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. ...
Journal.Beer 3/2008. Kazakhstan Republic: a low start
The situation at the beer market of Kazakhstan Republic at the end of the last year and at the beginning of this year was too difficult. Somehow it reminded of the development of the Russian and Ukrainian markets. Particularly, the index boom of consumer prices resulted in the switch market rise in by volumes. But Kazakhstan brewers also faced the problems connected with the state regulation of the beer retail trade. The delay in the market rise was caused because of the reducing of inexpensive beer segment which in general was adequately compensated for by the rise of expensive brands sale. This process led to the logical redistribution of the market shares when international companies and import strengthened their positions. Whether it is possible to speak about the faster process of the market consolidation in the hands of two major players Carlsberg and Efes it will be shown at the end of the year when the situation will have to become stable.
In the reports of the company Carlsberg it is said about the delay of market rise in Kazakhstan because of the established economical situation. The market rise basing on the totals of the first quarter of 2008 is priced at 1%, and basing on the totals of the half-year — at 4%. The same picture becomes clearer also by the comparison of the official data.
Particularly, in accordance to the operational data of Statistics Agency of RK in the first half of 2008 the production was reduced by 5.2% to 19.1 mln. dal Taking into consideration good rates of the last years (for example, in 2007 the production was risen by 12.1% to 40.8 mln. dal.), this year it is still possible to expect that the national rates will approximate to the last year’s 40 mln. dal of the beer production.
Export of the Kazakhstan beer in 2007 was estimated at 6.1 mln. dal by the national company CBH, expecting that it will be raised to 8 mln. dal in 2008 (the estimation was given at the beginning of this year).
In spite of the decrease in production the market continued the slow rise on account of the foreign deliveries. For the half-year the Russian import was raised by 27.5% to 114 ths. t. which corresponds almost to 10 mln. dal of beer. Basing on the totals of the year it can be expected that the volumes of the Russian deliveries will exceed 20 mln. dal Current figures and estimations in general correspond to the data of the market monitoring which show that the share of the import beer in the inner market has raised nearly by 4 p.p. to 35%.
Asel Orazbaeva — the director of the department of the public relations of «Efes Karaganda» — says, that the delay of the market rise pace is mainly connected with the financial crisis, which affected Kazakhstan and other CIS countries in the second half-year of 2007:
«In 2008 the percent of GNP growth was revised by the government from 9% to 5%, while the factual growth of GNP for the first half-year of 2008 totaled only 3.8%. The rise of the interest rates, the deficit of liquid assets, the rise of the consumer prices, in particular on the foodstuffs, the increase of the communal services prices, the stagnation of the building branch and the stoppage of enterprises caused the drop of incomes and as the consequence of the purchase requirement. The latter directly influences both the market rise rates as a whole and the volumes of each enterprise sales separately».
The seriousness of the situation which affected food industry workers is emphasized by the official data. In May of 2008, the index of the release prices for the enterprises of the food branch (including the production of drinks) totaled 137.1%. Moreover the corresponding rate of the brewing enterprises totaled 117.6%. The data of monitoring show that for this time the average beer price for a consumer increased by 116.6% to 220.1 tenge for liter. So it is possible to speak about the fact that brewers restrained the rise of consumer prices on account of the release prices.
Albina Bogday — the company «Derbes» director of communications — notes that the current economical situation led to the structural changes at the beer market: «The rise of inflation led to the delay of the consumer demand. Such a reduction is especially viewed in mainstream and economy segments of the beer market, because exactly for the consumers of these segments any changes in economical environment are the most tangible in contrast to the consumers of the premium beer».
Beside the general reduction of the demand which seriously affected the development of the markets of many countries, its negative part in Kazakhstan was played by the administrative factor. At the beginning of 2007 a new Licensing Law, which reg- ulates the production and circulation of alcohol was accepted. In contrast to the previous version, in accordance to which the license for the beer sale was not demanded, in the new law this exception disappeared.
In answer to the appeal of enterprising organizations in Minfin RK with a request to specify whether it is necessary to change licenses for those retail dealers which have been already selling the alcohol production there was an answer that they also must get new licenses. In autumn of 2007 new rules were brought into operation and negative for the beer market consequences did not keep us waiting. In particular, the data of monitoring of retail trade show the serious deterioration of quantitative and qualitative rates of distribution.
The representatives of the companies confirm the seriousness of the autumnal situation. «Basing on the data of the monitoring agency Nielsen, sales at the national beer market in 4 quarter of 2007 increased only by 5%, while in 4 quarter of 2006 the rise totaled 13%» — Asel Orazbaeva says. — «The slight rise was the consequence of the legislative innovation, as the process the license receipt demands serious temporary and financial costs. The licensing of the trade led to the reduction of the number of the points of beer sale which affected the sales of the market as a whole».
