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. ...
The global outlooks of the legal market of cannabis are excellent. It is possible to simultaneously imagine dry law repeal and craft brewing boom but not in one but in several consumer categories. For alcohol is contained in liquids and cannabis derivatives can be in three physical forms.The value of legal market of cannabis and its products can reach 10% of the world beer market in five years, and in 2030-2040 even reach the same scope provided the current rates of legalization and development of market infrastructure remain at the same level. Cannabinoids are actively integrating into the food industry from chewing gum to beverages deforming the pharmaceutical and alcohol markets, they influence the trends of healthy lifestyle and beauty. ...
US. Craft Fights Back vs. the Foreign Beer Giants
Since 2001, craft beer has grown at a compound annual growth rate (CAGR) of 7.9 percent, whereas imports have grown at an annual rate of 1.3 percent. and domestics have declined at a rate of .7 percent. Craft has even accelerated in the last five years to an annual rate of 10.1 percent while both domestics and imports have slowed [see Exhibit 1].
|5 Yr CAGR||-1.1%||-3.2%||10.1%|
|10 Yr CAGR||-0.7%||1.3%||7.9%|
|Market Share ‘01||86.5%||10.8%||2.6%|
|Market Share ‘11||80.7%||13.7%||5.7%|
Sources: Beer Institute, Brewers Almanac
The Power of the Millennials
Many industry analysts project that these trends will continue for some time. I believe that the craft category will grow to roughly 25 million barrels by 2020. Craft drinking Millennials outnumber their older Gen X counterparts two to one.1
According to a March issue of Time Magazine, approximately 10,000 Millennials turn 21 every day in America. If the consumption of craft beer remains flat per drinker, the increase in the craft drinking population alone will grow craft to 18 million barrels by 2020; with 2.5 million of the 6 million incremental barrels coming from Millennials.
Craft’s share of Millennials total beer consumption, however, has increased over the years. Last year, for example, 33 percent of Millennials drank more craft than in the previous year as well as 18 percent of those belonging to other generations.2
If consumption of craft amongst all generations continues to increase at modest rates (4 percent per annum), the category will grow to 25 million barrels by 2020. I feel this is the more realistic projection [see Exhibit 2].
Pressures from Big Beer
However, in spite of the groundswell of consumer interest in craft beer, there are powerful forces working against the interests of most breweries that make up the category. These forces are primarily the big foreign-owned corporate breweries that see craft as encroaching on their interests with distributors, retailers and consumers.
The duopoly players (ABI and SAB/Miller) who control 77 percent of the U.S. beer market are working to beat down competition from craft brands. In pursuit of this objective they do four things:
- Pressure the independent distributor tier to focus on their own products to the exclusion of others (e.g., ABI’s 100 percent share of mind and anchor distributor programs).
- Create faux craft brands (e.g., Blue Moon and Shock Top).
- Buy and assimilate craft brands and exert strong pressure on craft at retail—sometimes through their positions as category captains. At the retail tier, for example, they assert to chain buyers that there are too many craft SKUs and that craft is over-spaced.
- They have asserted that many crafts should be placed on the warm shelf along with wine and merchandised by style rather than by brand.3
The Brewers Association (BA) Market Development Committee,which is represented by eleven craft brewers, has taken a deep interest in fighting the assertions that craft is over-spaced in the chains and has, therefore, commissioned this article.
Craft is Under-Spaced
The punch line of the following paragraphs is that craft is under-spaced and retailers should strongly resist moving craft brands to the warm shelf.
We reached our conclusion by analyzing all of the major chains individually in five key regions: Northern California, Southern California, Chicago Area, Northwest and the Northeast. For each chain we looked at all the segments (craft, premium, super premium, sub-premium, imports, PAB and cider) and measured the physical space allocated to them in each of their account classifications (e.g., affluent, expanded affluent, ethnic, mainstream).
We then juxtaposed the allocated space with the gross profit (GP)4, incremental GP (meaning the change in GP vs. a year ago) and expected incremental GP in 20165 generated by each of these segments.
Within each chain, we weighted this data by their own account classifications and then rolled this all up to the regional level by weighting each chain according to their relative volume. The major chains in these regions represent between 42 -78 percent of off-trade beer volume of their respective regions.
