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 market: interactive review
Our review includes the most subtile, interesting and even scandalous subjects of 2010 and the beginning of 2011, connected with the beer market. But in comparison to a press digest, this article is "interactive", that is, we chose the reaction of readership as the selection criterion. Basing on the news viewing statistics we defined the subjects which drew attention of the greatest number of people.
Traditionally, brewing industry news arouses great interest on the threshold of sales season when competitors are planning their activities. There is also a notable increase in attention to news at the end of the sales time when the primary results of companies activities become known. In 2010 this trend, at the first sight, did not change, however, beer manufacturers were not at all the news headliners.
If before 2010 brewing companies actively informed the public about their achievements and growing market indices, then the post-recession period for the majority of them was not particularly successful, there was little business corporative news and few noticeable events on the beer market. Government officials with their announcements and law-making initiatives, but not the brewery industry, were the main newsmakers last year and at the beginning of 2011.
Three most notable subjects connected with the regulation of brewing industry are the excise taxes increase, debates about technical regulations and the proposed law of equating beer to alcoholic beverages.
At the end of 2009 and the first quarter of 2010 the analysis of threefold excise tax increase consequences was the key topic. According to the prognosis, the market should have fallen due to an abrupt retail price increase. That is why the production increase in December 2009 was quite surprising:
"...The majority of distributors made a point of maximally filling the storehouses with the products at the back price and made the volume of beer purchase which was in large excess over the traditional for this period volumes ..." ["The Benefit of Excise Tax", Vedomosti, 290 viewings].
Obviously, the public kept watching the dynamics of beer production after such statements. But a miracle did not happen, in January the Federal Service of State Statistics reported on an abrupt decline in production, moreover, the significant fall persisted till March.
Against the background of the production decline the brewing companies criticized the government's action. Besides, now their statements permanently included accusations against vodka manufacturers. Particularly, readers' attention was drawn by the interview with the president of "Baltika" company, Anton Artemiev:
"...In the first quarter the decline in beer production in Russia comprised 19%, the decline in consumption comprised 12%. These are serious numbers for the industry. To our opinion, excise tax increase should be more gradual and slower. Especially as excise tax increase on vodka amounted only 10% this year, which negatively influenced the evolving during the recent years positive trend of the change in the structure of alcoholic beverage consumption in Russia with the increase in beer share and a reduction in strong alcoholic beverages share. Now this trend can turn in reverse..." ["Game Rules on the Beer Market Have Changed", RBK, 223 viewings].
The second notable issue on the topic "regulation" is the project of technical regulations. The intense interest towards this topic can be easily explained by the number of people who can be affected by the changes in beer production process, these are not only brewing companies and the ones connected with them, but also beer consumers.
The debate about the "right" beer began as early as in 2009. The main information stimuli for the project discussion were created by the management of "Ochakovo". The company president Alexey Kochetov and vice-president Inna Kochetova had a conceptual approach to this problem and dealt with it together with other painful problems. In particular, one of the most notorious piece of news on the topic of technical regulations was the statement of Alexey Kochetov that "Ochakov" leaves the Union of Russian Breweries (URB):
"...The Board of "Ochakovo" decided to leave the Union because we remained the only Russian company in this association, all the rest beer manufacturers are controlled by foreign companies", - explained Kochetov. The management of "Ochakovo" also points out that the industrial group failed to defend the traditional approach to beer production in the technical regulations..." ["Beer Revolt", Expert Online, 238 viewings].
The president of "Ochakovo" considers the active support of the project to be the concern over the profit at the expence of quality traditions. In Alexey Kochetov's judgement the employment of unmalted material should be limited to 20% and used only to render the beverage original taste. The Union was also criticized by "Ochakovo" for the passive attitude towards excise tax increase. Alexey Kochetov specifically stated:
"...Threefold excise increase on beer is the result of The Union inertness. During the whole last year the possible consequences of new excise taxes introduction were concealed and suppressed from those government officials who accept the decision. The reason for this is namely the interest of transnational companies which, due to the fear of getting a fall in their stock price, preferred to say nothing about negative trends on Russian beer market ..." ["Having a Fight about Malt", GZT.RU, 198 viewings].
