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. ...
Company’s background and structure
Tsingtao Brewery remains the most famous and top-rated brewing company in China, though it lost the leading positions 10 years ago. Besides, Tsingtao Brewery is a major beer exporter and a sole big beer manufacturer known outside China due to its Tsingtao brand.
Popularity of Tsingtao Brewery is associated with close integration of business into the history of Chinese brewing. The brewery in Qingdao (Shandong province) was founded by Germans in 1903, water for brewing was taken from a river springing from legendary mountain Laoshan (Mount Lao). Today a lot of Chinese and foreign tourists come to the cultural and recreation center and museum affiliated with the brewery. They attend various festivals and concerts organized by the company. It is no surprise as Tsingtao is the oldest and until recently used to be the biggest premium brand, its background fully corresponding to the premium.
Despite the privatization started in the 90-s of the previous century, the state authorities influence the operation of Tsingtao Brewery Co. Ltd through the major shareholder with a stake of 30.83%. This is Tsingtao Brewery Group Co., Ltd belonging to State-owned Assets Supervision and Administration Commission of the State Council in Qingdao (QD SASAC). The second biggest owner with a stake of 27.43% is HKSCC (Nominees) Limited – a subsidiary of Hong Kong Exchanges & Clearing Ltd. (financial holding operating on the market of shares, options, and futures).
Early in the 90-s, the process of the Chinese company privatization drew attention of Anheuser-Busch, which was gradually entering Tsingtao Brewery capital and managed to consolidate almost 27% of its shares. However, after repayment of $7 bln credit taken for merging with SUN InBev, forced the newly settled company AB InBev to sell the stake in Tsingtao Brewery Co. As a result, in January 2009, Japanese Asahi Group became the third biggest company’s shareholder with a stake of 19.99%. Note, at that time Asahi Group was striving to extent its coverage, competing with Kirin Brewery Company as the Japanese beer market still experiences a lingering decline.
In 2012, in Shanghai a joint venture with another beverage producer, Suntory Holdings, was founded. But at the end of 2015, the partners agreed to dissolve their joint beer venture. The Japanese company will pursue growth by focusing on China’s spirits, wine and soft drink businesses. Suntory, which owned a 50% stake in both the beer manufacturing and sales companies, sold all shares to Tsingtao. A new production and sales license agreement with Tsingtao means Suntory-brand beer will continue to be sold in China following the transfer of the shares. The sales will take place mainly in Shanghai and Jiangsu provinces.
At the moment, Tsingtao Brewery has 54 wholly-owned and controlling breweries, and 12 associated and joint-investment breweries in 20 provinces, with net capacity of nearly 140 mln hl. The regional structure of the company is organized around 6 centers, and the financial performance of each of them is separately analyzed in the company’s reports.
Tsingtao Brewery growth rates were substantially higher than the market in 2008-2014. Even at the beginning of the brewing industry decline, Tsingtao Brewery managed to retain positive rates. However, year 2015 showed that unusual growth indicators were given rather in advance. The company’s sales fell by 7.4% to 84.8 mln hl at one stroke. In IQ2016, the sales were not much different from the market level, having shrunk by 5.3%.
Over the recent years, the company’s performance in our view reflected changes in its marketing policy (see below). In relatively favorable for the industry year of 2013, revenue growth of Tsingtao Brewery was comparatively equal to sales growth in litres. But in 2014, when the company temporary gained the lead by the natural volumes growth, the dynamics of revenues was behind.
In 2015, when the volumes of sales in liters were falling rapidly, the revenues were decreasing a little slower, by 4.9% to 27.6 billion yuan. Comparatively the same stable situation could be observed in 1Q2016, as operating income went 4.4% down. Meanwhile, net profit of the company grew 2.47% which can be easily explained by lower prices for raw materials.
In order to better understand the distance between «volume and value» in 2014 and their dynamics levelling in 2015-1Q2016, let us observe the development of the company’s sales in terms of regions and brands.
Regions and brands
Tsingtao Brewery’s focus of sales and leading positions in Shandong province emerged historically. And the company is still consolidating the local market. For example, one of the latest acquisitions is purchase of Xin Immense Brewery in 2010, which allowed increasing the share in Shandong to 55%. And in 2016 Tsingtao Brewery is going to invest $33 mln into construction of a 30 million liters brewery in Jimo district (Shandong province). The construction is planned to be finished by February 2017.
