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. ...
Beer Business #3-2019. Ukrainian beer market 2019: companies and brands
General trends of beer market
The beginning of 2019 was rather good as the volumes of beer production in the first quarter grew considerably. But brewers could only approach the high level of the summer season 2018, when the warm weather and the World football cup boosted consumption. The uneven dynamics resulted in virtually unchanged total output volume. And all 2019 can be considered as securing the results of the last year performance.
While the production dynamics has been a slightly negative, the beer market on the contrary increased a little (+...%). The trade balance was positive thanks to foreign supplies.
The major trend of 2019 had been premiumization of the packed beer market. If we divide it by two approximately equal parts, cheap and expensive beer less and more .. hrn (.$) for a liter, the sales and market share of beer of the first half fell considerably and the sales of marginal beer went up considerably.
This situation will be discussed in details in the chapter on companies. But it can be shortly described this way: major Ukrainian brands (…,… and …) that currently dwell in low mainstream, were attacked by … that came back to the market and belongs to upper mainstream. There was a drop in popularity of peoples brand … that belongs to portfolio of virtually all big and regional brewers. At the same time, two market leaders reduced their presence in the economy segment leaving it to … and regionals. This was probably a planned strategy resulting from unwillingness to weaken mass brands “squeezed” in narrow market space of low mainstream.
Besides, leading company carry on an active branding policy in premium and superpremium segments. Expensive beer was also supported by regional brewers, that usually position their production on the modern trade shelves as premium. This is certainly applies to special and craft beer, that have a growing distribution.
According to the general consumer trend of premiumization, import brands sales have been still growing by …. Their popularity has raised due to sharp hryvna enforcement in 2019, which allowed keeping the prices at the same level. Besides, using a powerful sales system by Ukrainian brewers and retailers has become a growth engine.
Over January-August 2019, the beer import went up by ....% and its market share grew by . p.p., to ...%. The rates seem to be high, but they are lower than in 2018 when import grew by ....% to .... mln. dal.
AB InBev Efes and Fozzy Group are developing the import most actively. Thus, …, …, … and …, four international leading brands by AB InBev Efes, are rapidly raising weight in Ukraine. As yet, these brands account for nearly half of import segment and their market share during the first half of 2019, increased by ... p.p., which is rather good for a superpremium beer. Fozzy Group chain, or rather Silpo supermarkets chain is successfully developing direction “own import” providing it with special shelf space. Besides, import sales were incited by promo campaigns, and sharp price cuts during the low seasons of 2018 and 2019.
A positive effect on calculated trade balance has been exerted by reduction of Ukrainian beer export, while the impact on output volumes has been negative. Over the first three quarters of 2019, the export fell by ...%. However, the major Ukrainian exporter, Obolon company, is putting efforts in expansion from South East Asia to Africa and Middle East. Let us remind that in 2018 the export was increasing by ....% to ..... mln dal.
Let us note that over the first three quarters of 2019 production and sales of non-alcoholic beer went into stagnation. Thus, its market share has stayed at the same level (...%). Only a short while ago it seemed that we are observing the beginning of a long-term and stable trend of non-alcoholic segment strengthening. The stagnation may be connected to high sensitivity of non-alcohol beer sale to weather fluctuations. However, the sales of non-alcohol drinks and kvass have been still growing at low rates. One should also note the trend of non-alcoholic private labels strengthening, that now have a more than ..% share under our estimation. At that, the decline of the market share was experienced by most of brands by brewing companies.
Instead, the popularity of unfiltered (beer including wheat) have grown considerably. Over the last season its share grew by ... p.p. to ...%. The major impact into development of the segment was made by … and …. The impulse to the future development of the segment will be given by launch of ….
Consumer price index in September 2019 went ...% up versus September 2018. At the same time the average retail price of sold beer over this period grew ..% to .... hrn for a liter. Due to the national currency strengthening, in dollars price for beer rose by ..% to $.... for a liter. Rapid market premiumization has become the key driver for average retail price growth.
By the end of 2019, one can expect a neutral dynamics of the market with a volume of nearly ... mln dal. By value the inner sales of beer will grow by ..% to .. bn hryvnas. Thanks to the hryvna strengthening the market will increase in dollars by ..% to $.... bn.
Major companies’ positions
Over 2013-2018, Ukrainian division of Carlsberg Group demonstrated various production dynamics, yet it was always ahead of the industry in general due to effective marketing policy. However, in 2019 the performance deteriorated. One can even expect Carlsberg Group in the coming years to lose its leader position that were won in 2013.
