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. ...
The global outlooks of the legal market of cannabis are excellent. It is possible to simultaneously imagine dry law repeal and craft brewing boom but not in one but in several consumer categories. For alcohol is contained in liquids and cannabis derivatives can be in three physical forms. The value of legal market of cannabis and its products can reach 10% of the world beer market in five years, and in 2030-2040 even reach the same scope provided the current rates of legalization and development of market infrastructure remain at the same level. Cannabinoids are actively integrating into the food industry from chewing gum to beverages deforming the pharmaceutical and alcohol markets, they influence the trends of healthy lifestyle and beauty. ...
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. ...
Russia: results of 2008, trends of 2009
The brewing industry and market continue growing, in spite of the consumption decline. During the first half year the market has grown by 8-10% in monetary terms and can reach the level of 500,000 mln. ruble by the end of the year. The ruble stabilization and malt price fall are to positively effect the companies’ profitability. Besides, the market leaders worked hard at costs cutting, developing the resource base and optimizing production and logistics. Since the year start, Efes and «Baltika» have been showing the best dynamics. But unlike the past years, only regional breweries can boast of beer output growth.
Though the year 2008 saw nearly zero rate of beer consumption growth, the market continued growing in money terms. Taking into account the official statistics and the official ruble/dollar rate, we can see that last year the market grew by 13.2% to 454,069 mln ruble or by 17.6% to $18,455 mln. Obviously, this growth is driven by consumer’s beer price growth and in foreign currency — also by ruble/dollar rate strengthening.
Within the first six months this year, with 6% market decline and the national currency weakening, the dynamics of sales in ruble has slackened (+7.8%) and in dollar was distinctly negative (-22.1%).
Audit data by Nielsen also exhibit that, over the period January-May 2009 vs January-May 2008 the city beer market* has shrunk by volume (2.6%), but expended by value (+11.7%).
*The data of retail audit in urban Russia (cities with a population higher than 10 ths. people)
As a special research of consumers’ preferences carried out by Nielsen in November 2008 showed, beer got into the list of products consumers were going to economize on at the time of crisis. This means that in 2009 beer production volumes on the whole can decrease and consumers might prefer cheaper products. However the brewers are trying to oppose this trend. Nielson monitoring shows that the most of new brands launched by the federal companies since the year beginning have been positioned in the premium segment.
The major part of the market players expect the beer market to decrease by 5% in volume by the end of the year 2009. Notwithstanding a serious decline at the beginning of the year such «optimistic prognosis could result from low production base of the market in 2008, as well as from rather hot weather in the second half of 2009, which has so far promoted beer sales. Thus the market volume by value can increase by nearly 10% and reach the total of 500,000 mln ruble.
In spite of the sales drop by volume, Russian consumers are willing to try new beer tastes. Natalya Alexandrovskaya, leading expert of company «Nielsen Rossia» remarks that over the period from January to May 2009, the beer market has been experiencing a growth only in two segments — dark and flavored beer:
«The dark beer share has gone up to 0.7% by volume. The flavored beer share over the same period has increased from 1.9% to 2.2% in volume. Lager still accounts for the major market share although by April, its position has suffered by 0.4 p.p. Meanwhile, accounting seasonality of beer sales and comparing January-April 2009 to the same period of the previous year, the lager fall is 1 p.p on the average. A relative success and positive dynamics of dark and flavored beer can be explained by active launching in these segments. The best results here were shown by new products of the largest market players, such as «Baltika», SABMiller and Efes».
Non-alcohol beer popularity is obviously falling. At least Rosstat data note further reduction of its production. While in 2008 beer output with alcoholic content lower than 0.5% went down by 7% to 19.5 mln dal, within the first half of 2009 the decline amounted to 9%.
In the packaging segmentation the most expressive changes are those which reflect the consumption character. Obviously beer purchase has become less spontaneous and people usually make a small stock of beer. «In beer packaging preferences there is a tendency to switch to more economy options of PET package of 2.5 liters (2.9 p.p over the period January-April 2008 vs January-April 2009)» — says Natalya Alexandrovskaya — «Besides there is a decline in consumption of glass bottled beer January-April 2008 vs JanuaryApril 2009 (from 35.1% to 32.5%)».