Dominating in Shandong means leadership on the biggest beer market in China, populated by 100 mln people with a high purchasing power. Though it accounts for only 14% of the national beer consumption. This results in a disadvantage, namely, too strong dependence on the home region, which has given about 50% of the company’s revenue for many years.
Tsingtao Brewery’s brand policy reflected the acquisitions process, but eventually has become a reaction to slower market growth and its premiumization.
Until 2013, the company’s revenues growth was fueled by sales in Shandong province. In 2012 after integration Xin Immense Brewery, it brought obvious synergetic effect that both Laoshan brand and Yinmai brand beer maintained a fast growth trend. Though Tsingtao brand’s sales went on increasing lifted by the market growth surge, its weight started decreasing. At the same time, we cannot say that the product mix deteriorated as there was a steady upward trend of the company’s high-end products.
In 2013, these processes persisted, that is, economy brands Laoshan, Shanshui, Hans, and Yinmai improved their positions according to the report. In 2014, according to the report, other regions also made a contribution into Tsingtao Brewery’s growth which exceeded the market. South-East China demonstrated the best revenue dynamics, while the only region with negative growth was South China.
In August 2014, Tsingtao Brewery announced that it would adjust its brand strategy to “1+1+N”, that is, principal brand, Tsingtao Beer + national secondary brand, Laoshan + regional brands including Hans, Shanshui and Yinmai, to better satisfy the needs for market competition. At that moment, the share of regional brands hit the ceiling. Laoshan, according to our estimation, accounts for nearly a fifth of the sales volume.
Thus, due to expansion outside the local market and economy brands development, Tsingtao Brewery managed to achieve growth despite the industry decline.
Yet, in 2015 revenues fell in all regions of China. The Chinese market consolidation round major brands, the growth of premium brands and ousting insufficiently profitable “regionals” by premium brands have probably incited Tsingtao Brewery to correct the strategy which in report for 2015 sounded as “Principal brand Tsingtao Beer + Secondary brand Laoshan Beer” to further optimize the brand mix and product mix.”
In 2015, basing on the report data one can assume that Tsingtao’s sales were falling at the same speed as economy brands sales, by about 7.5%. But the product mix deteriorated because of 5% sales growth of high-end products: Hong Yun Dang Tou (“Good Fortune”), Augerta, Classic 1903, draft beer, canned beer, and small-bottled beer.
One should note that Tsingtao Brewery was and still is taking offbeat steps, in order to oppose the competitors in the premium segment. For example, in 2015 the company output their own version of the IPA and dispensed subbrand 1903 in stylish aluminum bottle and in summer 2016, it was packed in special edition cans based on the Warcraft movie. However, the pressure on the main brand, Tsingtao Beer, from premium subbrands by CR Snow and international brands by international companies, is already substantially reflected on the company’s market positions.
Thus in the first quarter of 2016, all segments faced the reduction with a polarization trend as Tsingtao Beer sales dropped more than other brands (-7% and -3% accordingly). And though the sales of high-end products were falling slower (-2%), we so far cannot assuredly speak of a positive product mix.
Tsingtao Brewery is a major Chinese beer exporter having a share of about 50% in the total volume of foreign deliveries, according to our estimation. Tsingtao Beer is distributed to over ninety countries and regions throughout the world.
The export direction of the company started developing actively as far back as in the 70-ies, due to the local market weakness. China began disclosing itself to the world. Abroad, there were springing up more and more Chinese restaurants, and Tsingtao Beer entered the menu cards of many of them. The 80-ies saw a fast growth of Chinese immigration.
However, when the Chinese beer market started flourishing beer export, on the contrary experienced decline, probably, due to its deficit. Recovery and volume growth of foreign deliveries did not start before 2001.
Beer export contributes almost 2% of Tsingtao Brewery’s revenue, and its volumes probably exceed 1 mln hl. Half of export accrues to sub-Chinese territories Hong Kong and Macao, while we attribute the second half to Myanmar, Malaysia, Australia, Korea, and other countries.
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21 Сен. 2016