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. ...
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Beer market of Kazakhstan acquired both traits of East European countries and South Eastern Asia taking a transitional position between them by many criteria and consumption style. Yet there is a positive trend in beer production which differs Kazakhstan from most of the neighboring countries. The market has remained consolidated in the hands of two international players because of its small size. However, it faces dynamic processes such as fast growth of draft beer sales, up and downs of regional companies and Carlsberg Group’s ultimate expansion. Excessive mainstream segment has declined over the recent years, yet, Zhigulevskoe and national brands with regional links have yielded their positions to a range of new products. In our review special attention was paid to regional analysis of the markets. In 14 regions of Kazakhstan we compared the companies’ positions, the market price segmentation and DIOT channel development. Besides we have compared the beer market of Kazakhstan to neighboring countries. ...
Kazakhstan beer market 2012
Year 2012 can become the third season running with positive dynamics of beer production in Kazakhstan as compared to pre-recession year 2007. In such case one can say with certainty that brewing sector of the republic has got over the recession. There is no doubt that gradual economic recovery of the country has become the driving force behind the market development. After a decline in production and consumption in 2008-2009, beginning with 2010 Kazakhstan economy has been showing stable growth dynamics.
Thus, according to Kazakhstan statistics agency, gross domestic product per capita comprised $… in 2011. As compared to 2007, this rate increased by …% in dollar equivalent and redoubled in tenge. Nominal cash income per capita over the same period increased by …% and comprised $… in 2011. Production and income growth trends continue in the current year.
In 2008-2009 the recession reduced beer production rate by …%. But tenge devaluation, carried out by Kazakhstan government in that period, also stopped the aggressive import growth. Dynamic development of Kazakhstan economy, which took place after the decline, created favorable conditions for an increase in local manufacturers’ significance. As early as in 2009 they increased beer production by …% as compared to 2009 and by …% as compared with problem-free 2007.
In particularly, rearrangement of operating activities of Carlsberg Group, the largest Kazakhstan beer market participant, played a significant role in production development in 2010. Russian “Baltika” conveyed the rights to use the trademarks and sell and promote “Baltika” and “Nevskoye” brands to Kazakh “Derbes”. As “Baltika” is one of the main beer importers to Kazakhstan, import reduction resulted in license production development.
However in July 2010 the Custom Union between Russia, Kazakhstan and Belarus came into force. The Union entered into an agreement on equal indirect tax for all the market participants. Previously, domestic excise tax on beer comprised 13 tenges and 60 tenges on one liter of import products. Single economic area reduced excise tax rate for Russian and Belorussian companies to domestic fare level. Excise tax equalization had a negative effect on competitive ability of Kazakh companies as beer production cost is considerably less for Russian companies due to activity rate.
In 2011 excise tax was practically redoubled. This step might have prevented the market from overstocking with Russian inexpensive beer sorts as price variation adjustment consolidated import position in premium market segment.
An increase in excise tax rate by 92% resulted in brewery products price rise. The situation was aggravated by the requirement to provide accompanying notes in electronic form, which had an adverse effect on beer distribution. Besides, in 2011 Kazakhstan economy was negatively influenced by high inflation. As a result, in 2011 production decreased by …%, but, after all, it was by …% more than in 2007.
For seven months of 2012 Kazakhstan brewers produced 314 mln liters of beer, which is by …% more than the production of the same period in the previous year, but in any way, it is by …% less than the amount, produced during seven months of record-breaking 2010.
Production dynamics assessment in value terms is closely associated with tenge rate fluctuations. Besides, the prices on beer market were growing in line with inflation and were influenced by government control measures.
In February 2009 the National Bank of Kazakhstan carried out planned national currency devaluation by 25%. The abrupt tenge weakening was caused by a demand to save gold and forex reserve and to keep the competitive ability of domestic manufacturers. Tenge devaluation influenced the price of all products, including food stuff. In expectation of devaluation, advance growth comprised …-…%. In these circumstances beer manufacturers (in the first place, enterprises with foreign funds) kept selling prices in dollar equivalent at the same level but had to increase them by …% in tenge.
Distributors, when selling this non-essential product, suffered most of all as wholesale prices for beer reduced by …% in local currency and more than by …% in dollar equivalent. These measures abruptly decreased the income of commercial organizations but saved sales volume of Kazakh brewers at the year-end.