At the end of March the Union of Russian Breweries issued a press-release confirming the secession of "Ochakovo" from the Union and expressed regret that:
"...one of the oldest members of the branch Union reacts in such way to the changing conditions of the market and its secession from the organization is accompanied by statements which not only contribute nothing the branch problems solving but also in many respects do not correspond to the facts... According to the Union, employment of unmalted materials in the process of beer production conforms to the world practice and does not deteriorate the flavour and taste quality of this beverage, for years this condition has been fixed in all-Union State Standard, specifications and receipts used in brewing industry" ["Union of Russian Breweries Confirms the Secession of "Ochakovo", URB press-service, 101 viewings].
But soon the technology cleanness of beer manufacture became the matter of concern for government officials. There were a lot of publications in press concerning the statement of the main narcologist Evgeniy Bryun who told: "there are, for instance, 16-18 degree sorts of beer, to which ethanol is added" and "spirit is added almost everywhere, as accelerated technology of brewing is used everywhere, fermentation is stopped namely with spirit".
The reaction of brewers was harsh, the Union filed a lawsuit for the protection of business reputation and published its statement:
"...The fact that the main narcologist E. A. Bryun's statements, which do not represent the reality, were used as arguments in favor of equating beer to alcoholic beverages, calls attention. The Union of Brewing Companies considers that such statements misinform consumers and society, make authorities assume erratic regulative measures, which can negatively affect the attempt to solve the problem of alcoholism in the country..." ["Brewing Companies Are Getting Ready for Court Session", URB press-service, 87 viewings].
But the court did not even begin to investigate the claim of the main narcologist essentially. Legal investigation was ceased as the trade association was not considered to be an applicable plaintiff.
The public attention was also drawn by one more issue, named the ban on selling beer in small points of retail sale*. This topic gained popularity as early as in the autumn of 2009, when by the decision of ex- prefect of Northern administrative district of Moscow all of alcoholic beverages were withdrawn from the stalls, situated on the territory, controlled by him. This decision was then considered to be misuse of powers. But the deputies of Moscow City Duma also took interest in a similar idea and in January 2010 they even passed a bill about the reduction of retail points of beer sale.
* Small point of retail sale (stall).
According to the estimation of Government Relations Manager of the company "SABMiller RUS" Kirill Bolmatov, only about 10% of beer volume is sold in stalls in Russia, but the beer sales are very important for stalls, as beer comprises about 40% of their sales:
"...Altogether, the suggested measures eliminate the best part of small business and thousands of working places in Moscow", said Kirill Bolmatov. - Correspondingly, large shops and supermarkets will become the main winning part as the main volume of sales will be transferred to them ..." ["Stalls Selling Beer Will Move off the Bus Stops" BFM.ru, 110 viewings].
However, soon Moscow City Duma initiative lost its poignancy and relevance against the background of superior government officials activity. On the one hand, the Russian Federation Government has already prepared the whole complex of anti-alcoholic measures for the discussion (see below). On the other hand, the new mayor of Moscow Sergey Sobyanin launched a large-scale campaign to eliminate the stalls situated in the capital. An article about the consequences of mass demolition of "uncivilized" retail points of sale was published in November 2010:
"SABMiller" lost a quarter of stalls, about 400 out of about 1600 in Moscow, where the company's beer was also sold, says business manager of "SABMiller RUS" Vladimir Filiptsev. It is true, that in case with beer, according to his version, there are no reasons to speak about a decline in sale due to the consumers switchover to other points of sale" ["Sales without an Impulse", Vedomosti, 128 viewings].
Some interest was also caused by one more idea: the limitation to sell beer at night. According to some estimations, this limitation might reduce the brewing companies profit by 10-20% ["Night Beer Sales Will Be Reduced by Quarter", dp.ru, 127 viewings].