This trend is followed by producers. Speaking to investors and commenting segmentation changes of the Russian market in the first quarter of 2009 Anton Artemyev, president of PC «Baltika» said: «I'll give you an example of our mainstream brand, which is a Baltika Mainstream No. 3. We see a certain shift from sales in glass bottles to PET bottle… which we don't see as a negative trend just now because at the moment the marginal profitability of our PET beers is roughly the same or better than the one in the glass».
According Rosstat data, by the end of the first half 2009, beer production has been going down a bit faster than market decline, having decreased by 6.8% to 543 mln dal. This «exceeding dynamics was driven by producers’ carry-over stock and in retail, which was marketed this year. Though, like beer market, the brewing industry developed at the account of producers’ prices growth.
Operational data on production and prices dynamics are available at the journal site http://journal.beer/statistic_data/
After the traditional growth early in 2007 producer’s prices were rather stable till ... Price raise in September 2008 (…%) was caused among other factors by a distinct transition from stagnation to market decline when the companies strived to ... Besides, in summer barley and malt prices reached their peak, which was inevitably reflected on beer cost price.
But as early as in … the prices slumped (…%), which obviously resulted from… Besides, there was … reduction, which resulted from … However these tendencies were shared by the whole food industry.
By … brewers’ sale prices … and continued … which was due to the common tendency …
In February 2009 the prices reached their peak exceeding the prices of February 2008 … Thus, February became the … as well as in last year. Since then the sale prices for brewers’ production have been … Most likely, till the end of this year, price growth …
The producer’s price growth was substantially influenced by inflation and national currency weakening. Thus, the sale price growth was also associated to the efforts of foreign brewery owners to offset loss of benefits caused by the cheapened ruble selling.
In particular, the average producer’s price over 2008 grew by …% to … ruble/liter. However in the USA dollars the prices grew only by …% to …$/liter.
Over the period from January till May, the prices in national currency grew by …% to …ruble/liter. However in the USA dollars landslide of prices totaled …% to …$/liter comparing to the corresponding period of 2008. And all this took place against the background of sale fall in volume.
A substantial strengthening of ruble in spring had a positive effect. This factor now allows producers with foreign capital to keep prices down depending on the consumer market conditions.
Summarizing the results of 2008, the economic indicators can no way be called negative, but the rate of sales growth was slowed down. With practically unchanged indicators by volume, the brewers’ revenues without VAT and excises grew by …% to … mln ruble (in 2007 the revenues growth amounted to …%). Meanwhile the cost price, according to Rosstat data, grew by …% to … mln ruble.
As the main beer sales concurred with the period of ruble strengthening till August, these indicators in the USA dollars grew even faster — the revenues — by …% to …mln and the cost price — by …% to $…mln.
But the indicators of the first quarter this year were not so positive, as they reflected both the market decline and ruble weakening. The brewers’ revenue grew by …% to …mln ruble. But the growth rate of cost price growth rate slowed down considerably — it increased only by …% to …mln ruble. In dollars the rates were negative — the revenue sank by …% to $… mln and the cost price by …% to $… mln.
We should note here that the results of the first quarter are not always to be expected in the next periods.
In the spring, the market prices for malt continued falling which had started in the summer 2008 and ment down to … ruble/t. This year brewer’s barley harvest will be lower than the record breaking one in the past year. But taking into consideration a large past year carryover storage, the market players do not expect a serious malt price grow in autumn.
The prices are pressed down by malt producers’ expectations of the new brewer’s barley harvest and the necessity to prepare facilities for grain storage. And though some companies have constructed new elevators, on the whole Russia does not have enough of them and the capacity deficit is still growing. Normally elevators are cleared in spring, but this did not happen due to the large harvest in 2008.
The sharp drop in market prices led to arguments between independent malt producers and brewing companies concerning the conditions of previously concluded agreements. And unpredictable situation on the beer market resulted in practically no new futures contracts. Arrangements on volumes and prices are changing virtually each month.