Thus, over three quarters of 2019, the output volumes of Carlsberg Group have declined by ...%. This reduction has been the biggest among Ukrainian producers with capacities exceeding . mln dal of beer. So, the company’s share in the total output volumes decreased by ... p.p., to ....%.
The decline in the sales volume and the market share has not impacted the … brands of the company. Here Carlsberg Group as well as other market leaders were gaining the market weight. Let us consider the changes in Carlsberg Group positions by price segments.
In the economy segment the company is represented by two brands. Thus … version by the Ukrainian Carlsberg Group subdivision was growing till 2017, but then yielded its positions, probably under … company pressure. At the same time, … localized version … was keeping its positions till autumn 2018, when the company decided to sharply raise its retail price. The market share immediately dropped and started growing only at the season end of 2019 as the price was decreased again.
The low mainstream, where two key sorts of … brand are positioned, accounts for the bulk of Carlsberg Group’s growth. These two sorts were losing their share under the trend for the market premiumization despite the reasonable price policy. … started yielding its positions in spring 2019 and … was decreasing at a longer trend.
In the upper mainstream segment there are such big sorts as … and strong beer …. The both brands lost their market positions in spring 2019 probably due to AB InBev Efes activity. Thus … yielded its positions to sort …, that got cheaper during the low season and …. yielded to growing … in the same price segment.
In the premium segment the growth was mainly provided by …. In particular, this beer … with a label designed in the last century style. Over the first . months of 2019, it’s market share amounted to ...%. Unfiltered beer … and seasonal sort … also made their contribution. These sorts levelled of market share reduction of subbrand range … which is gradually losing popularity.
In the superpremium segment the company had good performance with Kronenbourg .... brand, that expanded due to a fruit sort. Affordable price (because of the local production), original premium image and a very high distribution resulted in a ... p.p. growth of the brand during the accounting period.
Owing to the above described changes and volume reductions, the premium part of Carlsberg Group portfolio got even more heavy, though it had been disproportionally large compared to the market structure. Over the considered period, the premium brands and sorts accounted for about ..% of the company sales (+. p.p.).
Due to the base effect one could hope for some restoration of Carlsberg Group's positions at the end of 2019. However, the activity of the main competitor does not allow to make such prognoses.
AB InBev Efes
For a long time, Ukrainian subdivision of AB InBev could not overcome lengthy downturn in output volumes. Over previous years, the company was gradually losing its market share under the pressure from Carlsberg Group. However, integration with Efes has given a new impetus by bringing back brands that had been popular in Ukraine but disappeared after the closedown of Donetsk brewery.
In March 2019 on retail shelves one could again see brands Beliy Medved, Stariy Melnik, Velkopopovicky Kozel and Miller. “Novelties” are positioned in three price segments (in four originally). They started to rapidly gain weight and reached .% of the market by midsummer. The brands took this market share from competitors (in the first turn from Carlsberg Group), but also from other AB InBev Efes brands, by concentrating on the shelf space. Probably the marketing experts of the company are still working on their range positioning in order to develop attack on competitors, provide for the best marginality and minimize cannibalism.
By the end of the first three quarters of 2019, output by AB InBev Efes increased by ..% which looked outstanding against the neutral dynamics in the industry. The share in the total output volume grew at once by ... p.p, to ....%. By the way approximately the same percentage of the market share was lost by the market leader. The distance to Carlsberg Group has shortened considerably and amounts to only ... p.p. It is not likely to be overcome very rapidly, but in the coming years one can see a new leader on the beer market.
Let us consider the changes in AB InBev Efes positions by price segments.
In the economy segment the company is represented by … version of their own, which is continuing to lose the market share. It was in tune with the general trend of interest decrease to the people’s brand, and experienced a competitive pressure of slightly more expensive mass brands.
Besides, AB InBev Efes lost its positions in the highly competitive low mainstream segment, where major Ukrainian brands are represented. Here at a long standing trend we can observe a decline of … market share, that is still the key sort forming nearly a third of the company’s sales. To some extent, its decline is offset by brand …, that has started recovering after a long downturn.
The main contribution was certainly made by …, that returned to supermarket shelves in early spring. Originally its retail price was rather low and the brand was closer to low mainstream. Affordability, brand recognition and wide distribution provided for such a strong market share growth, that … started threatening the sales of other brands by the company. It could have been a planned step, but obviously, in order to keep the sales structure, the price of …was raised and brought the brand to upper mainstream segment. And the brand market share that almost hit .% went back to more modest ...% in midsummer and now it is likely to grow slowly.
