Since the beginning of 2008 the brewing industry has been exhibiting a fluctuating growth dynamics though in other countries of Eastern Europe beer production was still growing slowly. The protracted production setback and transition from beer market stagnation to recession were caused by government regulation, economy crisis and poor weather.

The crisis shift of the trade balance
Market segmentation
The leaders’ positions

The first precondition of the stagnation was the new law i. e. the necessity to license beer trade starting from autumn 2007, which led to reduction of outlets dealing with brewers’ production. Qualitative and quantitative indicators of distribution went down sharply. Breweries started experiencing difficulties with shipments. In particular, according to the official statistics, by the beginning of 2007, the stock of finished products at storehouses of breweries amounted to …mln. dal and by January 2008?to …mln. dal.
The negative results of government regulations were then coupled with the economy factor. The republic of Kazakhstan was obviously the first among other large CIS countries to experience economy crisis. Inflation growth against the background of production cutbacks led to purchasing power fall. The growth rates of money income of the population were slowing down since the end of 2007 and a considerable fall was registered in October 2008. The negative dynamics resulted both from employed population reduction and the salary level drop.
The decline of population’s well-being caused a reduction of nominal monetary expenses (in the fourth quarter of 2008?by 10 %, over the year — by 2,9 %). The expense share for foodstuffs grew but in the first place their prices went up very quickly since the year beginning, having slowed down only by July. In the second place the consumption structure deteriorated — people started buying more bread, butter and fat, but the expenses on meat, vegetables and fruit and other not the first necessity products (including beer) have decreased
According to analysts’ estimations in 2009 the retail commodity turnover has gone down by several per cent. Moreover the most optimistic prognosis is another …% beer market decline, whereas the pessimistic one predicts a decline by more than …%.
At the beginning of the current year the beer sales were influenced not only by the crisis but other factors as well. As a result of tenge devaluation the … companies … considerably raised their sale prices for beer in the … quarter. It is obvious that this growth was caused not by market premialization. The … producers, including … practically did not raise their prices since last autumn. In the … quarter, the average sale prices for beer produced by … went substantially down. It could be connected with redistribution of sales by … — sale reduction of … local beer and growth of … segment.
The third reason mentioned by beverage producers is weather conditions — unusual winter and cold spring. Though the season typically starts in …, this year … days in … were rainy. … was also cold and glum which affected sales figures.

Under the operation data of RK statistics agency last year, the beer output was cut by 12.3 % to 36.04 mln dal, virtually equaling the volume of 2006. However comparing to the same 2006 the beer output by value grew by …% to … mln. tenge ($… mln*) at the account of … Thus, the brewing industry share in the official volume of the food industry output (… bln. tenge) amounted to …%.

*Hereafter the accounting is performed according to the official rate over the observed period.

Beer market in 2008 was shrinking at lower rate than the production. In particular, Nielsen audit of retail sales shows … % market decline in 2008 to …mln dal (though in 2007 the market growth amounted to about …%). In monetary terms the sales grew by … %, and the market volume came up to …mln tenge. (or by … % to $ …mln.).

Some market players talk about market growth by …% to …mln dal. We can also cite alternative data based on the official statistics on beer shipments, price monitoring and the trade balance assessment. Under our rough estimation the beer sale volume at the domestic market shrinked by … % to …mln. dal while in monetary terms the sales grew by … to …mln tenge (or by … % to $ … mln).

The crisis shift of the trade balance

If we compare only the physical indicators, than the exceeding output rate against lesser market decline can be explained by three reasons — the import volume retaining at the level of 2007, export fall and comparatively big carry-over stock by the beginning of the year.

