer topic in the culture.
Beer during crisis
Let us take the point of economy a little bit further to try to understand how the crisis affects the consumption of beer.
According to World Bank estimate, Russian economy is likely to enter the recession in 2015, when the effects of falling oil prices and economic sanctions become fully evident. Economic decline is projected in the range of 2.9-4.6%, depending on the oil price ($ 45-65 per barrel) if there is no end to sanctions.
The decline will primarily occur due to lower consumer demand, in response to decreased confidence of people, as well as a high level of household debt and reduced income growth.
In 2015 high inflation conditioned by the recent sharp devaluation of ruble is going to continue putting pressure on profits and salaries, which can also result in the growth of unemployment. As for positive factors, weak ruble could create incentives for production expansion in a number of industries.
All of these factors among others have a particular impact on beer market. In what way? - let us consider this issue below.
Money for beer
The causes underlying the growth and decline of beer market have basically the same economic factors. In chapter "Economy vs state regulation," we discussed the fact that since the beginning of the 2000s affordability index* dropped threefold and has remained relatively stable since 2008.
* Share of price on a liter of beer in salary.
However, unlike beer, people did not begin to consume much more bread or salt, though their affordability index also fell by several times. The difference between these products is that people do not consider beer to be a basic commodity or an essential product. Elderly people may even regard beer as an attribute of luxury living.
Therefore, rapid growth of beer consumption observed until 2008 was associated with a significant reduction in poverty rates and middle class growth. Now, when there is a reverse situation, brewers naturally try to sustain the price, even at the expense of their own profits.
In the spring of 2015 Romir published the results of price monitoring survey on one of Russia's most popular beer brands - "Baltika No.3 Classic." The findings showed that the price of "Baltika No.3" remained almost stable for the last six months (till February 2015) and in comparison with May 2014 values even fell by 2.4%.
During one year from February 2014, the average real price for a bottle of "Baltika No.3" increased by 12%. This is a quarter as low as total consumer inflation rate and almost one half as high as official food inflation rate.
According to Romir monitoring data, this is generally a normal rate of price growth for this product. Beer price was growing at roughly the same rate in 2013. Although general economic situation at the time was more favorable and total consumer and food inflation remained at 7.6% of annual growth. That is, in 2013, retail beer price grew twice as high as consumer inflation, and now vice versa.
The current low-key pricing policy is likely to help "Baltika" maintain its market share. But maintenance of affordability index by brewers on its own is unlikely to help preserve the volume of beer consumption.
It follows as a logical consequence from 2010 year-end, when in a substantial increase in retail price conditioned by higher excise taxes, people hardly reduced the consumption of beer, as the level of their salaries quickly began to recover from the crisis. It turns out that the change in the price of beer does not have such an impact on its consumption as the economic situation.
Most people regard beer as a product of impulse demand which they can easily opt out when in costs-saving regime. The decision of whether to save on unnecessary purchases depends not only on the affordability of a particular product, but rather on the understanding of its relevance in the current financial situation. And financial situation depends on the dynamics of real income relative to inflation.
In February 2015 Russia experienced the shock of food inflation, which reached 22% in annual terms. Besides that, the level of real salaries of Russian consumers began to decline further in the second half of 2014. Therefore, consumers have already set the cost-saving on purchases.
Thus, according to a report provided by Romir in February 2015, daily consumer spending in Russia decreased by 2.5% compared with January. This decline occurred for the second time during the entire observation period. Actual living expenses, i.e. adjusted for inflation, fell by 5% in February. No similar process has been observed for more than 15 years.
At that, food expenses decreased by 1.5% in nominal terms, and by 18.5% in real terms. Consumers continue "hard optimization" of their food basket. But many of them continued to buy non-food items for future use in anticipation of further price increase.