The progress was also achieved in developing special sorts of … brand. For instance the shares of …, … and … grew a little. This improvement was made to a big extent due to promotional activity and price cuts in the low season, but by the midsummer, the growth wave smoothed and the market share returned to the previous level.
The third aspect of growth is connected to … brand’s gradual exchanging the price roles with …. Currently AB InBev Efes is paying much attention to Rogan developing and improving the image of the brand, as the older generation of consumers associates it with cheap beer. However, here too the growth was achieved through price stimulation during the low season.
The share of premium brands by AB InBev Efes over the accounting period has grown weakly because of their multi-directional movement.
The share of flagman brand Bud had fluctuating for a long time, but for a long period of time it kept the level of ...%. The market shares of old brands, namely Ukrainian … and … was decreasing though only a short while ago widening the range with new tastes attracted consumers’ attention. Obviously, here wider competition in the segment of special beer made a contribution.
Instead their reduction was offset with usury of Stariy Melnik and Velkopopovicky Kozel, that originally positioned at different sides of premium spectrum.
For Stariy Melnik old and checked marketing strategies were used, as it was launched as subbrand «Stariy Melnik from barrel» in a bottle styled as a barrel and three tastes Svitle, M’yake and Temne Oksamytove. Probably during 2019 its share will stabilize at the level .%.
Brand Velkopopovicky Kozel is known to Ukrainian consumer not only thanks to the previous launch but as its import version was available in several supermarkets also after 2013. But both . years ago and now consumers were slowly getting to know the local version of the brand. That is probably why the retail price for Velkopopovicky Kozel started to go down in summer (in almost equaled the level of Stariy Melnik). This step supported the positive dynamics and in midsummer the share of Velkopopovicky Kozel approached ...%. Obviously the brand will require serious promotion in order to form the desired image of “beer from small Czech village” among Ukrainian consumers.
In superpremium segment a lot of local and import brands by AB InBev Efes showed good performance. In this segment the company has already become a key player and trendsetter.
For instance, … has continued rapidly gaining market share, which took place to a big extent due to alcohol-free sort and price stimulation in the low season. The sales growth of the import beer was also to a big extent an achievement of AB InBev Efes. … due to reasonable price policy and wide representation in retail is gaining the market weight so rapidly that it can approach .% (unprecedented level for an import brand) by the end of 2019. At the season start, there was a good performance of … and …, that are being promoted at global and regional levels. However, than their market share returned to the previous level.
At last, in midsummer, …, that is positioned on the border of premium and superpremium segments, started to increase its market share rapidly. This brand was known to Ukrainian consumer, yet now it is in the shadow of Heineken. In order to prepare the market, the brand was included in the import range in summer 2018, and the local launch in May allowed decreasing the price. Provided the development is successful, the market share can reach ...% by the end of 2019.
Launching of a range of marginal novelties and continuation of existing trends of mass brands development shifted the balance center in AB InBev Efes portfolio towards the premium. While in 2018 the product mix of the company was approximately the same as the nearest competitor’s product mix, currently it is much better, though AB InBev Efes volumes have grown. The growth impetus to the market share received due to the launches will work till the end of 2019, however, afterwards the success of the returned brands will depend on their promotion.
The output volumes by Obolon corporation have been rather stable in the recent years.
In the inner market the company has gained a firm foothold in the market of affordable beer in PET and set outputting private labels for ATB chain in the first turn which allowed competing with transnational companies.
The geography of export supplies is expanding constantly, though there are also some risks, for instance dependence on the Belarus market. Thus, bigger sales volumes in 2018 was a result of the export growth. This direction is supported by developing brands specially for local markets.
Over the first three quarters of 2019, Obolon decreased its beer production by ...%. The company share in the total output volume fell by ... p.p. to ....%. The reduction under our estimation was connected to slightly negative dynamics of the export supplies. According to customs statistics, supplies to Lithuania decreased, which can however be called a correction.
Obolon’s share in the inner market over the accounting period has not changed (even taking private labels into account), though there have been some changes to the product mix. The company’s sales have become more polarized. The market of today is characterized by upper mainstream growth, but it was very new for Obolon. And vice versa, the growth of the economy component is not characteristic for the market in general, but it is a logical continuation for Obolon’s long-standing trend.