Share of Space Vs. Gross Profit
The data in Exhibit 3 shows that in terms of share of space vs. current share of gross profit, craft is under-spaced in Northern California, the Northwest and the Chicago Area, and is appropriately spaced in the Northeast. It is over-spaced based on this metric in Southern California. In terms of domestic beer, super premiums are over-spaced in three of five regions and premiums are slightly under-spaced in three of five regions.6
Share of GP vs. share of space, however, is often not the right metric for retailers to use when making space decisions, especially when the craft category is growing so rapidly. While craft is over-spaced in Southern California according to that metric, if we compare the amount of incremental GP it generates, it is actually under-spaced there, too. In terms of incremental GP, craft performs far better than all other segments.
On this dimension, craft is the most powerful category adding over 60 percent of the incremental GP in three of the five markets. This performance by craft far outstrips all the other segments. Conversely, on this measure imports are weak and premiums are very weak—actually generating significantly less GP for retailers in 2012 than in 2011.
In Chicago, for example, if we look at the change in retailer GP by adding the declining and the growing segments together, premiums contribute a whopping negative 93 percent of the change in GP! No doubt, this is a difficult concept to get your mind around. Simply put, it’s BAD; they are reducing GP for the retailers! [See Exhibit 4].
It is important to note that in any market where craft is in its early stages of development, its share of space will always exceed its share of GP. This is because there can be no growth without it first being on the shelf. As craft grows, its share of GP will match, then exceed, its share of space. Following this logic, look in Exhibit 3 at the amount of GP that craft will generate in 2016 assuming the segments continue to grow at their current pace. The ratio of craft’s share of GP to its share of space in 2016 is far better than any other segment [see Exhibit 5].
Quantities and Organization
While this post demonstrates that craft is under-spaced in off-premise chains, what about the number of craft SKUs that should occupy the shelf space allocated to craft? Secondly, how should the sets be merchandised?
The first of these questions is difficult and I’ll not attempt to answer here. I will say that this will vary according to the strategy of the particular chain. Regarding the second question, I share the position of the BA Market Development Committee, which was that expressed by Jessica Jones of Ninkasi Brewery in the last BA Insider. She laid out a compelling case that chain sets should be organized by brand versus by style for various reasons, including that it reduces confusion for shoppers and is far more attractive to them. Consumers come to trust certain brands and don’t want to hunt for them while shopping for a particular style.
Cooler Vs. Warm Shelf
Finally, contrary to the stance being pushed by the large corporate beer companies, retailers should avoid moving crafts from the cooler to the warm shelf. In contrast to mass-produced, domestic lagers, craft beers tend to contain more high-quality and expensive ingredients (e.g., aroma hops and two row barley) and are largely not pasteurized. Given this, their flavor deteriorates faster at warm temperatures than those of pasteurized macro-lagers (see Exhibit 6).
Retailers should consider dedicating more refrigerated space for craft brands so their customers have every opportunity to enjoy the flavor quality of American craft beer. Do the chains really need to merchandise all the myriad of package and container sizes of the same domestic lagers in the cold box? Surely not! If anything they should be moved to the warm shelf.
In summary, while the future should be very bright for craft beer in the U.S. given changing consumer preferences, the powerful duopoly is working hard to undermine this movement. While they are applying pressure on many fronts, their assertions that craft is over spaced in the chains are plainly wrong. Craft is under-spaced!
Photo © Todd Dwyer via Flickr CC
1. Mintel Group, Craft Beer Report US, November 2012
2. Mintel, 2012
3. ABI’s Nov 2012 Sales and Marketing Communications meeting in Chicago; and various discussions with chain buyers and distributors
4. Calculated assuming GP margins: craft=28%; imports=25%; premium=18%; super premium 25%; sub-premium=20%; PAB/cider=28%
5. To get 2016 GP we assume that the segments continue trending at their current rates
6. Nor Cal: 4 chains = 78% beer 77% craft; So Cal: 4 chains = 62% b/81%c; Chicago: 4 chains = 69%b/76%c; Northeast: 6 chains = 42%b/43%c; Northwest: 4 chains = 73%b/71%c
Prior to the four years he has been at Lagunitas Brewing Co, Todd Stevenson held various senior roles in marketing, strategy and general management in his 14 years at Diageo in the U.S., Japan and South Africa. In addition, Todd ran the global marketing for Nokia's Lifestyle Division, based in London. He holds an MBA from Dartmouth and a BA from Tufts University.
8 Янв. 2013