Nevertheless, according to "VTB Capital" analysts, the rise in food prices and income reduction of Russian consumers will lead to the fact that at the end of 2015 all food expenses will increase by 10-15 percentage points accounting for 50-55% of all households expenses. It is expected that following optimization of expenses beer will continue to be displaced from the consumer basket by basic food products.
In chapter "More money, more beer?" we determined that the higher the salary of a male employee, the greater the likelihood that he will drink "much" of beer. Whereas with a stable high income, he may eventually switch to elite beverages or give up alcohol. Alternatively, if the income is small, he is more likely to switch to vodka or give up on alcohol.
Therefore, when consumers switch to the costs-saving regimen it can mean one positive thing for beer market - with a decrease in incomes beer obtains more competitive power as against imported alcohol which became much more expensive. Middle class in terms of consumer savings may opt out elite alcohol and club cocktails, "come back to the roots" and replace them with beer. And that means a few more percentage terms in the beer market asset.
By the way, creative marketing directors at Efes probably intended to take advantage of this situation, as they launched a whiskey-flavored beer drink "Gold Mine Beer American Whiskey Flavor". The agency offered a design combining elite alcohol style and beer drink category.
Sure enough, the effect of "whiskey-substitution" for wealthy white collar workers cannot compensate for the reduction in consumption by people with lower incomes who drink the major volume of beer.
Despite the slowdown in the real economy, the demand for labor in 2014 was maintained, and the unemployment rate almost did not deviate from the minimum level ever. It persisted on the account of salary reduction and hidden economy growth. But the beginning of 2015 seems not so optimistic even today.
At the time of this article publication Rosstat released data, reporting a rise in unemployment in February to 5.8% of economically active population (4.4 million of 75.8 million people). Data provided by the Ministry of Labor show an increase in unemployment observed also in March, which continued as yet from August. An increase in the number of unemployed people at the end of summer can be considered normal taking into account the season, but after January there should have been a traditional decline in unemployment, but it was not observed (as in 2009).
By March 2015, unemployment might have increased by 0.3 percentage points without taking seasonality into account. In absolute terms, this value does not seem so great. But let us bear in mind that in 2009 beer market fell by 8.6%, when unemployment increased at an annual rate by 2.4 percentage points and amounted to 8.5%.
But does unemployment have a direct impact on the consumption of beer or is it rather a macroeconomic factor? According to RLMS-HSE polling surveys, unemployment also exerts a direct effect, but in unexpected ways.
The unemployed, but able-bodied group of respondents, interviewed in the pre-crisis period of 2013/2014 included roughly the same percentage of those who drink "much", as the group of employed respondents. These unemployed must have had other sources of income, as for example, financial support, savings or "unearned" income and so forth.
But according to the data of crisis years 2009/2010, the group of unemployed respondents during the crisis accounted for about ...% more people who drink "much" beer than the group of employed respondents.
On the one hand, people who drink a lot, usually lose their jobs more easily. On the other hand, savings and large amount of free time allowed them to drink a lot of beer, if they wanted to, but could not do, when they had a job.
Beer and labor
To assess the potential impact of crisis on beer consumers we should divide them according to economic sectors they belong to and professional groups. Considering the contribution of these groups in the consumption of beer, and basing on estimates of the development of industries, we can try to predict the stability of beer market in crisis.
If we divide the consumers by professional groups, we will see that the largest beer consumption falls to manual employees. In particular this applies to skilled workers who create something with their hands or control machines and mechanisms. However, unskilled workers also drink "much" of beer more frequently than other categories. In total, workers of different qualifications account for 63% of consumers who drink "much" of beer. Of course, the prevalence of workers can be explained by the fact that they are mostly male.
Vendors and service industry workers, officials of various ranks, as well as middle and high qualification specialists play much lesser role in the consumption of beer. Although in absolute terms their proportion is much larger than the share of workers. On the one hand, there are more women among "white collar" employees, on the other hand, they often prefer other drinks or refuse from alcohol.
Workers of various industries are involved in the consumption of beer to varying degrees.