In January 2010 excise rate rose from 10 tenge/liter to 13 tenge/liter for Kazakh brewers which resulted in an increase in selling price by …%. Retail dealers partially restored their profitability, having increased the price by …% both in dollars and in the national currency.
In 2011 price set by manufacturers and wholesale dealers slightly increased by …% and …%, correspondingly.
As for the prices in 2012, brewers announce a determination to keep them at the previous level. Profit earning and competition are conducted not so much by price methods as by the attempts to reduce expenses. Official inflation rate by the end of July 2012 as compared to December 2011 comprised …%, the prices might increase by about the same value.
The year 2007 still remains to be record-breaking as regards the total volume of beer consumed in the republic. During the last pre-recession year … mln liters of beer were consumed in Kazakhstan. Even in successful 2010 the sales volume was by about …% less than in 2007.
However, the data for the first six months of 2012 seem quite optimistic. Beer sales in this period exceed sales volume in the same period of 2011 by …% and by …% exceed the amount of beer, consumed in the same period of 2010.
Market development was positively influenced not only by large volumes of import products but also by an increase in consumption of beer, produced by Kazakh manufacturers. During the first half of 2012 shippings of local manufacturers rose as compared to the same period in 2011 and 2010 by …% and …%, correspondingly.
In 2007-2008 import took about … of the whole market. In 2009 it slowed its growth dynamics due to tenge weakening. At that moment its share comprised …%. Subsequently, import share reduced and domestic production grew. As it was mentioned above, it was caused by the rearrangement of Carlsberg Group enterprises. Import share in the total beer volume, sold in Kazakhstan in 2010, comprised about …%, in 2011 it increased to …%, and during 6 months of 2012 it comprised …%.
Beer market volume in the national currency came back to pre-recession level in 2011, and in 2010 it even exceeded it. But in dollars, due to significant tenge devaluation in 2009 and import reduction, it is lower than the level of 2007 by about …% and according to our estimation, it amounts to about $… bln.
General increase in prices of basic food products and goods exerts a negative effect on beer consumption.
There were two years with high inflation rates over the last five years in Kazakhstan.
The increase in prices in 2008 outran the prediction of national currency devaluation. The price rise in 2011 was to a significant extent conditioned by the poor crop of the previous year, both on the world markets and in the Republic of Kazakhstan. According to the diagram which presents a sample of food products and goods (except beer) a price rise in tenge amounted to …% in 2008 and …% in 2011. An increase in wholesale price amounted to …% in 2008 and …% in 2011.
But not only did the prices grow. Salaries increased perceptibly as well. During the same period, from 2007 till 2011 they increased by about …% in tenge or by …% in dollars, that is, approximately in the same way, as in average the price of all the food products and goods (without beer), presented on the diagram grew. In December 2011 average monthly salary comprised $… . During the first half of 2012 it increased by …% more and in June 2012 it amounted to $… .
Over the period under review the prices on competitive markets grew more considerably than the price of beer. The cost of vodka and alcoholic beverages rose by …% over five years. According to official data, in 2007-2011 its sales reduced by about …% in by volume on the domestic market.
Mineral and sparkling water segment occupies approximately one … of refreshing beverages market. These beverages rose in price by …%, but the consumption (in liters) of all non-alcoholic beverages in 2007-2011 grew by about …%.
In 2011 beer sales volume was …% less than the volume, consumed in 2007.
Taking into account mineral water and alcoholic beverages consumption dynamics, one can make a conclusion that for the time being beer yields to strong alcoholic and non-alcoholic beverages in consumer's preference.
The highest rate of beer consumption per capita was registered in 2007. At that time it comprised … liters per citizen of the country. Since then every year the population of the country has increased in average by … thousand of people, or by …%. The year 2012 will not be an exception either. By August 1 of the current year, the population of Kazakhstan amounted to … thousand of people, which is by …% more than the number of residents of this country by the end of 2007 and is already by …% more than the number of citizens at the end of 2011.
As beer sales have not yet reached the level of 2007 and with population size growing, consumption per capita is reducing.
According to Kazakhstan statistics agency, more than …of beer retail turnover in Kazakhstan falls on the city of Almaty (…%) and Eastern-Kazakhstan region (…%). But only …% of Kazakhstan population live there.
One … more of beer volume is sold in the city of Astana and also in Aktyubinsk, Kostanay, Karaganda, North-Kazakhstan, Pavlodar and Akmola regions. Their population comprises …% of the total number of citizens.
