Carlsberg: Russia Growth Back on Track

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The Russian beer market is showing signs of recovery this year, but brewers are suffering from rising costs following last year’s poor harvest in Russia, which is leading to price increases for consumers, said Carlsberg A/S Chief Executive J?rgen Buhl Rasmussen.

“The last couple of years have been challenging, but the market is now back on the growth track,” Mr. Buhl Rasmussen said in an interview.

Copenhagen-based Carlsberg, which holds a market share of around 40% in Russia through its ownership of the Baltika Brewery, Russia’s largest beer producer, expects Russian beer consumption will return to pre-crisis levels by 2015.

Average Russian beer consumption reached almost 80 liters per head prior to 2008, when oil prices reached record highs fuelling Russia’s energy-dependent economy. In some big cities like St. Petersburg, consumption reached 100 liters per person.

However, a three-fold increase in beer tax at the beginning of 2010, which let to a 25% rise in beer prices, coupled with the economic downturn caused average beer consumption to fall to just 66 liters a person last year.

Mr. Buhl Rasmussen forecasts a small growth in the market this year, but expects an annual growth rate of between 3% and 5% in the medium term. Russian beer consumption grew 1.5% in the first quarter, but an unusually cold April could affect the second quarter, the CEO said.

The beer market’s recovery has been slowed by escalating costs. Commodity and labor costs in Russia are expected to rise 10% this year, compared to an average increase of 5% in other markets, Mr. Buhl Rasmussen said.

Rising commodity prices are causing problem across all regions, but a severe drought last summer that cut Russia’s grain harvest by a third has forced the brewer to import grains.

“The hardest hit region is by no doubt Russia,” Mr. Buhl Rasmussen said. “We can’t absorb the higher costs. In the end, the consumers will have to pay for the rising commodity prices.” So far this year, Carlsberg has increased its beer prices in Russia by 7% to 8%, he said.