The main event of 2010 was definitely the enactment by State Duma of a bill about equating beer to alcoholic beverages. The government initiatives can totally change game rules on the market. In their light all possible consequences of all above mentioned measures on regulating the brewing industry wither away.
It is necessary to mention that propositions of several experts, deputies and government officials about the modification of beer alcoholic status or introduction of additional limitations have not so far found support on the federal level. That is why the first reports about possible withdrawal of beer from special legislative field and its equation to strong alcoholic beverages did not draw great attention of the public. But soon the Union of Russian Breweries reaction showed the seriousness of the development. Here are some abstracts from the noted statement made by the Union of Russian Breweries, which was viewed by a record number of people who visited our site:
"...The developed bill will not lead to the achievement of the declarable goal: the reduction of alcohol overindulgence ...
...The projected law includes significant changes which will inflict harm to consumers. Thus, it is suggested that beer and beer-based beverages should be defined as those beer-based beverages to which it might be possible to add spirit... ...If the law is adopted, the beer more than 5% proof will be prohibited from being sold in small commercial stalls and pavilions. In this case, alcoholic beverages under 15% proof will remain on the counters of small points of sale...
... Federal law №171 was adopted in 1995 to establish order on the problem market of strong alcoholic beverages and spirit. The situation in brewing industry is different: this branch does not have off-the-books sales and pays full volume taxes, that is why introduction of these measures for beer is deprived of common sense..
...Speaking about "equation of beer to alcohol" many law-makers and politicians do not clarify how the measures they suggest can reduce the scale of alcohol overindulgence ..."
In conclusion, the Chairman of URB Executive Board Vyacheslav Mamontov claimed the bill authors to be biased:
"...Properly speaking, the document, introduced by deputy Zvagelskiy, who came to legislature from vodka industry, is aimed at extending competitive advantage to higher alcoholic beverages and low alcoholic cocktails manufacturers. In case of its adoption there will be serious changes in the structure of alcohol consumption in Russia..." ["Union of Russian Breweries: Changes in the Law "About Regulation" Will Not Lead to Alcohol Overindulgence Reduction", URB Press-Service, 813 viewings].
It goes without saying, that after the realization of changes held in store, the news about project approval in the first reading drew equal attention of the public ["The Project Equating Beer to Alcohol Is Approved in the First Reading, RBK, 769 viewings]. Now it is high time to analyze the project content. We quoted three extracts from one article, interpreting possible consequences:
"...Brewers and distributors will have to obtain new license. At that they will most probably be issued not by the Ministry of Agriculture which controls brewing industry now, but by "Rosalkogolregulirovanie", which is responsible for alcohol sales law implementation. According to co-chairman of Russian Coalition for Control over Alcohol Darya Khalturina, it means that "all further initiation of bills will pass through this governmental authority which will deal with manufacturers quite censoriously..."
"... Draft bill prohibits sale of beer and beer-based beverages with ethanol content more than 5% in places of mass crowding, in stands, stalls, pavilions, containers, to be peddled, sold from hawkers stand and cars. This is a direct execution of president Medvedev's order, which he commissioned following the results of conference dealing with measures for alcohol consumption reduction in Russia, which was held last year in August in Sochi. Beer as well as strong alcoholic beverages from now on should be sold in shops with signalling equipment which have permanent commerce and storage space of not less than 50 square meters..."
"...Still the bill provides some indulgence for beer. Thus, beer and beer-based beverages processing lines should be equipped only with automatic aids for measurement and volume recording of manufactured products by July 1, 2011. Brewers will not have to record anhydrous alcohol concentration and volume in the manufactured product. And, as a result, brewers are exonerated from the necessity to register in the Common Automated Information System (CAIS). They still don't have to paste their products with excise stamps..." ["Beer and Vodka", Vremya Novostey, 569 viewings].