Under our estimation in 2009, the average annual potential of malt producers will increase approximately by …% to …ths. tons owing to new capacities of breweries and launching a malt house of «Nevski bereg» which started its operation in 2008. Meanwhile, malt production in 2008 declined by …% to … ths. tons.
Taking into account that the malt production is not growing this year, excess facilities can cause fast market consolidation due to competition and acquisitions as well as to progressive development o producers’ export projects.
At this point it is necessary to note that in 2007-2008 high malt prices made brewers speed up projects on their own malt-houses. Thus, this season there are virtually only two federal companies which buy large volumes of malt at the market — these are Heineken and SABMiller.
Last year malt supplies of Heineken were rather diversified (the major suppliers were …, … and …), and the own production satisfied more than half of the group’s need. According to the market players, SABMiller mostly relied on the malt produced by Cargill*. «Baltika» company is not likely to purchase a large amount of malt (not more than … ths. tons) due to upsized capacities and purchases from partially owned Souflett.
* In in article «Russia: production and market of malt» in «Journal.Beer» #2-2009 an erroneous assumption was expressed concerning PC «Russkiy solod» being the major malt supplier of company SABMiller.
Railway is in the lead among the kinds of medium or long haul goods traffic (>600 km), accounting for 75% of such transport. Trucking, which is not included into the statistics, normally takes place in neighboring regions or some large regional centers, for example between Moscow and Saint-Petersburg.
According to PC «Refservis», over 2008 the volume of railway traffic …% to … ths. tons. Since a ton of packaged beer is approximately 600 kg of pure mass, this volume can be estimated at … mln dal. As the market and the output of beer remained in 2008 at the same level, it is obvious that transit decline took place due to companies’ production and logistics optimization.
Besides, in the nearest future, a price decrease for railway transit is expected. In the past year, PC «Refservis», a subsidiary of PC «Rossiyskiy zhelezniye dorogi» performed …% of beer transit and set tariffs 1.3-1.5 times higher than the average. But the breweries started equipping their own cars in accordance to beer transit requirements. Moreover, the brewers hope for abolition of these requirements.
In the report of «Refservis» company itself this situation is described in the following way: «A significant influence on the market of thermo-sensitive goods traffic is made by companies PC «Baltika and CC «Pivovarnya Moskva-Efes» owning …covered heated cars, which are equal to refrigerator cars in traffic conditions (… and … cars accordingly). Over the period from August to December 2008 PC «Refservis» lost about … ths. and tons of beer because of reorientation of freight flow into these cars…
In 2009 the technical regulations concerning beer production and turnover are expected to be adopted. In the basis of these laws lies the principle of transfer of the right to determine transportation and storage conditions of foodstuffs from the government to producers, who are free to choose what by rolling-stock and under what conditions their production is transported. Taking into consideration that cosigner’s costs of non-specialized rolling stock usage is lower, …, it is quite probable that after these regulations adoption the freight volume will decrease or the traffic price will be at the level with the universal rolling stock».
Investments into the industry
Over the first quarter of 2009, in spite of a serious production decline, the volume of investments into the industry fixed capital has decreased not so sharply as it could be expected. Capital investments in the national currency have declined by …% to …mln ruble. Though in dollar the decrease has been rather serious i.e. …% to $…bln.
Meanwhile the structure of the capital investments has changed significantly. Out of the overall invested funds …% accounted for investments in Ulyanovskaya oblast. Here SABMiller company is completing the construction of its new facility, which is to be launched in summer this year. Overall volume of capital investments can be already estimated at $… mln.
Saint-Petersburg has lost its lead among regional investors, having decreased its volume of invested funds by …%. To a considerable extent this was caused by finishing of …
Leading companies operation
The leader of Russian market PC «Baltika» surpasses the indicators of the industry in the production dynamics and revenues. Though last year the company was not very successful in increasing its sales volume, it focused on the brand portfolio optimization, process costs cutting and successful completion of the investment project.