The remaining seven regions, with a half of Kazakhstan population, consume about …% of the total beer volume, sold in the Republic.
Thus, geographically, beer consumption is concentrated in the center, in the east and north of the Republic. It is partly explained by the location of the plants which, except “Shymkentpivo”, are concentrated in “beer-consuming” regions. The largest beer volume in 2011 was produced in Almaty (…%) and Karaganda (…%) regions, the city of Almaty (…%), South-Kazakhstan (…%), Kostanai (…%) and Pavlodar (…%) regions. The remaining regions produce about …% of the total beer volume of the country. The choice of the production sites is connected to uneven distribution of water resources in the country’s territory.
Besides, mostly Muslims inhabit the southern regions of Kazakhstan and as a rule they do not consume alcoholic products.
The official beer export volume by Kazakhstan enterprises, is insignificant. In average it amounts to one per cent of the total volume of the produced product. Export deliveries are carried out to Kyrgyzstan, Uzbekistan and Russia. The main exporter is Shymkentsk brewing plant which due to its geographical position has access to neighboring Uzbek and Kirghiz markets. Export to Russia amounts to about …% of the total volume of foreign deliveries.
In our opinion, beer market growth prospects lie within the structure of alcoholic beverages consumption in Kazakhstan. Although the amount of consumed beer per capita is two or three-fold less than the average one in Europe, it will hardly reach such indices as in Europe or Russia due to cultural and other historical differences of Kazakhstan.
The amount of alcohol consumption in terms of net unit of alcohol per capita also differs significantly from European one. If in Kazakhstan beer share amounts to about …%, then in Europe it reaches …-…%. The experience of other countries shows that beer consumption grows along with the society development and gross domestic product growth.
Thus, it is possible to support the growth by a change in alcohol consumption structure. During the next several years average annual beer market growth rate in Kazakhstan might reach …-…%.
In 2012 two companies, Efes and Carlsberg are still the absolute leaders on Kazakhstan market. According to Nielsen, their total share rose from …% in 2007 to …% in the first half of 2012.
In 2011 Efes Kazakhstan became a leader on the domestic market and over the year it strengthened its position. In the first half of 2012 the company increased its share to …%. Thus, over the period of five years Efes redoubled its presence in Kazakhstan and now it occupies more than a half of the market.
According to the report of Efes for 2011, three popular brands played a significant role in its success, namely “Karagandinskoye”, “Kruzhka Svezhego” and “Belyi Medved’”. Consumers’ recognition of these sorts became one of the reasons, why the company managed to take a considerable part in the lower maintsream segment.
Active growth required a constant increase in capacity and over the period under review it was redoubled. At present Efes Kazakhstan possesses total annual manufacturing capacity of 240 mln liters.
Further growth prospects of the company can be associated with integration of Efes and SABMiller. The employment of Efes powerful distributor basis for active promotion of SABMiller brands, which became well-known due to Russian television advertising, will allow this union to keep on increasing its market share.
Till 2008 “Pivovarennaya kompaniya “Derbes” Ltd and Russian PC “Pivovarennaya kompaniya “Baltika” were the largest market participants in Kazakhstan. At the beginning of 2010 “Baltika” and “Derbes” entered a license agreement, under which “Derbes” received the rights to produce, use and promote key trademarks of “Baltika” till 2009. The share of “Baltika” in “Derbes” capital comprises 10%, and “Baltika” receives the same income share from sales.
As stipulated by the agreement, “Derbes” began to produce such brands as “Baltika #3”, “Baltika #7”, “Baltika #9”, “Cooler”, “Cooler Lime” and “Nevskoye ICE”. Due to the production of these brands, “Derbes” added …% to its volumes in 2010 and the amount of imported products reduced abruptly.
But in the subsequent years production output at Kazakhstan capacities underwent a significant reduction. In 2011 it was practically equal to the level of … . Moreover, rail transit statistics suggest a change in priorities. Perhaps, due to low loading of Russian “Baltika” enterprises and liberalization of trading restrictions, despite the license agreement, beer import from Russia was reactivated. This could be one of the main reasons for the decrease in beer production capacity at Carlsberg Kazakhstan.
Most probably, changes in industrial engineering and management, associated with the agreement on local and Russian businesses merging, have influenced the sales. For the time being, instead of the expected synergetic effect, Carlsberg is losing Kazakhstan market share, although the consolidation might have had a positive influence on profit margin.