Albina Bogday explains that this negative effect was worsened by the difficulty of the license receipt because of too banal reasons — there were no required forms. In her opinion, licensing may also have long-term consequences for the market: «The absence of beer in retail trade led to the switching of the consumer over the other categories of drinks, mainly over the strong alcohol. Licensing complicated the work both of distributors and of the sales outlets. Besides, according to this law socially safe category of the drinks «beer» was equaled to the category of «strong alcoholic drinks», which was a peculiar incentive to the toughening of control over the branch from the side of administrative structures and the formation of the distrust to the brewing branch in the society».
The retail trade of beer in the first half-year of 2008 did not recover from the consequences of new rules of licensing, but in the second half-year it must overcome them. We will also note the fact that the major inflation stroke fell on the second half of 2007 and gradually the situation at the consumer market is being stabilized. That is why there are the reasons to suppose that the results of the second half-year for the beer market will be better than the results of the first one.
However in 2009 administrative factor can have some influence on development of beer market again. In the first place in the bill of the developed Tax code of RK a fourfold increase of excise rate on beer to 40 tenge/ l is stipulated. In the second place, the Ministry of Finance of RK is preparing a bill which provides considerable limitations of selling places for alcohol drinks including beer.
Both leaders of Kazakhstan market — groups Carlsberg and Efes were recently distinguished by structural changes, which will probably find their reflection also at the beer market.
In April concern Carlsberg became the majoritarian owner of «Derbes» instead of liquidated BBH. By this Kazakhstan enterprise became a part of Eastern Europe division of the Carlsberg Group. Anton Artemiev, the president of the Russian «Baltika», was appointed the senior vice-president of the division.
The representatives of «Derbes» give positive estimations to the perspectives of the company in the context of its joining group Carlsberg: «Firstly, it gives us an opportunity to find out and to put into practice in Kazakhstan long-term experience of our owners, both in the sphere of brewing and in the sphere of nonalcoholic categories, which has positive character for the development and strengthening of existing brands. Moreover, in such a case the opportunity of the replenishment of our portfolio with new brands in future, which belong to company Carlsberg, aiming to strengthen our market positions, is nor excluded».
Such positive experience is found in the company «Derbes ». In January of 2007, the local production of beer Tuborg was launched. Before this the key licensing brand of the group Carlsberg was not practically represented at the market of Kazakhstan. Novelty, original conception and positioning, active marketing support, provided a good start. It was also taken in consideration that Tuborg — an international brand and it must position itself equally in all the countries where the beer for young people who lead an active way of life is being produced. Advertising slogans in Kazakhstan resembled the corresponding mood: «Want to have a fun, tug a ring!», «Move to the Green Party», «Turn in your own way!», «Fun starts here!»
Quickly developing the distribution in all the regions of Kazakhstan the brand occupied 1.7% of the national market in May, 2007. In summer-autumn of the last year the period of some stabilization came, but already by May of 2008 the brand share had reached 4.5% and continued its growth. Basing on the totals of the year Tuborg will obviously become a leader of sales among brands let out under license.
The launch and the further development of the brand were hold under different conditions. In accordance to the new version of the Advertisement Law, in the second half of 2007 BC «Derbes» was not able to carry out advertising actions any more.
«Our methods of promotion were based first of all on the cultural components of the brand» — Albina Bogday says — «While working out a longterm strategy of marketing communications under the new conditions we proceed from the fact that Tuborg is a fashionable European brand which promotes modern musical culture. We started our work with night clubs in which a series of parties named Green Parties with participation of popular disc jockeys were hold. In September the first musical festival in Kazakhstan Tuborg Greenfest, to which famous European teams were invited, took place».
The national brands of the company were developing in accordance to the price segments of the market in which they position themselves. The sales of the premium brand «Irbis» were growing better than ones of the market, its share had grown up to 6.5% of the national market by May of this year. The brand «Derbes» was developing roughly in accordance to the average rates, its share at the national market a bit reduced and approximated to 11%. The sales of the economical brand «Alma-Ata» were noticeably reduced both by volume and by value, its share reduced by 1 p.p. to 2.6%.
As we can see the portfolio of the company brands becomes more premium because of the brand policy of the company and objective market situation. As a whole the share of BC «Derbes» at the national market grew up nearly by 2 p.p. by volume and by value having reached 24.4 and 22.9% correspondingly by May.