Notwithstanding the beer sales decline by …%, the first quarter of 2009 has showed a revenue growth of …% in the national currency and the growth of the net profit by …% (though if we consider the dynamics in dollars it will be opposite). Profit growth became possible due to a considerable strengthening of the marginal share of «Baltika» portfolio.
Under our estimation, based on company’s data, there has been a serious decline of its sales in the economy segment (about 15%). That is what led to decrease in volume, but had a weaker influence on the profits. Meanwhile the premialization has slowed down due to the advancing growth of beer sales in the medium price segment.
Thus, the company’s report for the first quarter of 2009 informed of the sales growth of the mass brand «Baltika №3». Anton Artemyev, company president, commenting brands development noted: «What we did see and what we have actually predicted is that consumers stay with a brand they are loyal to, the brands they like, and even more they prefer them in a time of a crisis».
Under our estimation, the same dynamics was also exhibited by beer sales in the license segment (about …%). Though there was a change in the structure of foreign brands over 2008. «Baltika» started bottling Japanese beer Asahi, but lost one of its perspective licensed brands that is beer Foster’s. As a result of joint acquisition Scottish&Newcastle, property rights for the brand were carried over to Heineken, which has already launched Foster’s production in Saint-Petersburg.
The first quarter also saw a repetition of Ukraine’s experience of double launching of new sorts of the largest licensed brand, that is Tuborg Black and Tuborg Lemon. It is possible to calculate that Tuborg accounts for more than …% of company’s licensed beer sales.
«Baltika’s» production and logistics structure have experienced serious changes. In 2008, beer output by breweries in SaintPetersburg, under our rather rough estimation decreased by …%, approximately to … mln dal. Further operation of the biggest «Baltika plant will obviously depend on …market development. Besides, about … mln dal of beer were delivered by railway to many Russian regions, including rather remote ones (source; IA «Kominfo» WWW.KOMINFO.RU). Furthermore, the facility’s (as well as company’s) production dynamics is dependent on effectiveness of export projects. Saint-Petersburg «Baltika» in 2008 was the leading Russian beer supplier abroad, having exported more than … mln dal of beer.
Here we should mention that the productive potential of Saint-Petersburg exceeds the demand of the market. Thus, according to Rosstat data, the overall capacity of Saint-Petersburg breweries in 2008 amounted to … mln dal. The city has 5 large and medium international companies, which account for …% of the capacities.
Thus the potential of two «Baltika» plants amounted to … mln dal. The capacity of two Heineken facilities, obviously reaches … mln dal. The capacity of «SUN InBev» in Saint-Petersburg was estimated at … mln dal.
However, these large capacities last year were used only by 65%, which led to beer production suspension at facilities which did not have strategic importance. At the end of 2008, «InBev» facility was brought to a stop. It has become known this summer that «Baltika» is planning to lay off beer production at subsidiary «Baltika-Vena», retaining only cocktail production.
The other two largest centers of the national company are Yaroslavl and Samara subsidiaries. Unlike Saint-Petersburg these facilities exhibited a dynamic production growth in 2008. Under our estimation during the 5 moths of 2009 «Baltika-Samara» …
Subsidiary «Baltika-Yaroslavl» during this period has reduced its output by about …% having produced about … mln dal of beer. On the other hand, the facility’s malt house after reconstruction is gathering momentum, having already …. Under market players’ estimation, if the output reaches its planned capacity, it will nearly fully satisfy «Baltika’s» demand for malt, taking into account the malt house in Tula, and purchases from partially controlled company «Suffle Saint-Petersburg».
Novosibirsk «Baltika» facility, established in May 2008, has made an impact into production optimization and logistics as the only in the region Krasnoyarsk subsidiary had been obviously not equal for the task. In particular, the railway statistics (IA «Kominfo) show that subsidiary «Baltika — Novosibirsk» mostly provides beer to the … regions, and has also overtaken a substantial part of supplies to … oblast and …
Though for geographic reasons the major beer provider here is «Baltika-Pikra», the capacities of Krasnoyarsk subsidiary have been fully used during two years at a row. Having a potential of 20 mln dal, «Pikra» output even bigger amount of beer.