“Shykmentpivo” Ltd is one of the largest enterprises of Kazakhstan brewing industry. According to our estimation, on the basis of regional statistics data, annual producing capacity of the enterprise amounts to … mln liters of beer but so far only a … of its capacity is being used. Production output comprised in average about …% of the total beer production output in the Republic of Kazakhstan over the last five years. Beer sales share on the domestic market over the same period comprised about …% (under Nielsen estimation). And the both of these shares are constantly decreasing.
In our opinion, one of the reasons for the decrease in sales volume is associated with focusing of the enterprise on draught beer, as more than a half of sales in this segment falls on beer, produced in Shymkent. Kazakhstan HoReCa establishments are mainly represented by expensive restaurants; mass inexpensive beer bars segment is poorly developed. Draught beer is also sold in small beer shops.
Over the past five years Kazakhstan government took a number of restrictive measures, aimed at controlling the alcohol product turnover. Beer also belongs to this category in Kazakhstan. Since 2007 wholesale and retail beer sales have become subjects to licensing and since 2009 drinking of alcoholic beverages in public places has been prohibited and since 2011 it has been required to present accompanying notes in electronic form. Most of all these measures affect small enterprises which work in draught beer trading sector and this has a negative effect on its distribution. In our view, along with excise growth, this reason has significantly influenced “Shymkentpivo” positions.
“Firma Arasan” Ltd owns two plants in Kostanay region with total capacity of … mln liters of beer, according to our data. The enterprise produces a large number of popular beer sorts. Over the last five years “Arasan” practically redoubled beer production output and in 2011 its share in total beer production volume in the country comprised about …%. In 2012 “Arasan” did not reduce its progress rate either. Over the first half-year its share amounted to about …%.
“Nurzhanar” JSC is located in Western-Kazakhstan region. Production capacity of the company makes it possible to produce about 54 mln liters of beer per year but only one tenths f the capacity is loaded. The enterprise produces such trademarks as: “Rizhskoye”, “Nurzhanar”, “Zhigulevsliye”, “Uralskoye”.
In 2011- first half 2012 “Nurzhanar” took a share of …% in total production volume. By the way, in crisis 2008-2009 the plant not only did not reduce its production rate but also managed to increase its volume, having expanded its share to …%.
As far back as seven years ago JSC “Rosa”, former “Pavlodarskiy Pivovarenniy Zavod”, was considered a competitor to “Efes Karaganda Pivovarenniy Zavod”. Production capacity of the company allows producing more than … mln liters of beer per year.
In 2007 the plant accounted for …% in the total beer production volume in the country. In 2011 its share reduced to …%.
The attempts to restore the production have not yet been crowned with success and during the first half of the current year its share in the production in the Republic comprised only …%.
In 2007 “Pervyi Pivzavod” Ltd in the city of Almaty ceased its operation due to the withdrawal of ground area for state needs during the construction of Western bypass road. It is planned to re-launch beer production outside Almaty city limits in 2012 and to put into operation a new plant with the capacity of … mln liters of beer per year.
Import beer is mainly delivered from Russia. As practically the whole beer volume is delivered by rail transport, we will consider that the delivery volume of different companies corresponds to their sales on Kazakhstan market. Estimation was carried out on the basis of rail transportation statistics, granted by information agency “Kominfo”.
In 2011 as before “Baltika” remained the largest importer in Kazakhstan. Having delivered … mln liters*, it occupied almost … of import beer market. SABMiller with … mln liters provides about … of deliveries. The third largest importer is Russian branch of AB InBev. Over the last year this enterprise delivered … mln liters of beer to Kazakhstan market.
* In our estimation we supposed that 1 kg of cargo
corresponds to 0.8 liters of beer.
In the first half of 2012 “Baltika” delivered … mln liters of beer. It is … mln liters less than in the first half of the last year but still more than the volume which was delivered by the rest of importers. Efes delivered … mln liters of beer which allowed it to take the second place. Although SABMiller reduced its deliveries by … mln liters, due to a general reduction in import volume, its share remains invariable.
Due to the tightened competition on Russian beer market and determination of importers to make up for excise tax growth, the price of delivered beer is reducing. According to our estimation on the basis of State Customs Statistics of Russian Federation data, average estimated customs value of Russian beer reduced from … cents for a liter in 2011 to … cents for a liter at the beginning of 2012.
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