The part of the Russian department market of the group Carlsberg was growing up even more dynamically. The traditional sorts of «Baltika» in general slightly let their market positions having lost approximately 1 p.p. and having reached 15.2% of the national market. But two dynamically growing premium brands «Baltika Cooler» and «Nevskoe» more than compensated this reduction. In particular the growth dynamics of «Baltika Cooler» in many aspects repeats the successful development of Tuborg also including the point of view of the market positions, in May the share of the Russian brand grew up to 2.5 p.p. and reached 4.2%. The market part of the beer «Nevskoe» for this time grew up by 1.8 p.p. — to 3.2%.
In our opinion, the consolidation of the regional system of management under the aegis Carlsberg with the lapse of time may affect the business organization in Kazakhstan where today the national and Russian companies are working simultaneously. But the representatives of BC «Derbes» say that at the present time the company is at the first level of the reorganization. That is why no serious changes in the organizational, production and market activities of the company have happened yet.
For the company «Efes Karaganda» the last year was one of dynamic and successful ones. Combined production forces were increased from 13 to 21 mln. dal By the end of the last year the sales volumes of the company had increased more than by 40%. In the rates of the growth the company passed ahead in three the development of the national market. In May, 2007 the market share of the company was 20.5%, in summer it started its dynamic growth and by May of this year it had increased to 25.6%.
The results of the company would not have been so successful, if it would not be able to provide the sales growth of its key brand — beer «Karagandinskoe » the last year. Here it is necessary to admit that the increase of the share of the inexpensive brand took place against the background of this segment reduction.
«According to the data of the agency Nielsen the market price of the sort «Karagandinskoe » in 2007 grew up while we were observing the reduction of the share of the sorts «Derbes», «Shymkentskoe» and «Tyan- Shan». — Asel Orazbaeva claims — «In the first place the growth of the sort «Karagandinskoe» is connected with the correct price policy and investments into the brand. In the last year we finished the process of the brand packing change: in the first place we changed the returnable standard package for the non-returnable one (NRB), modified the design of the label, changed a usual bottle for the modern one with the raised logotype, and also changed a lid for the perfected cork «twist off». We continue developing the system of distribution providing for the presence of the brand throughout the territory of Kazakhstan».
Besides the investments into the production, considerable resources were directed at the development of the brands portfolio — the launch of new beer sorts and the rebranding of the existing ones. In 2007 the company started the local production of the economical brand «White Bear» and the strong beer «Amsterdam Navigator». These brands quickly obtained their popularity at the market having occupied correspondingly 2.1% and 1.4%. Their positive dynamics in the first halfyear provided the company for excellent market rates despite the stabilization of the market share of the brands «Starii Melnik» and «Sokol» which started the hard competition with the Russian licensing and import brands.
Also in 2007 the company expanded the premium component of its portfolio having signed the agreement about distribution of the premium brand Bavaria and superpremium Sol. Whereas the corresponding segments development both brands showed not a bad growth, for example, the beer Bavaria sales despite their high price, in May corresponded of 0.8% of beer market.
«According to the data of the agency Nielsen in July, 2008 the beer market increased by 3%. But despite the weak growth of the market the sales of our company in the first half-year grew up more than by 35%» — Asel Orazbaeva says. — «In this year the work about the expanding of production forces continues by the introduction of new technologies, the improvement of the brands attractiveness. In May the portfolio of our company was replenished by the «golden» beer Gold Mine which positions itself in the segment upper mainstream. The sort Gold Mine Beer, which is being produced on the plants Efes in Russia, is one of the most quickgrowing ones at the Russian market. We are confident in such a dynamic growth of the sort Gold Mine sales at the market of Kazakhstan».
The most significant event of this year in the brewing branch of Kazakhstan, in our opinion, was the consolidation of Efes and Heineken with the aim of the joint mastering of Central Asian Region. The agreement proposes the restructure of business in Kazakhstan, by this the share of participation 72% in the joint enterprise and its management will be controlled by the group Efes. Heineken correspondingly will possess 28% of the formed JV. The similar agreement was achieved in Serbia where the control over the joint business will be hold by Heineken. The details are unknown so far: «The agreement with Heineken International B.V. was signed in August, 2008. For the present (September, 2008 — editor’s remark), it is subject to approval in the state organs» — Asel Orazbaeva says.
In our opinion, the integration by itself will not hardly strengthen the positions of Efes at the national market. The capacity of «Dinal» are not so great, according to different estimations they account 3-4 mln. dal and, obviously, have to be modernized. Besides, since 2005 the enterprise has been always worsening its positions at the beer market of RK. If in May, 2005 the market share of the company was nearly 11%, in May 2007 — 5.5%, and in May of this year — already 3.7%.