Export to Kazakhstan has also become an important direction of Novosibirsk plant supplies. Though the major beer supplies to Central Asia are still performed by Samara and Saint-Petersburg.
InBev output continues decreasing both due to beer market decline and to worse company position. Above all the share of economy brands, which had provided for a substantial part of the company sales, shrank.
No support to inexpensive beer was obviously a deliberate strategy, but the company failed to adequately raise sales in medium price and premium segments.
On the whole, InBev production was declining from … 2008 to … 2009. In … improving of this distinctly negative dynamics could be observed.
Under our estimation based on regional statistics data, only Perm InBev subsidiary was exhibiting a positive production dynamics last year and did not cut the output volumes over the five months this year. In the fall 2008, a line of can filling was installed at this enterprise. The company is planning to invest more than … mln euro and upsize its capacity to … mln dal.
Omsk brewing giant had the most noticeable production decline, both in absolute and relative terms, where beer output was cut by approximately …% to … mln dal in 2008 and by about 28% within the five month of this year. As Omsk facility supplies beer mostly to the … region, one can conclude that the overall company negative dynamics was nearly by … caused by decreasing sales in the region. The market players consider «Baltika» active expansion to be one of the reasons for worse InBev position. «Baltika» has quickly increased its distribution qualitative indicators in the Siberia, having extended trading staff and reinforced sales control.
However Omsk subsidiary’s cutback of production in 2009 was to a certain degree led by production optimization. According to the company’s report, a new facility in Argansk (Irkutsk oblast), which started operating in March 2009, now accounts for …% of the Russian supplies.
The importance of Argansk subsidiary launch is exhibited by railway statistics. Under our estimation in 2008 InBev share in the overall beer freight turn-over volume amounted to …% in tons and …% in tonne-kilometers. In other words the company had to transport its production at relatively longer distances than its competitors. Meanwhile, about … of railway supplies were performed by Omsk subsidiary.
Angarsk subsidiary can provide beer to the Eastern Siberia and the Far East. Besides, the volume of railway transit in tonne-kilometers can be …
Due to Heineken heavy activity, Sverdlovsk oblast was the … Russian region by the fixed capital investment volume, Thus, under information of Ekaterinburg authority, … mln ruble (about $… mln) was assimilated at «Patra»ltd. The whole brewing procedure was changed at the facility. Also a new filling PET line with a capacity of 32 ths. bottle/hour was installed. This exceeds the capacity of the other two operating lines in 4.5 times. The equipment installation began in November 2007, in July midmonth 2008 the facility made the trial-launch.
Under our estimation, in 2008, the facility did not manage to increase beer production volumes, having output about … mln dal of beer. However Heineken breweries from other regions provided substantial volumes of beer to the Ural. In the second quarter of the year 2008, the supplies volumes amounted to about … ths. tons. Meanwhile in the third quarter, after modernization of «Patra, it amounted to about … ths. tons.
Within the five months of 2009, «Patra» production … Besides Heineken targets the growing PET segment. And since the main direction of the subsidiary supplies is the «domestic» Ural region, here improved company performance is obviously quite probable.
Moreover, last year, the second Saint-Petersburg brewery «Zavod imeni Stepana Razina» which belongs to «Obyedinyonnye pivovarni Heneken» ltd. was modernized. As a result the capacities grew from … mln dal to … mln dal, and a storehouse was built at its territory.
It is known that this brewery outputs regional and national company brands, which belong to economy and medium price segment. Meanwhile expensive brands are bottled at the large SaintPetersburg company’s brewery. «Stepan Razin» expansion will obviously allow Heineken to cut costs by …
According to Bloomberg information, under a new program to reduce costs, Heineken plans to stop distribution of the regional brands. Only the most popular national brands are going to be distributed all over the country.
However, according to statistics, (IA «Kominfo») the railway traffic of Heineken is relatively not big, both in tons and volumes. It accounts for about the tenth of the company production volume. The major volumes of interregional supplies are provided by breweries in Saint-Petersburg and Kaliningrad. Thus, in our view, considerable railway transport economizing can be achieved only by cutting beer volumes from these cities to …
Efes Breweries International (EBI) company focuses its main resources on the Russian market. This improved the market indicators, but had a negative effect on the financial indicators of the company.