In particular at the year 2008 end, the shipments exceeded output by …% by volume and by …% by value, which resulted from carry-over stock volume decline comparing to the end of 2007.
The official import in 2008 practically … However one should also note that a small part of foreign supplies is not included into the statistics. Probably, the overall import volume has also …, amounting to about … mln dal.
In the beer import structure …% are still accounted for by beer of Russian producers for whom the Kazakhstan market remains the main direction of export supplies. According to the data of the State custom service in the RF … tons of Russian beer for the sum of $ … mln were imported into Kazakhstan in 2008. The physical indicators decreased by …% but the monetary indicators grew by …%. Accordingly, the average calculated custom service went up by …% to $ … for liter.
The … of foreign supplies and a considerable setback of production led to weight increase of import. For example, Nielsen monitoring data evidence import share growth from … to…% in 2008. Our estimation of trade balance growth gave us approximately the same result, namely the overall import share in Kazakh market grew from …to … %.
In spite of the equal summary indicators of 2007 and 2008, it is obvious that last summer the tendency of progressive import growth was changed into the opposite. Comparatively expensive import beer became less affordable for Kazakh consumers. It became particularly notable at … and … when a … took place.
The excise policy of the state can also promote the development of the national production. The local producers pay the excise on the basis of … tenge for a beer liter. The foreign producers paid the tax of …euro for a liter (about … tenge). But since 1 January 2009, the excise rate for import beer has grown to … tenge for a liter, having remained the same for Kazakh producers. One should also pay attention that the Russian rouble became stronger comparing to tenge.
Probably due to purchasing power decline, in the first quarter of 2009 the market went down by …%, and the production …%, which could be the consequence of … Though before the high season, the producers output more beer than the market demanded which is confirmed by a sharp production cutback in April and May 2009.

Market segmentation

As for the package market segmentation the retail audit has observed a fast growth of … during all 2008. But by the beginning of 2009, the … share increased. Such fluctuations in the segment are in our view mostly connected to the activity of companies …, … and minor regional producers.

The positions of south Kazakh producers were traditionally strong in the … and in the …, whereas the beer was … of the market. The further «Shymkentpivo» … was one of the causes of … sales of the company. But the company’s market share …n has also led to … segment in general. This year due to …, the … of «Shymkentpivo» became more appealing to cosumers.
Efes company has won the … thanks to the key brand «Karagandinskoye» (which cost not less than «Shymkentpivo» in 2007), but at the same time it has been increasing sales of … with growing shares in all market segments.

The leaders’ positions

During 2008, the beer market was being consolidated in the hands of groups EBI and Carlsberg which, in spite of the industry recession have not lost their sales by volume.
While before the crisis the producers competed with large companies, now they are faced with severe economy conditions and financing problems. To a certain extent, the lower purchasing power of the population has rendered the inexpensive local production compatible. Till now the shrinking of the economy production segment has been negatively affecting the productional and market indicators in the regional companies. These conditions have led to the diminishing of their number. In 2005 in Kazakhstan … enterprises including mini-breweries operated in the industry. By the beginning of 2008, their number went down to …, and by 2009 middle — to …

The absolute leader at the beer market is still Carlsberg group which is represented by Kazakh and Russian companies. These two divisions account for almost a … of the beer sales at the domestic market. According to Nielsen data, Carlsberg share in 2008 amounted to …% by volume and …% by value
As has been pointed out, last year there was a market decline on the one hand and on the other hand, the import supplies grew (mainly in …). In this context, at the year end the company’s subdivision «Baltika» had a considerable sale volume increase and the Kazakh subdivision, Derbes had a considerable decrease. However the final result of the two subdivisions’ operation in 2008 is retaining the sale volumes at the same level, which meant a notable reinforcement of the group’s position taking into account the market recession.

