In spite of the serious setback of production, a row of companies managed to succeed at the Belarus market. Notwithstanding the import growth resumption, alteration of consumer’s preference and state regulation still allow the national producers to develop. Besides a host of investment projects, targeted at production expansion, design improvement and distribution chain development have been completed or are being carried out by Belarus brewers.

The main trends
Leading companies’ activity analysis

The main trends

Under our estimations which is based on the official data of production the trade balance, in 2008, the market growth by volume amounted to 4.1% to 46.5 mln dal and the annual beer consumption per capita exceeded 48%. However according to the market players, the last year growth was even more significant and reached 5-7%. The official data over the first half of 2009 evidence that the beer market decreased by 9.5% by volume i.e. to 22 mln dal.

The production dynamics of the industry in the past and this year has been traditionally behind the import rates. In 2008, the beer production by national producers fell by 0.4% to 35.3 mln dal. The production, like in other countries of the region started declining in September 2008 and has been showing a negative dynamics till now. Summarizing the half-year results we can say that the beer production fell by 9.6% to 16.6 mln dal.

The dynamics character of foreign supplies looks like stabilization after a riot growth (…% in 2008 and …% in the first half of 2009). But taking into account that in the first half year 2009 the import follows the last year dynamics and also considering the low base in the second part of 2008, one can eventually expect a notable import growth by the end of the year.
The retail prices for domestic and imported beer have demonstrated a very modest growth during the beer season. But in autumn the Belarus brewers’ production started becoming more expensive and the foreign beer price has fallen and started rising only in 2009.
In our view, one of the reasons for the slackening dynamics of the import beer prices and for the growing dynamics of the domestic beer prices was the drop of the foreign exchange market. The official currency rate was quite stable till the end of 2008, but then dollar grew by 30% within two months but soon stabilized again. The relative stability of the national currency comparing to other CIS countries has led to higher profitability of import beer sales.
One more reason is the results of the state regulations. Since September 2008 Ministry of Economic Affairs of RB has decreed that the maximum mark-on for import beer be limited.
Currently prices for imported goods are virtually formed at two stages: at the entry 30% mark-on of the contract prices, the customs rates, transport and other expenses connected to the import has been set, plus maximum 30% mark-on in retail, no matter how many middlemen there are. Prior to that the «less than 30% mark-on» principle applied only to Belarus beer and it usually amounted to 12-16%. While the imported beer had been sold at unlimited prices, but as a rule the retail margin had not exceeded 30%. According to Ministry of Economic Affairs this situation has allowed the foreign brands to be more attractive for the retail networks of Belarus.
The leveling of the trade marks-on led to little difference between imported and produced in Belarus beer; thus, the import has become more compatible. Besides, the administrative measures helped the official importers to control the distribution network and improve the price positioning of their brands.

The third reason for the low retail prices for imported beer was fast share growth of comparatively inexpensive Ukrainian beer. This share was insignificant at the …, but by the … Byelorussians have appreciated the production of Ukrainian brewers which has already accounted for …% of the market. By contrast the sales of Russian beer which is …% more expensive than Byelorussian beer have gone down.
We should also note the growth of the Byelorussian beer export, which has begun influencing the dynamics of the national output to some extent. While at the first part of 2008 1.7% of produced beer were sent abroad, this year the export amounted to 5.1% of the overall production volume.
Taking into account that in 2008, the market share in monetary terms under our estimation amounted to …% to … bln of Byelorussian roubles (Br) or … to $… mln. Over the first half of 2009 against the background of very low physical indicators the market has grown by … to Br … bln. Basing on the official data of the average weighted dollar rate of the NB and RB, the beer market has shrunk by … % to $… mln in foreign currency.

The break of the financial unstability has notably effected the price segmentation of the Byelorussian market. Though our price borders are quite relative, it is obvious that in summer 2008 there still was a tendency of market premialization. But in autumn it changed and by the year end the weight of expensive beer was substantially diminished and the share of the lowest segment grew proportionally. Besides the inexpensive market segments presented by the brands «Krinitsa», «Lidskoye» and «Brovar» accounted for about …% beer market in physical indicators. The mainstream segment has been falling during this time, though there has been a tendency to stabilization

PET segment undoubtedly dominates the Belarus beer market. By the end of 2007, it began stabilizing at the level of …%. But in September-October, after the beginning of the economic crisis, the growth went on and stabilized at the point …% of the market.
As we can see, in 2008, PET reinforced its positions at the account of glass bottle. The share of beer in can was fluctuating below …%, and started falling in autumn. By the sales season the can accounted for less than …% of the market.