Thus, EBI exhibits a relatively good dynamics of production and sales leaving behind other market leaders. According to the company report in 2008 the sales grew by 7% (market -1%) and went down in the first quarter by 5.3% (market — 7%).
These advancing rates, in our opinion, can be explained by the flexible production policy of the company and by market innovations which met the demands of wide consumer groups. The geography of the company operation is well balanced too. On the one hand the key market is still the largest and the most profitable Moscow market, on the other hand much attention is also paid to the Volga and Siberia regions, where the market is still not saturated.
However, in spite of the market activity, by the end of 2008, the company had a dead loss of $58.8 mln, due to the difference between the rates of dollar and local currencies, including Russian ruble.
This year the head Russian Brewery CC «Pivovarnya MoskvaEfes» carried out an additional emission, having issued stock, valued at $200 mln. This stock was bought by parent company EBI, thus paying its own debts of the Russian subsidiary. ($148mln) as well as calling in its credits from banks.
Earlier the parent company got a credit of $200 mln from HSBC Bank for partial refinancing of the existing debt and engaged itself to halve the capital investment. Soon Alexandro Himenez, president of holding Efes Beer Group, announced that in 2008 the group invested about $105 mln into production expansion in Russia in order to create a back-log for sales rise next year. In the current year the company plans to reduce the investments to $40-50 mln. These funds will be spent on malting upsizing, as well as on environment programs.
In particular, the capital investments last year yielded capacity growth in Kazan, both in beer and malt production.
In April 2009, Kazan brewery launched a new pet filling line. According to the company, the decision to acquire this line was made after the production meeting summarizing the results of 2008. A deficit of PET production capacities was revealed then. This deficit resulted from growth of preference to beer in big volume package.
The railway statistics show that Ufa brewery Efes targets … That is why the expansion of Kazan facility can mean that Efes strives to reinforce its positions in the economy market segment of … Russia region.
A considerable share, promotion of the economy brands and entry to the federal market make Efes position more stable but obviously affects revenue level and the profitability of the company. However the profitability is to go up due to lower market price for the brewer’s barley and taking into account that Efes will soon be fully provided with its own malt. This investment project is mentioned in the report of EBI company.
«The four malt production facilities with a capacity of 139 ths. tons per annum, is to a large extent enough to meet EBI’s annual malt requirement in Russia and provides an effective control over its cost base. In order to increase the self sufficiency in the production of this key raw material, EBI started upgrading its maltery in Kazan in 2008. Upon completion within the first half of 2009, EBI will increase its total malt capacity in Russia to 176,000 tons per annum».
Production indicators of SABMiller performance in 2008 left much to be desired, but have somewhat improved by the beginning of this season. Thus the regional statistics show that in 2008 beer production at Kaluha brewery has declined by …% to … mln dal. The same decline of rate could be observed at a newly acquired brewery in Vladivostok, where … mln. dal of beer were output. However these indicators can be not absolutely accurate, as there is an arrangement between SABMiller and a regional producer about a contract bottling of the key brand «Zolotaya bochka».
Over the five months this year the dynamics has also been negative, but still ahead of the average in the region. The leveling occurred in … 2009, owing to low base in April …
Though «Vladpivo» has cut the output by …%, the large plant in Kaluha has … In our view the dynamics was improved both by operation preparation at the plant in Ulyanovsk and the spring upsizing of export to Ukraine, before …
In SABMiller report for 2009* the company’s position on the market is described in the following way: «In Russia, the economy entered into recession in quarter four which, together with poor weather during summer 2008, resulted in beer industry production volumes declining by …%, with the … region down by …%. SABMiller Russia sales to retailers (STRs) were level with the prior year, while organic sales to wholesalers (STWs) were …% down reflecting distributor de-stocking, mainly during the … Despite the downturn, our … and … brands showed good growth, driven by product and pack innovations, although … volume fell. Sales of … declined during the year but showed value share growth in the …, following the launch of …
Industry pricing was robust and our revenue per hectoliter was …% up. We have increased sales staff by …% in preparation for supply from our new Ulyanovsk brewery in the summer. In June 2008, we acquired LLC Vladpivo in the Russian far-east region and are nearing completion of the integration process».