There are many women employed in the field of trade and services, so the share of beer drinkers is not very large here. However, due to their multiplicity, consumers employed in this industry have the greatest impact on the market of beer, drinking one fifth volume of the total consumption.
Trade and services were found to be the areas, most sensitive to the crisis, judging by the dynamics of business confidence. The main fall occurred in the first quarter of 2015, as at the end of 2014 the consumers on the contrary sharply increased their expenses, trying to invest their money into commodities in response to ruble devaluation and inflation. But, as we have already noted, in 2015 people switched to costs-saving regime, which apparently resulted in a decrease in business confidence in trade and services.
For this reason, in the short term, these sectors appear vulnerable and those involved can make a major contribution to the decline in beer consumption in 2015.
Construction industry involves many workers of different qualifications, most of whom are male. Therefore, despite the third place in the number of workers, builders rank second in terms of beer consumption - about 14% of the total volume.
The index of business confidence in the construction sphere underwent a marked decline due to seasonal fluctuation. But real estate market experts believe that, despite the crisis processes, developers are unlikely to freeze initiated projects. However, in current circumstances it is not reasonable to expect investments into new projects until the economy stabilizes and the demand for housing resumes. According to regulations, the average duration of the construction of monolithic houses is almost 2 years, in a point of fact it often requires more time.
On this basis, short-term (2015) prognosis of beer consumption in the construction industry should be regarded as moderately negative, as long as salaries are reduced instead of staff optimization.
Transport and communications is a branch where workers drink 12.5% of the total beer consumption volume. These fields mainly involve male consumers with secondary education and qualifications. But despite this, only few of them drink beer and in comparatively modest amount. Perhaps this can be explained by the specifics of the work. Due to heterogeneity and large share of the state sector, it is difficult to assess the impact of the crisis on this industry.
Light and food industries, although combined into one group, are having different experience. Thus, now business confidence in light industry was at a low level for a long time and fell even more. At the same time, food industry is facing the future quite confidently. Perhaps Russian food industry is maintained stable by counter-sanctions and low elasticity of demand for food.
Law enforcement services, oil and gas industry, housing and utilities infrastructure, health and education, military industry and culture depend on Russian budget and priorities of the government. In total, all these areas account for about a quarter of beer consumption.
Agriculture share weight, which is expected to benefit from counter-sanctions, is rather small - about 4%.
Thus, we can assess the resilience of beer consumption by workers employed in various fields to crisis. About 23% of consumers are in the group characterized by high risk of a decrease in incomes and a significant reduction in beer consumption in 2015 - probably more than 10%. For about 32% the risk is considered to be medium. For about 45% of state-financed sector employees the risk will be low if labor payment expenses will continue to be compensated from the reserve fund.
Implementation of the scenario described in the World Bank report can be expected to result in the market decline which may even reach double-digit rates.
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The article materials were prepared using "Russian monitoring of economic welfare and health of population (RLMS-HSE)" which is carried out by National research university - Higher School of Economics and CJSC "Demoskop" involving Population Center of North Caroline in Chapel Hill and Sociology Institute of Russian Academy of Sciences. (Sites of RLMS-HSE investigation are http://www.cpc.unc.edu/projects/rlms and http://www.hse.ru/rlms).
In case the information source is not specified in the diagrams, this means that data by RLMS-HSE were used.
Besides, the article used the official data by Rosstat, Federal customs service, and Ministry of Labor of the RF.
A number of estimations concerning the Russian economy development of were based on publication "World bank report on Russian economy", 33-2015.
A number of sociological estimations were based on the data by research companies FOM and Romir.
Publications in "Kommersant" and "Vedomosti" were used in the preparation of the article.
The data on beer consumption and their interpretation are our assessment based on the current trends in case the source has not been specified.
We do not claim the given information to be absolutely correct, though it is based on data obtained from reliable sources. The article content should not be fully relied on to the prejudice of your own analysis.