The data of market monitoring show that since 2007 the beer consumption in Belarus has been growing not at the account of the capital market saturation by at the account of regions. This tendency was most notable last year, when a sharp market decline was observed in Minsk. As a result the central region share in the overall sales volume shrunk from …% to …%. Other regions exhibited various but mostly positive dynamics of sales.

However the official statistics of the national producers’ sales do not show such a sharp redistribution among the regions this year. That is, the decline took place everywhere but was more serious in …, … and … oblasts.
It should be noted that in spite of comparatively small country territory, The Belarus beer market is still rather fragmented. That is companies take a large market share in the regions where they are situated. This means that growth potential for local producers lie in distribution development brand promotion beyond the «domestic» markets.

Leading companies’ activity analysis

Within 2008, the Belarus structure of beer production and import has changed considerably. The most prominent changes among them are:
• growth of qualitative and quantitative indicators of «Krinitsa» company performance
• market share growth of Ukrainian «Obolon»
• significant slowing down of growth rate of Russian «Blatika» (Carlsberg)
• production and market share decline of Heineken
• reorientation of marketing policy of company «Alivaria» (Carlsberg) from extensive to intensive way of development as well as
• regional expansion of «Lidskoye pivo»

The period following the crisis onset turned out to be rather successful for the largest Byelorussian producer — state company «Krinitsa». Over 2008 the company recession amounted to …% to … mln dal. But under data of retail monitoring since September 2008, the company share started growing and stabilized at the point of …% in … 2009. During the period from … to … 2009 the sales of «Krinitsa» did not rise but maintaining the same level can be considered a success.
Let us note that the growing market share was to a great extent connected to the progressive … By the end of 2008, the … of company was broader than competitors’ and reached …

Though «Krinitsa» has never yielded its leading position at the market, its share was persistently diminishing since 2005. the import growth, production and marketing activity of other national producers led to gradual exclusion of the same name company’s brand from the lower price segment, which was growing narrower due to well-being improvement of the population. Monitoring data indicate that beer … accounts for about …% of the company’s sales, that is the company’s development is dependent on the …
The opposite trend — declining of well-being in Belarus, drove more rational approach to consumption. Besides, according to «Krinitsa» management good malt of 2008 harvest allowed to improve the qualitative beer indicators. That is why it is no surprise that …
No doubt, the growth of inexpensive beer segment can be unstable, but «Krinitsa’s» perspective looks rather good anyway. The company is ready for management restructuring, it carries out a dimensioned production modernization and invests funds into marketing.
Thus in August, the Belarus government is to appoint the managing company for «Krinitsa». Is was announced that this step was taken due to the plans to raise «Krinitsa’s» capitalization taking into account its privatization in the future. Among candidates the most prominent one is the fund Detroit Investments which has been rather successful in operating brewing business in Russia and Belarus. In particular, DI had owned company «Syabar» which was sold to Heineken on the wave of market share growth at the end of 2007.
Now «Krinitsa» is carrying out the third stage of reconstruction. A CCT for the sum of 3 mln euro has been installed, bottle and PET filling lines are being upgroaded, and new cooking workshop costing more than 3 mln euro will be installed soon.
Funds are allocated not only at production development. According to «Krinitsa» management this year marketing efforts of the company will grow by several times. Firstly the company is actively purchasing trading equipment. In the first quarter 747 items of equipment were bought, and by the end of the year 3578 fridges, trade pavilions, filling installation and furniture sets are planned to be bought.
Alongside with the trade marketing, sales will be promoted by rebranding, which focuses on «winning consumers’ loyalty back at the account of the European quality and new production image». Besides the company’s portfolio will widen to include new subbrands; the company is currently undergoing a technical expertise concerning the possibility of licenced production of Czech brand Budweiser.
As to the market shares of the companies by their membership of international or national groups, company Carlsberg had the lead at the Belarus market. Byelorussian, Russian and Ukrainian subdivisions of the country are operating in the country.
The year 2008 can be called the year of «Alivaria» (Carlsberg) company’s breakthrough. The company made use of the premialization trend of the market and showed impressive growth rates. Summarizing the year results the company production has grown by …% to … mln dal.
Such a riot growth resulted in «Alivaria» company approaching its production potential. According to the company’s management, the brewery’s capacity at the moment amounts to 7.7 mln dal which is fully run in the high season. There is a possibility to increase capacity by 4-5% at the account of innovations and know-how application.
The limitation of the production volumes makes «Alivaria» take reasonable decisions as to the market policy, to refuse from economy beer production and export direction development. The price of the new brands which were launched last year was …
The investments were also directed at enlarging of the premium part of the brand portfolio. After equipment modernization in May 2009, the company started producing new subbrand «Alivaria Lite», as well as the popular beer «Alivaria Zolotoye» and «Alivaria ON ICE» in premium bottle with elongated neck and Ring Pull top.