*Year ended 31 March 2009
On the whole in Russia the premium and license segments were growing in 2008. And as SABMiller company is virtually not presented in economy and medium price markets, its indicators could have been more stable. Obviously the company position decline was driven by a …
On the other hand, 2008 saw a considerable growth of the major competitor — «Baltika» in the license and premium segments. On the background of the existing sales volumes, the most considerable growth exhibited the premium «Baltika-Cooler» and «Baltika №7» and the license Tuborg. Morever, this success is obviously due not to company reinforcement of the company at the saturated markets of Moscow and Saint-Petersburg, but to expansion to the regional markets. Thus, according to the report the company share in the two biggest cities fluctuated during 2008, but summarizing the year’s results it remained approximately at the same level, that is in Moscow — at …% and in Saint Petersburg — at …%.
However, this year the situation can change. SABMiller, as has been said, is starting to progress eastward. The new brewery in Ulyanovsk will allow cutting logistics costs considerably. The distribution is to develop which will drive the company share growth.
Meanwhile as early as in the first quarter of 2009 «Baltika» has notably strengthened its influence on the capital markets. According to the report, the company’s share has grown to …% in Saint Petersburg and to …% in Moscow.
«Zhygulyovskoye» and «Zhyvoye»
At the beginning of this year the number of breweries functioning as independent entities* continued shrinking. While in April 2008 their number totaled …, in April 2009 there were … breweries fewer.
*Minibreweries are excluded from the estimation
The subjective cause of brewing companies decline was asset consolidation by group Heineken which speeded up reorganization of acquired businesses.
The second reason is objective, namely operation termination of a range of regional producers. But in general this year, unlike 2008 performance of independent businesses are higher than the average in the industry.
Thus, basing on the data of the regional statistics one can notice that general turnout of the six federal companies during 5 months 2009 decreased by nearly 8%. That is, the decline turned out to be worse than the average in the industry. Meanwhile the regional businesses which do not belong to any international groups in aggregate increased beer production approximately by 2%, and their share in overall production volume grew by 1 p.p. to 12%. In 2008, the revenues of regional companies grew at same rate as the revenues of federal ones did. But in the first quarter of 2009 the revenue growth rates of «other» producers were several times faster than the dynamics of the market leaders.
The official statistics explain it by much higher regional producers’ average price growth rate comparing to all-Russian ones during 2008. Soaring resource prices mostly affected producers of inexpensive beer. But notwithstanding higher sale prices the sales by volume of regional companies grew, which led to faster revenue growth.
Naturally, many local companies still experience difficulties caused by the economy recession. A range of small businesses declared bankrupt and termination of activity. But the economic crisis slowed down the consolidation of markets controlled by international companies.
Most regional businesses keep strong positions in the market economy segment left to them in spite of federal scale players’ domination. Large companies report a serious gap in the economy segment. Under summary estimation in the first quarter of 2009 the decline in inexpensive beer sales amounted to about 10%. This decline could be even sharper but it was partially set off by regional businesses.
For example, PC «Tomskoye pivo» an independent Siberian company targeted at economy segment, under our estimation increased its production by 16% during the five months of the current year. Maxim Kurokhtin, marketing director of this enterprise, comments the situation on the Siberian market:
«The federal brands are yielding their positions in the economy segment. This happened to such brands as «Tolstyak» and BagBier of company «SUN InBev» Though local economical brands for example «Volnaya Sibir» of Efes company or «Sibirskiy Bochonok» by Baltika have not gained a large share in the segment either. Though retail price for this beer is lower than «Zhygulyoskoye» and one can find cheaper beer».
Federal and local brands of international producers are rather widely represented in the inexpensive market segment, but the companies are not willing to make so much effort for their promotion as they do for other, more profitable brands. Moreover the very promotion in this segment is not so effective.
