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. ...
Baltika improved results in Q3
Russian beer market:
According to Baltika internal estimates, in Q3 2016 the Russian beer market slightly grew in comparison with Q3 2015. The company attributes it to warm weather conditions during summer months on the majority of the Russian territory. At the same time the Russian beer market declined by an estimated 1% over 9 months in comparison with the similar period last year. The beer market dynamics is still affected by regulatory restrictions established in beer industry and weak macroeconomic environment.
While the beer market was declining, according to the retail audit Nielsen Russia, over 9 months 2016 the non-alcoholic beer segment, where Baltika is leading, has grown by 14% compared to the same period last year. One of the growth drivers of the non-alcoholic beer category as a whole was advertising of the non-alcoholic brands. Such advertising is accomplished in accordance with the Federal law 38-FZ on advertising, as well as the Code of commercial communications on beer-based non-alcoholic products, developed by the Russian Beer Union in cooperation with the Federal Antimonopoly Service, with obligatory clear message that the advertised product is non-alcoholic.
Baltika’s overall performance:
The company’s shipments in Q3 2016 went up by 16%, over 9 months the indicator also demonstrated increase as opposed to the similar period last year.
As a result in Q3 2016 Baltika’s market share raised compared to Q2 and similar period last year reaching 35%*, 1.4% increase opposed to Q3 2015. Warm weather and sell-in of large-size PET bottles had positive impact. The major growth drivers were sales in the Modern Trade channel. In general, over 9 months 2016 the company’s market share is still slightly lower than that of the similar period last year.
Apart from that, in 9 months 2016 года Baltika increased its volume share in DIOT channel by 5.8%* compared to the similar period last year.
Over 9 months 2016 Baltika’s total tax contribution amounted to almost 51 bn RUB (+8.8% compared to the similar period last year). The company also paid around 36 bn RUB of excise duties (+ 15.5% compared to 9 months 2015).
Positive dynamics over 9 months 2016 was demonstrated by the brands Zhigulevskoye (+ 1.3 p.p.* share growth), Baltika 9, Carlsberg (+1.7 p.p.* share growth) and energy drink Flash Up. Baltika 0 – leader of the non-alcoholic beer segment continues increasing sales volume (the share in the non-alcoholic beer segment over 9 months 2016 amounted to 59.3%*).
In August the famous classic lager Baltika 3 was relaunched in new packaging with emphasis on fresh look and admired taste that stays unchanged since 1992 when its production started. Restyling of Baltika 3 packaging took place for the first time over the past 9 years.
Baltika stays focused on developing the key brands and supporting sport for the purpose of its development and formation of high culture of cheering for sports. With the support of the official sponsor of UEFA EURO 2016 brand Baltika 7 held a large-scale campaign that opened the Russian fans 7 different sides of the main event of the season. In addition, Baltika continues the partnership with the Russian Olympic Committee and was a partner of the "House of fans of the Russian Olympic team," in Rio de Janeiro, Baltika 0 activated federal advertising company in support of the Russian team "We can do everything!".
Q3 was successful for Baltika export as positive dynamics continues. During 9 months the growth of export sales volumes was more than 10% compared to the similar period last year. Sales in the far abroad countries went up by 9%, in Europe and Baltics – by 18%. Baltika purposefully develops export of brands from non-alcoholic portfolio. Sales of the energy drink Flash Up in the Central Asia contributed significantly. Today around 20% of the drink’s production volumes is exported. Sales of non-alcoholic beer in the Middle East raised by 32%. Special attention should be paid on the company’s success in Georgia where leading import positions were restored over 9 months 2016 and the share in the imported beer segment amounted to one third of sales volumes. The company also succeeded on the markets of New Zealand and Costa Rica where sales increased more than twice.
Jacek Pastuszka, president of Baltika Breweries LLC, executive vice president Carlsberg Group Eastern Europe Region:
«In Q3 our business built up its commercial power that had a positive impact on our results. In Q4 we will focus on getting our business maximum prepared for new conditions, in which we are to work in the coming year due to regulatory changes. At the same time it is important to mention that the key factors for the sustainable development of business and regions where we operate are dialogue between corporate sector and government, fair and predictable regulatory and tax environment».
Financial results of the Carlsberg Group’s Eastern Europe region:
In Q3 2016 net revenue of Carlsberg Group in Eastern Europe grew organically by 16% (9 months: + 11%) driven by 5% price/mix (9 months 2016: + 7%), and 11% growth in total volumes (9 months 2016: + 4%).
Commenting on the Carlsberg Group results, Cees ‘t Hart, Chief Executive Officer at Carlsberg Group, says: «We’re satisfied with our Q3 results. Our value management approach, which targets the optimal balance between market share, gross margin and earnings, continues to progress well. In addition, our Eastern European business delivered a good set of results in the quarter, ahead of our expectations. Consequently, we upgrade our 2016 earnings expectations. We continue to see good momentum across the organisation in Funding the Journey and good progress in the operationalisation of the SAIL’22 priorities in our business plans for 2017 and future years».
*Source: Nielsen Retail Audit, Urban & Rural Russia
Baltika Breweries, a part of the Carlsberg Group, is one of the largest FMCG producers in Russia. Since 1996, the company has been ranked Number One in the Russian beer market. Baltika owns 8 breweries in Russia and enjoys an expanded brand portfolio. The Company forms a significant part of the Carlsberg Group and its Eastern European region including Azerbaijan, Belarus, Kazakhstan, Ukraine and Uzbekistan. Baltika Breweries is a top exporter of Russian beer: Baltika’s reach includes over 75 countries; the company accounts for over 50% of all Russian beer exports. In 2015, Baltika's products became available in Romania, India and New Zealand. Its brands have won over 670 Russian and international professional and consumer awards.
9 Ноя. 2016