In December 2010 and the beginning of January 2011 the tension degree slightly reduced, which is obviously connected with a pause in legislating activity and absence of notable statements on the part of government officials. Besides, during public holidays no one wanted to think about problems. But at the end of January the topic of "right" brewing technology emerged again.
The point is that the government bill "suggests to codify the notion "beer" as an alcoholic product made of malt, hop, yeast and water without adding ethanol, flavours and food additives, containing ethanol from 0,5% of the manufactured product volume which was formed in the process of mash fermentation". Therefore, according to the main opponent of brewers, deputy Viktor Zvagelskiy, as he stated at parliament hearings, beer should not contain any sacchariferous substances.
What was meant here was, probably, starch-containing cereal crops or malt syrup, however, in his speech the deputy decided to use straightforward terminology and gave that "substances" his definition:
"...By the most conservative estimate, up to 90% of beer produced and consumed in Russia can not be called beer as it is manufactured with sacchariferous components, in other words, with concentrates", stated Viktor Zvagelskiy at parliament hearings in the State Duma. Motivating his standpoint, Viktor Zvagelskiy claimed: "If we look at the statistics for malt import to the Russian Federation and its production in Russia, we will see that these numbers are two orders lower than the real volume of beer manufacture in the country" ["Up to 90% of Beer which is Manufactured in the RF Is Not Beer..." , IFX-News, 204 viewings].
Vice-chairman of URB and General manager of "Heineken Brewery" Viktor Pyatko who was present at the hearings emphatically disagreed with the deputy. He stated: "...beer is manufactured from malted and unmalted material all over the world... As for employment of concentrates, such nonsense should not be commented at all, - he accentuated. - We can adopt such a definition that we will become a laughingstock for the whole world...". Vyacheslav Mamontov, giving comments on Viktor Zvagelskiy's statements, called them "rumors and myths". He claimed: "Deputy Zvagelskiy's allegation that 90% of beer is not beer is false. We will consider the possibility of filing a lawsuit on these statements to protect our business reputation" ["United Russia" Does Not Acknowledge Russian Beer", BFM.ru, 124 viewings].
However, authorities not only express their point of view but also take steps to "regulate" beer manufacturing technique. At that, their statements become increasingly certain:
"...90% of beer in our country is manufactured by the "big five", five transnational companies, says deputy Igor Barinov, - now they are going to lobby their variant of technical regulations for beer in the state Duma. Its main idea is to equate beer manufactured by the traditional recipe from malt and frothy beverage made from low-quality unmalted material using enzymes ..."
"...There have been developed fundamental amendments to the technical regulations text. They intend to draw a clear line between classic beer made of malt and frothy alcoholic beverages, brewed with other technologies. This will enable consumers to understand immediately what he buys..." ["Igor Barinov: There Have Been Developed Fundamental Amendments to the Technical Regulations Text ", Argumenty i Fakty, 238 viewings].
As is evident, the year 2011 will hardly be quiet for beer manufacturers and can bring serious changes. The text of the law, equating beer to alcoholic beverages will obviously become the main news of this season. Brewing industry executives and law draftsmen have different points of view on its final formulation.
"Lawmakers suggest to extend the prohibition to the buildings where certain institutions are located and to the neighboring areas as well. That is, if there is a cinema in a shopping mall, then it will be prohibited to sell alcohol in that mall. And if there is a skating-rink, then alcohol will be prohibited in cafes and restaurants, situated in the same place. Or another example: alcohol will be barred from sale and pouring in the whole building where a dental office is renting a premise and next to this building", - depicts the draft faults Enterprise Relationsip and Information Manager of "Baltika" Alexey Kedrin... "By adding a little beer to gin-tonic we will be able to call it a beer-based beverage and escape a row of restrictions, described in the Federal Law №171. At the present moment several unscrupulous manufacturers of low alcohol cocktails produce beverages under the semblance of "special beer", evidently to evade spirit excise tax and other restrictions"...