«The consumer’s choice in the economical segment is exclusively rational — says Maxim Kurokhtin — people, who drink inexpensive beer do not see why they have to pay more just for the brand. That is why there is now a process underway which I call «zhygulization» of the market. This beer has absolute recognition and needs no support. As «Zhygulyoskoye» is now being produced by all transnational corporations its average quality has become higher. Prior it was produced by local breweries and sometimes taste left much to be desired».
There is one more factor — segment growth of «zhivoye» beer. The number of summer outlets is growing dynamically in all regions in Russia. These small outlets sell a wide range of unpasteurized draught beer. But such production is represented both in permanent outlets and in high-price market segment.
The «zhivoye» beer owes much of its popularity to a marketing policy of independent regional companies, which are now cultivating this niche. The promotion is based on opposition of their qualitative product to packaged beer and pasteurized beer. There is a common difenition of «zhivoye» — this is unfiltered unpasteurized beer without conservants and stabilizers. But there is no definition of this category in the technical regulations, that is why producers improvise on the subject «zhivoye beer», benefiting from the growing popularity of the segment, but outputting a product which has little in common with «zhivoye beer».
Even in Moscow, despite the consumption decline the segment of unfiltered unpasteurized beer is being actively developed, the expansion being carried out by minor regional companies from Tver, Kirov, Ryazan and other oblasts.
Moscow market of the «zhivoye» beer can be roughly divided into two price categories — mainstream segment (100-130 roubles for a liter) and premium (130-200 roubles). For example in the mainstream segment firm positions are taken up beer «Khmelyoff» by «Russian beer company» (Ryazan city) and in the premium segment Zolberg beer by «Vyatskaya Industry Company» (Kirov city) has the lead.
Aleksey Shklyayev director of «Zolberg» ltd says that in autumn and winter the company’s sale volumes virtually equaled those they had before the crisis, and their dynamics has been going up recently: «In our product range there are three sorts of brand Zolberg, which are positioned in premium segment and one more in mainstream segment. The premium segments is still the most important one as most of «zhivoye» beer lovers are people with moderate or high income aged 25 or older who are concerned with the quality of what they drink.
The consumers of this group can once and for ever switch over to a product if they at least once tasted something more qualitative That is why Zolberg is produced according a traditional technology which does not include «accelerators» and «catalysts» which are prescribed in any modern brewer’s manual. Though such beer cannot be cheap, we cannon say that people overpay for it. Qualitative imported beer costs considerably more».
According to players of Moscow «zhivoye» beer market, they have three main distribution channels — supermarkets, HoReCa and specialized outlets. The disadvantage of supermarkets is high admission fee, bonuses and problems with accounts receivable, which are affordable not for all companies. Though restaurants and bars are willing to widen their range they prefer to work with branded beer and companies which provide them with equipment, one more measure which regional companies not always can take.
«Beer boutiques» which have become the most perspective format started developing in the crisis period. They attracted many trade intermediaries and starting entrepreneurs, who saw a possibility to create a profitable business with moderate expenses. That is why «beer boutiques» segment is rather fragmented and is still forming. However for many regional producers this channel has become a way to the capital market.
One should note that large companies’ ranges are now widened with sorts which are positioned in the «zhivoye» segment. For example «Baltika» has recently launched subbrand «Nevskoye Zhivoye for Saint-Petersburg. However the regional producers do not consider their territory to be in danger of expansion from the federal companies.
«This is not the first project of «Baltika», a similar brand of «Arsenalnoye» was launched in Tula and in other cities — comments Aleksey Shklyayev — but it is by far not enough to add an attribute «zhivoye» to the name. Large companies can attract consumers with massive promotion campaign, but many people now consider that «zhivoye» beer is produced exclusively by mini-breweries. And they are right, it is easy for federal companies to launch a new brand, it is but much more difficult to change the approach to beer production and sales».
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The article materials were prepared using Rosstat and IA «Kominfo» (www.kominfo.ru/analiz_gruzopotok/) data. A number of estimations is based on info provided by research companies «Nielson Rossia» and «Business Analytica», publications in «Komersant» and «Vedomosti» as well as in other mass media.
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