In the economy segment of the packed beer market the share of two key brands … and … have reduced considerably. Their fluctuations were directly connected to retail prices changes. However, the negative dynamics was completely offset by the growth of … sort, with a price lower than the key …sort. Despite its name, the novelty was selling well not only in Kiev, but also at regional markets, especially during the high season – in summer its share reached ...%. Possibly the launch of … was a tactic step in order to keep the volumes not risking the positions of other brands.
Naturally, the launch of economy sort took a heavy toll on sales of …, which is positioned in the low mainstream segment. Among the victims are also small brands … and ….
However, if we look at … brand in general not diving it by sorts and segments we will see that its market share has increased by ... p.p. to ...% over the accounting period.
In the upper mainstream segment Obolon made a powerful break thanks to restyling of youth brand hike. According to the company, the new design has become the absolute leader in researches in focus groups as it assured of its premiality. It has a new trend: minimalism, graphic technique (ligature) and Scandinavian design. The market share of the brand has increased by ... p.p. to ...% over the accounting period, and in the high season it exceeded .%.
Basing on the current trends, one can expect Obolon to keep or slightly improve its market positions by the end of 2019.
Persha Pryavtna Brovania
Under our rough estimation, based on regional data, PPB has lost several percent in the total output volumes over the three quarters of 2019. The company’s share in the net output has fallen by ...p.p. to ...%. despite the … such dynamics looks …than last year, especially taking into consideration the riot expansion of AB InBev Efes into the market segments where PPB has strong positions.
Historically, due to modest output volumes PPB was inclined to marginal market segments, that is why its sales structure is much different from the one of its competitors and the market in general. Over the accounting period this difference has become even sharper, as the … touched upon the both levels of the … segment, while the sales in … and … segments were growing.
In the low mainstream segment the company is virtually represented by sole brand …, which has somewhat reduced its market share, like all affordable Ukrainian brands. To a considerable extent that was the result of gradual growth of retail price, despite the promotional activity of the competitors.
In the upper mainstream segment … and … have not kept their market share under the pressure of aggressively growing …. However, here one can also speak of sales redistribution to the premium segment, where new sorts by the company have recently appeared. Besides, … beer … has gone on raising its market weight due to the new … sort and probably having won a share from ….
In the premium segment the company has substantially improved its positions at the account of PPB Bochkove Nefiltrovane with orange peel and coriander that appeared in May 2018. Its rapid growth was supported with a premium image and ever higher popularity of special beer among Ukrainians. By spring 2019 the share of PPB Bochkove Nefiltrovane sort reached .% of the market.
Finally, in the superpremium segment the bulk of growth has been provided by Heineken that occupied the key license position of PPB with a share of nearly ...% of the market. Future development of license direction of the company is also likely to be supported by spring launch of brand Amstel. Its retail price approximately corresponds to the border of premium and superpremium segments. Judging by the current sales dynamics, by the end of 2019 Amstel can approach ...% of the market.
In the current season, there has been a considerable market share growth of the companies that not only cannot be considered leading but even do not have a big weight at the regional scale. In the first turn, we speak of small (craft) brewers that appeared at the market a short while ago, but have been rapidly increasing their market share.
In general, the output by “other” market players has gone .% up over the first three quarters of 2019.
Ten of regional brewers that have known for us production volumes, have lost .% of the output. Their net share has fallen by ... p.p. to ...%.
The biggest impact has been made by the output reduction by well known companies, namely Poltavpivo, …, … and …. At the same time, Umanpivo (after modernization), Mikulinetskiy Brovar and Lispi has raised their volumes.
A range of small breweries that reported their volumes to Goskomstat (we do not know their exact number), increased their production by ....% according to our calculations. Their share in the total output volume have gone up by ... p.p. to ...%.
For instance, the share growth of the craft breweries took place due to launch of Fanatic Brewing Center (Dniprovska brewery #2) in 2018. Obviously by rapid expansion of distribution in the modern trade and DIOT has been increased their volumes Kyev Varvar (Beercraft), Beer theater Pravda (Restoratsia na rynku) and other brewers. In autumn 2019, Kharkov brewery Altbier opened a new production site and increased capacities considerably.
The popularity of craft beer is rising dispute its high retail price, as in modern trade it is usually between ...-... hrn/l, which is nearly ..% higher than mass import brands. But the growth of craft brewers’ sales corresponds to consumers’ growing interest to special beer sorts and general trend of the market premiumization.
Let us remind that big companies too have significantly increased their sales of special and premium beer, yet, until now their efforts to launch brands in craft style have not been successful.
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10 Ноя. 2019