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. ...
InBev-Miller Deal Signals Tougher Merger Scrutiny In China
For the first time, the Ministry of Commerce (MOFCOM) distinguished between mass-market and premium brands, and defined the geographic market to be anything smaller than China itself when conditionally approving a merger.
“If a merger or an acquisition triggers the threshold of merger filing in China, the parties should pay particular attention to the definition of relevant market, e.g. whether the proposed relevant product market should be sub-segmented as high-end and mass-market; and whether the relevant geographic market is regional taking into account the distribution area and the transportation cost of the relevant product,” Kate Peng, a partner and antitrust specialist at King & Wood Mallesons in Beijing, told Bloomberg BNA in an e-mail.
Refined Market Analysis
MOFCOM defined the relevant product market as beer, but segmented the market into “mass brands” and “mid-to-high-end” brands based on price, defining the line between them as 75 cents (RMB 5 yuan) per 500 milliliters, according to an Aug. 8 Jones Day client alert.
MOFCOM also determined that competition among breweries usually takes place at a provincial level within China, the first time one of its published merger decisions defined the market narrower than the national level, the Jones Day client alert said.
In a phone interview, Zhang Yizhe, a partner with Jones Day in Beijing said the decision was likely to set a precedent, particularly for consumer items.
“It could happen to other products, as well,” Zhang said. “It makes sense from a certain perspective because under the antitrust law, products need to be considered as substitutable by consumers to be included in a single relevant market.”
An example might be mobile phones, Zhang said, with some consumers tending to purchase high-end ones and unwilling to consider low-end as a substitute. “The question is how large that group of consumer is,” she said. “If a sufficiently large number of consumers see high-end and low-end products as substitutes, they arguably should be included into a single relevant market.”
Province Markets Tapped
In its written decision, MOFCOM cited the ease of transportation as a consideration in setting the geographical market.
“As both AB InBev and SABMiller are active in the production and sales of beer in China, MOFCOM focused its assessment on the 24 provinces where the parties have horizontal overlaps,” it said in its July 29 decision. “Meanwhile, with the further improvement of the infrastructure, the transportation has become more convenient and the geographic scope where beer is sold tends to be expanded. This is especially true for premium/super-premium beer.”
The decision took note of China's highly concentrated beer market, where the top five brands consume 80 percent of the market, Jones Day said. Snow Breweries and AB InBev are the biggest and third-biggest players and have a combined share of 41 percent in mass brands and 52 percent in premium brands.
As a condition of the merger, InBev had to divest SBA Miller's 49 percent stake in Snow Breweries, which was done even before the formal merger filing.
“The combined entity would have substantial market shares in both product segments in many individual Chinese provinces, in some with combined market shares of more than 70 percent,” Jones Day noted.
Going forward, foreign brands may be implicated in reviews that look at more segmentation, Jones Day said.
“For most products, foreign companies tend to offer higher quality and better service at higher prices, while most domestic Chinese competitors offer commodity or generic products and have to compete on price,” the firm said. “The beer decision thus may lead to narrower ‘high-end’ market definitions in which foreign suppliers are attributed higher market shares than in the overall product category.”
Companies, of course, do their own analysis and sometimes segment the market and take proactive steps before filings to improve their chances of regulatory approval for mergers, said Michael Gu, a merger and antitrust specialist and partner at Beijing's AnJie law firm.
MOFCOM has considered market segments in the past, he said — just not in cases where mergers were approved with conditions.
For that reason, “We would think it is quite normal and reasonable for MOFCOM to subdivide the relevant market in SABMiller/AB InBev case,” he told Bloomberg BNA in an Aug. 16 e-mail.
China has been on an overseas buying spree in the past couple of years, as its own economy slows from the breakneck growth of just a few years ago. Some analysts said the MOFCOM decision could affect outbound investment.
“As the decision on Anheuser-Busch In-Bev/SABMiller was published, it will serve as a reference for MOFCOM's merger review in the future,” Peng told Bloomberg BNA. “Moreover, the overseas antitrust authorities will also take it as a reference to some extent, when reviewing Chinese firms' merger or acquisition of companies overseas.”
18 Авг. 2016