Under our estimation, in 2008 Derbes company reduced the production by …%, having output … mln. dal of beer. Meanwhile the proceeds from beer sales amounted to about $ … mln. Against the background of consumers’ behaviour change the serious recession went on this season. Under our estimation, over the first six months of 2009, the beer output shrunk by about …%, having amounted … mln dal.
It is significant that the fluctuating of the market shares of the company’s major brands correlated … and was fully in tune with the …. For example, international … was steadily … has been in the lead among the … Brand … priced at the … segment border, has practically … Though the company’s … beer — has somewhat … Finally economy brand …
Under our estimation, the «weight gaining» of the … in 2008 has made it one of the leaders by …, while the company Derbes ranked the … at the national market by … But this year Kazakh beer consumers, started obviously to pay more attention to the price, which affected the volumes of sale and production of Derbes company. At least the regional statistics data indicate that the sale prices for the company’s beer went down by approximately …% in the …, which corresponded to the general trend in the industry.
In March, Derbes renovated the range of its key brand. According to the company information, the rebranding followed the results of profound marketing research which was being carried out for 4 months in 5 big cities of Kazakhstan. The research targeted defining taste preferences of Kazakh consumers their expectations as well as tracing the beer market trends and potential for further developments.
According to Olga Lee, brand manager of «Derbes» company, the Kazakh consumer has become more patriotic. While 4 years ago the consumer was rather attracted by «Europe similarity», today such brands are perceived as «alien». The consumer is now more committed to the domestic producer and mostly loyal to the brands which have been present at the market for a long time. But what the Kazakh market turned out to lack is a brand which could be proudly called «beer of my fatherland». As a result the beer taste was changed and the new positioning idea was emphasized by the brand name which is now written not in Latin letters but in Kazakh Cyrillic alphabet. An important element of the new design is the sun.
In May 2009, the second by sales volumes brand of the company namely «Irbis» beer was restyled. Marina Demchenko, brand manager of «Irbis» beer, said that the whole process starting from the package designing to the first lot of bottles for filling at the plant took a little less than a year. This project strived to create a modern but recognizable image of «Irbis» beer. The new package will make the brand appearance more premium.
Finally, the company portfolio has been widened by a new super premium brand. Companies Derbes and Grupo Modelo signed an agreement on exclusive distribution of Corona Extra in Kazakhstan. Derbes has been supplying the brand for retail since spring 2009.
It is significant that Corona Extra realization has been passed not to a Russian but a national subdivision, in spite of almost equal retail coverage indicators of the companies. In our opinion, this choice as well as the decision on license Tuborg bottling in 2007 means that the integration of operational activity seems Carlsberg more perspective than the development of import direction.
The share growth of the … and … segments in 2008 was much dependent on exceeding growth of sales of «Baltika». Under Nielsen data, the company share by volume has reached …% of the national market by the end of 2008.
The company operation in Kazakhstan has been spectacular — «Baltika» was the absolute leader in 2008. According to the Russian subdivision’s announcement over 2008, «Baltika’s» sales have grown by …% by volume having exceeded …mln dal. Besides the growth of proceeds from sales in the republic over this period increased by …% against the figures of 2007.
Under our estimations, «Baltika’s» proceeds from beer sales in Kazakhstan amounted to about $… mln. The company’s share in the overall official import supplies has grown by … p. p. to … %. That is, the import stagnation was caused by sales reduction of …
Notwithstanding the market decline, in 2009 the company has continued reinforcing its market positions, as … beer sales proved more crisis resistant. In particular, the successful «Baltika» operation has been driven by heavy activity in the … and … segments, … targeting, rapid applying of effective …, possibility for the product promotion by … and a wide population layer in Kazakhstan which …
The company announced that by the end of the year the title brand «Baltika» is still at the lead of the sales structure. Its share is estimated at … %. Meanwhile, Nielsen audit shows that «Baltika» brand sales have gone up not due to the …, but at the account of … with a fast growing market share which amounted to about …% in 2008.
The … ranked the second by sales volumes, thus its sale growth reached …% according to the company information. This brand growth was driven by … sort success. Nielsen audit indicates that in 2008 the market share of the brand grew more than twice, accounting for more than …% of the national market.

Summarizing the results of 2008, the company observed sale growth by …% of the license brands, in particular, … sales have almost …
Efes which output about … mln dal of beer ranked the first among the producers in 2008. The company has virtually retained the production volumes against the background of sharp recession of the industry, thus demonstrating … but still the best production dynamics.
In the current year, the growth rates of Efes production and sales in Kazakhstan have been … comparing to the industry dynamics. Under our estimation, over the six months the overall growth of the two enterprises of the company exceeded …% and amounted to … mln dal.
It is significant that the output volumes were gained not by the new Alma-Ata facility, where on the contrary a decline of was observed both in the last and current year, but by the Karaganda facility, has been progressively increasing its beer production having grown by at least …% within the first half of 2009. In our view such reorganization is connected to the regional market dynamics, i. e. …, reacted to the deterioration of economic situation by a sharp consumption decline. At the same time mass sorts of beer became more demanded in the regions.
In 2008 the company’s market share grew thanks to share growth of inexpensive brands «Karagandinskoye», «Beliy Medved» and Gold Mine as well as to licensed «Bavaria», «Amsterdam» and «Navigator». This year the company packed economy brand Gold Mine into can and launched beer «Kruzhka Svezhego myagkoye bezalkogolnoye» (a tankard of fresh mild non-alcoholic beer). This is an original subbrand of beer «Karagandinskoye», in non-standard package and as the name suggests in a very non-typical segment.
Besides the potential for the company growth can be found in integration of «Dinal» — a joint enterprise of Efes and Heineken. In particular, in June, renewed brand «Tyan-Shan» appeared on the market. However a substantial effect from such cooperation can be obtained only after giving the joint enterprise the right for distribution or production of popular Russian brands of Heineken.

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