On the other hand the official sale statistics show that over the five months of this year the volumes of … shrunk by …% (which is a rather good indicator against the background of the market), and the beer sales … grew by …%. Meanwhile the sale growth from the geographic point of view took place in the …
At the end of 2008 one more possible development direction became known. «Alivaria» started selling canned beer, which is filled at the capacities of the Russian «Baltika». Beer has to be imported as there is no can-filling line at the Belarus facility. But that measure will help define to which extent the can package is demanded by the local consumers. It is possible that a decision on installing the line at the Belarus facility will be taken according to the sales figures.
Meanwhile «Baltika» ranks the fourth among the leading players and is the absolute leader in the premium segment. However last year, the Russian company did not manage to increase its sales volume, having sold … At the …, the market share of «Baltika» was still growing progressively, having reached …%. And the modest sale results were connected to the substantial decline at the …, when the market weight was less than …%. It is significant that the decline affected the both of the key brands of the company — beer «Baltika» and «Arsenalnoye». By the high season 2009 the positions of «Baltika» started being restored.
The audit data show that about …% of sales by the Russian Carlsberg subdivision are accounted for by «Baltika» brand, the retail price of which was …. For example last year, beer «Alivaria Zolotoye» cost …. In spring 2009, «Baltika» price decreased considerably which made the Russian beer more available against the background of rapidly growing prices of the national production. Obviously this decrease resulted from the Russian rouble devaluation against the national currency.
Beer «Arsenalnoye» accounts for about a … of the company’s sales. Last year «Arsenalnoye» occupied the niche between expensive Belarus beer and most of the Russian brands. But the spring price fall made «Arsenalnoye» a direct competitor of mainstream Belarus brands. That is why it appears that this step allows Carlsberg to …

It would be too early to say that due to the crisis Byelorussians are not willing to buy expensive beer. The reduction of import volumes is more probably a result of the reaction to the economic crisis of Belarus government which does not wish to put up with the outflow of currency funds.
At the end of 2008, the press service of the Committee of the State Control published the following announcement: «In the course of the beer turnover control, the activity of 65 enterprises which import and distribute beer from foreign producers was analyzed. The official examination revealed that during JanuaryJune of the current year, 4.15 mln l. of foreign beer for the sum of BR 8.3 bln were solled by the importers themselves or through intermediate structures to the organizations which do not account to the tax organs. Some of such organizations have been already liquidated, and some are still denying the fact of beer receipt…»
Recently CSC has issued a proposal to give the state the exclusive right to import beer to the country (institute of special importer introduction). The proposal has been supported by some Belarus producers.

The market share of Ukrainian company «Slavutich» (Carlsberg) at the beginning of 2007 was …, but by the …of 2008 it amounted to about …%. During all last year and this year, the positions of the Ukrainian subdivision have been … The company may boost its export activity as the Ukrainian beer market is currently experiencing recession.

Ukrainian «Obolon» used to be the most dynamic company at the Belarus market. Until 2007, the company was not very active. Though brand «Obolon» was rather recognizable to the local consumer, its sales could not be high because of the inadequately stiff price and poor exposure in retail. 2007 saw a dramatic price decline, rapid growth of distribution and market share. Obviously, «Obolon» has started a decisive expansion and found serious partners for distribution. The same named brand, which accounted for almost 100% of the company’s sales occupied the price niche between expensive Russian import and expensive beer by Belarus producers.
Early in 2008, a fast growth of «Obolon» market share originally occurred due to consumers’ demand for qualitative beer and market premialization. Before the crisis, «Obolon» production was present at …, and the market share grew from …% to …%. In the fall, the qualitative and quantitative indicators of distribution went down considerably, which could be caused by both financial problems and the activity of controlling organizations. However the retail price of «Obolon not only did not rise, but even decreased substantially. This step was obviously appreciated by consumers as the company’s market share continued growing, reaching the level of … by the summer this year.
The aftermath of such a rapid expansion is negative attitude to the company which can seriously affect its sales. In particular, it concerns subbrand of «Obolon Svetloye» which got an additional name «Ognetushutel» (fire extinguisher).
Under the company’s data a claim was raised after «Syabar» (Heineken) lodged a complaint to standardization committee. The design of beer «Ognetushutel» was notably different from «Obolon product range, while in accordance to the Belarus legislation a quality certificate must be reiterated for each item name. If «Obolon’s» guilt is proved its distributors will be fined at the sum equaling 100% of two-year proceeds from this brand sales and they will probably refuse from further cooperation.