The slow slump is connected with the fact that Heineken did not pay proper attention to its Kazakh enterprise and did not provide for a sufficient level of investments into production, distribution and brands. In particular, 2/3 of the company sales is provided for by the economical brand «Tyan-Shan».
It is known that at the enterprise «Dinal» licensing brands such as international Amstel and Kaiser, and also Russian «Bochkarev» were being spilled. In our opinion, the agreement will be profitable for Efes in the case if the joint enterprise expands its portfolio at the cost of the famous Russian and international brands of Heineken and deals with their promotion. Such a variant would be especially effective in view of strict advertising limits which complicate the output of new brands to the market.
SUN InBev is a transnational player the import production of which is rather widely represented at the local market. However, on the territory of Kazakhstan the distribution system is not factually regulated, the marketing support of the company brands is absent. That is why during the last years SUN InBev slowly but with certainty worsening its positions. By May, 2008 the market part of the company had reduced by 1.3 p.p. to 4.8%. In the first place there was a reduction of the market share of beer «Klinskoe» which provides for the large part of the company sales but the share of the brand «Sibirskaya Korona» is also rather unstable.
The companies with the national capital, according to the totals of the half-year, reduced production volumes and correspondingly the market share. For the most of them the worsening of the positions is caused by the reduction of inexpensive beer segment in which as a rule their production is represented.
According to our estimation based on the data of the regional production in the first half-year «Shymkentpivo» reduced the production volumes by 20% to 29 mln. dal According to the totals of 2007, the decrease in the beer production of nearly 4% to 75.4 mln. dal was admitted. Nevertheless, the dynamics of the production rates as well as the market rate of the company is being gradually improved and we can suppose that according to the totals of 2008 the slump will not be so abrupt. Against the background of the positions weakening at the beer market, the company diversifies its business in the first place on account of the juice direction development. Its perspective is conditioned by the presence of the own production base in Uzbekistan and developed distribution network.
The assortment of the company includes only one beer brand — «Shymkentskoe» including different sorts. The average price of «Shymkentskoe» is always growing up since 2006 though it is still lower of the average beer price in Kazakhstan. In 2007 the company did not improve the volume indexes, but according to our mark, provided not bad increase of the sales in value terms thanks to the price growth.
AS «Rosa» according to the published reports in the first half-year of 2008 reduced the production volumes by 32% to 0.6 mln. dal However, the production reduction by 11% to 1.65 mln. dal was registered also according to the totals of 2007.
The company may be named a strong local player who controls nearly 16% of the market in the Pavlodar but has a weak distribution in the other regions. The main volume of the beer sales is the share of the local brand «Kochevnik», the price of which is rather democratic.
Caspian Beverage Holding published the report for the half-year in which it was stated that the beer realization volume totaled 0.5 mln. dal, and besides that for the same period of 2007 0.79 mln. dal of beer were realized. Before this basing on the totals of 2007 it was reported about the sales and production growth which was increased by 17.7% to 1.67 mln. dal.
In this case the weakening of the market positions was caused by the reasons completely different from the other national companies. The line of the CBH beer brands is represented by two key sorts: premium beer S&X which appeared at the market in 2005 and by the cheap beer «Zhigulevskoe». The surge of interest in the new brand S&X, supported by the startling advertizing campaign, provided for the excellent growth of sales till 2007. In 2008 there was a kind of the decrease and the stabilization of the market rate of the beer S&X approximately at the level of 2%.
It is necessary to say that the launches of such brands («130» from «PPZ» or BiB from Erzmann Brewery) also provided for the quick sales growth when the new sort succeeded in the winning of a few percents of the market. Though later their popularity also reduced.
Against the background of the rate reduction of S&X the retail audit admits a not bad growth of the market rate of the beer «Zhigulevskoe» in the first place in not reach southern regions of the country. Obviously, the company started paying enough attention to its inexpensive brand. Besides, the major producer of this «folk» beer — «Pervyi Pivovarennyi Zavod» («PPZ») transfers the production to the countryside of the city Almaty and already cannot suggest an alternative for «Zhigulevskoe» from CBH.
In its reports the company informs about the perspectives of the market premium segment and about the low loyalty of the consumers inclined to switch over the new brands. In this connection the appearance of new premium sorts from CBH is quite probable. At least, the probability new beer sorts appearance in the portfolio in our opinion is confirmed by the increase of the production potential. By the end of 2008 it is planned to double the capacity of the enterprise to 6 mln. dal.
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