"By the second reading we are going to seek for the amendment, which will ban any beverage with alcoholic content above 1.5% from sale at night, in the stalls, and also near the schools and hospitals", - stated Viktor Zvagelsky... Beside requirement strengthening, "supervisor" changeover is also looming before the industry. "After the law adoption brewing industry which is under the jurisdiction of Ministry of Agriculture of the Russian Federation will tacitly pass to the jurisdiction of Rosalcohol..." ["What Are Brewers Afraid of", Expert, 416 viewings].
Events, associated with brand launching have always drawn the greatest attention of the audience. For instance, 5 pieces of news out of the 10 most browseable ones in 2010, were devoted to new beer sorts or brands launching. As a rule, companies launch new beer sorts and publish information about them before the beginning of the high sales season, that is why the peak of such news falls on the period from March to May.
Thus, the leaders of the list were (in decreasing order) the information about beer "Sokol Cola" launching, brand "Bud" launching on Russian market, "live" line of Heineken regional sorts, brands "Baltika Razlivnoe" and "Dolce Iris" launching. One more pieces of news out of TOP-10 concerned the decline of brand "Bochkarev". That is, the audience was interested not only in corporate news, but also in independent evaluation of brands development, which is practically not published this day.
Great popularity of branding is certainly associated with the fact that it attracts both industry executives and people who like drinking beer. It is no wonder that Efes, which in 2010 issued a press release about new launchings (as Russian division was doing well), became one of the leaders on the media scene.
Businessmen take invariably much of an interest in news concerning financial accounts of brewing companies and important events, connected with change of ownership and which can influence the company work or have an impact on its business reputation.
For example, the lawsuit of Efes against its ex-distributor alleging valuations disparity between delivered products and transferred assets, received the biggest number of viewings in this category, "Lenkom" Will Attempt to Appeal against the Brewing Company "Moscow-Efes" to Claim 1,5 bln Roubles" (408 viewings). We remind that such an impressive sum reduced to 199 mln roubles as the inquiry progressed, and then the charge order was recalled at all. The audience also fixed a great amount of attention to the announcement about the appointment of new general manager of "Nevskiy Bereg" (394 viewings), which took place in the frame of corporate controversies between shareholders.
A great many people read the article written by vice-president of Moscow Beer and Non-Alcoholic Products Concern "Ochakovo" Inna Kochetova "Regarding Those Who Dilute Beer" (321 viewings), the vivid title of which reflected the essence of information campaign, focused primarily on beer consumers. The discussion about right beer manufacturing method and brewing industry regulation was pursued by the President of "Ochakovo" Alexey Kochetov in a series of articles: "Beer Market Can Fall to the Lowest Pitch" (258 viewings), "A Litre of Beer Is Beneficial" (238 viewings), "Beer Revolt" (238 viewings), "Why Beer Can Not Be Equated to Alcoholic Products" (233 viewings).
As a consequence, if "Ochakovo" holds a share of about 3% on the beer market, then on the media scene its share comprises 12% in terms of viewed news and events. Some might say that in 2010 "Ochakovo" management representations prevailed all over the press, as journalists published them with relish and consumers took an invariable interest in the topic of beer production purity.
While viewing news, "Pivnoye Delo" site audience showed interest or indifference to the published materials on the subject of beer. The attention to an article certainly depended on presentation, coverage of the event by other media, but we dont have any other objective standard apart from the number of viewings. We have analyzed 83 374 viewings of 841 pieces of news over 2010 and the most browseable pieces of news during the period from January to March of 2011.
• The number of viewings was summarized for 30-60 days, depending on the date of news publication.
• We took into account only pieces of news, viewed by more than 10 web visitors.
• The fact of news viewing was taken into consideration irrespective of the amount of time spent on the page and irrespective of the source of the shift to the news page.
• We considered pieces of news devoted to a single subject to be a topic or an event. One and the same piece of news can appear in different topics or events.