Two Heineken enterprises «Rechitsapivo» and «Syabar» have been losing their market share rather rapidly since the fall of 2007. As Ukrainian beer in PET has become the direct competitor of Heineken by price, the company’s discontent is quite understandable. But this happened as early as the end of the last year, thus it cannot be true that «Obolon» has been taking Heineken’s market share. Obviously the setback of production and sales resulted from the reorganization coupled with the economic crisis.
Thus, the official statistics show that over the five months this year, enterprise’s «Syabar» sales went down in … region except for …. Meanwhile «Rechitsapivo» had setback …, especially in …, though the company is … Probably «Syabar» growth took place at the account of …
One on the causes of the production setback is according to experts the company’s sale system reorganization. Though the distribution indicators were improving till the end of 2008, and by geographic coverage Heineken is …
The other possible cause is Heineken’s unwillingness to accumulate distributor’s debt of the retail. According to the company management, they decided to cut beer production to lower distributors’ stocks. That is, in the crisis situation Heineken strives to optimize its and partners’ monetary flows. (newspaper «Belorusskaya delovaya gazeta»).
Finally the third reason could be the priorities of the company, which in the fist pace invested into the production reorganization paying less attention to the marketing. After «Syabar became a part of the concern, the new owner invested in it about $11 mln. The modernization was completed within six months to be ready for the summer. Reconstruction of the brewhouse, new PET filling line installation, implementation of new tanks and other equipment change were carried out at the enterprise. As a result the capacity of the company went up from 12 to 17 mln dal.
The reconstruction of «Rechitsapivo», a small brewery in Gomel oblast is to be completed in 2011. According to the company management, 4 mln euro will be invested into the project, including 1.5 mln euro in the current year. The installed equipment and new technologies will allow outputting international brands.
The marketing activity of the company has been recently aimed at updating the design of the existing brands mostly in PET as well as at licensed production launching.
In particular, at the end of 2008, there was rebranding of «Rechitsapivo» production, i.e. beer «Rechitskoye» (market share about …%) and of the local brand «Dneprovskoye» (market share about …%) in order to transit it to the national level. But Heineken’s key brand is still «Bobrov» which has yielded its position substantially, since … While in … its market share exceeded …%, by the … it amounted only to …% of the market. In summer Heineken restyled the PET bottle and the label of «Bobrov» beer in order to «refresh the brand image, make it more modern and eye catching on the shelf, not changing the design fundamentally». Besides subbrands «Bobrov Ice» and «Bobrov Klassicheskoye» are now available in can.
Heineken’s positions in premium segment are to be reinforced by local production of Russian beer «Doktor Disel» (import volume in 2007 was about … ths. dal, and the production in 2008 amounted to … ths. dal.), as well as of international brand G?sser and Zlaty Bazant (both having … ths. dal import in 2008) and by exclusive distribution of Heineken beer produced in Saint-Petersburg.
Rather good dynamics has been exhibited by «Lidskoye pivo» (Olvi) since the last year. This brewery ranked the third in Belarus by beer output volumes.
«Lidskoye pivo» has been increasing production since 2007. Last spring, there was a tendency of company’s market share reduction. But as early as by September, when the Finnish concern Olvi acquired the control stock of PC «Lidskoye pivo» the status quo was restored and by the season 2009 the national distribution and the company share have grown dynamically. The market weight of «Lidskoye» is approaching …%.
Under our estimation about …% of the company’s production are accounted for by brand «Lidskoye» which is located in the lower market segment. Accordingly, the positive dynamics was formed by the key brand sales. But an additional impetus to the share growth was made …. Its market share has been growing rapidly and has amounted to nearly …% by … this year.
It is expected that the new owner of «Lidskoye» will invest $26 mln into the company development within next two years. A new fermentation workshop is planned to go into operation by 2010 and the enterprise has prospects to construct a new line for bottle filling in the nearest future.
Besides, funds are being directed to develop logistics system and trade-marketing. The official data show that the domestic region where the growth prospects are limited still accounts for …% of «Lidskoye» sales. And this means that the company has a serious potential of development by regional expansions, and as we can see the company is now using this potential.
The state enterprise «Brestskoye pivo» took the … place by production volumes this season. More than …% of beer is distributed in the domestic region, where the market share of «Brestskoye pivo» amounts to about …%. The main competitor of the company in the region is … The average price for … and «Brestskoye» corresponds … That is why the activity and share growth of the … probably influences the ….
In spite of the production setback, the capacities of «Brestskoye pivo» are planned to expand from 3.5 mln dal (on 1 January 2008) to 4.3 mln dal by 1 January 2010. PC «Brestskoye pivo» received a budget loan of Br23.4 bln for modernization. Besides internal funds of the enterprise are used for these purposes too. This summer a line for beer PET filling is planned to be set in operation. In the course of reconstruction six new CCTs as well as technological equipment have been already installed and the yeast department has been expanded.

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