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 2010, forecast for 2011
Beer production and market in figures
According to the results of 2010 beer production in Russia reduced by 5.1%, to 102.93 mln hl by the data of the Federal Service of State Statistics for the full range of enterprises.
Production dynamics as to 2009 was particularly erratic which was conditioned by the threefold excise taxes increase beginning from January, 1st 2010 (from 3 to 9 roubles per litre). Thus, an abrupt increase in beer production at the end of 2009 (mainly in December), connected with the accumulation of stock by distributors prior to excise taxes increase, stipulated the decline in production in the beginning of 2010, and high basis effect stipulated significant negative dynamics at the end of 2010.
If we transferred excess volume of 2009 (about 1.8 mln hl) to 2010, the decline in production would constitute approximately 2% owing to the production stabilization by April and positive production dynamics in August and September.
The prices of beer producers (without considering taxes) on the threshold of excise taxes increase were quickly growing. While the average price for 1 hl of beer comprised ... roubles ($...) in October 2009, by December it increased by ...% to ... (or by ...% to $...). Yet in January 2010, when the new excise taxes were put in force, the prices of producers abruptly reduced to mitigate the price shock for distributors and retail trade. In particular the reduction comprised ...% to ... roubles for hectolitre of beer (or ...% to $...). The average prices of producers recovered to the level of 2009 only in August 2010.
The fall in sale prices conditioned the decline in production in money terms. By conversion to current prices the decline in beer production comprised ...% to ... bln roubles (or ...% to $... bln).
Due to the flexible pricing policy of the producers, retail price for beer produced in Russia was fluently but quickly growing from November 2009 to May 2010. During this period the price increased by ... roubles per liter.
It should be noted that according to the data of "Business Analytica" the distribution of beer sales by price segments stabilized by the end of 2009 after the abrupt increase in inexpensive beer segment. In the first half of 2010 the price increase resulted in a slight growth of inexpensive beer segment.
However, Efes Breweries International (EBI), basing on Nielsen retail audit data and its own segment classification, claims that there was a significant growth of inexpensive beer (discount and lower medium price segment) following the results of three quarters of 2010. At that, the report states that there was practically no consumer changeover between the brands, but the popularity of more ... was noticeably growing within the framework of each brand.
In December 2010 the average retail price for a litre of beer produced in Russia comprised ... rubles (or $...), which is by ...% higher than its retail price in December 2009 (or by ...% in dollar terms). During this period the growth of consumer price of provisions comprised ...% by the data of the Federal Service of State Statistics.
We assume*, that in 2010 about ... mln hl of beer were imported to Russia which approximately corresponds to the level of 2009. However, there was a reduction in the content of inexpensive Ukrainian beer (from ... to ...%) in 2010 and the growth of supply from the far-abroad countries (from ... to ...%). In the gross volume of Russian beer market the import content constitutes about ...% in volume.
* The estimation of import/export volume was performed on the basis of customs statistics data by 9 months 2010 and on the ground of current trends. With this, tons were converted to thousands of litres with coefficient 0.9.
The average retail price for a litre of import beer comprised ... roubles (or $...) in December 2010, which is only by ...% higher than its price in December 2009 (or by ...% higher in dollar terms). Thus, the volume of import beer market in money terms increased by 16%, approximately to 598 bln roubles (or by 22% to $19.9 bln). With this, according to our estimation, import content in money terms reduced from ...% to ...%.
Russian beer export reduced by ...% in 2010, approximately to ... thousand hl, which was mainly conditioned by the reduction in beer supply to ... due to the development of beer production under the license.
Thus the result of trade balance (production + import - export) shows that the beer market in 2010 reduced by ...% and amounted to about ... mln. hl. Resting on the adjusted trade balance evaluation (if to transfer excess volume of beer production and import at the end of 2009 to 2010), it is possible to calculate, that beer market reduced by ...% in 2010 and comprised approximately ... mln hl.
There is a further point to be made here, this estimation is significantly higher than in the report of the Federal Service of State Statistics, according to which the volume of retail beer sale in Russian beer market reduced by ...% in 2010 and constituted ... mln hl. However, it is our opinion, that official data did not give quite fully reasonable reflection of the market dynamics over the year (that is why we provide parallel valuation).
According to our estimation Russian beer market increased by 16% to 598 bln roubles in 2010 in money terms due to the growth of consumer price. By the conversion to US dollars the market increased by 22% to $19.9 bln, due to the rouble rate strengthening in the autumn of 2009 and its further stabilization.
The total revenue of beer producers, according to the data of Federal State Statistics Service, reduced a bit less than the production volume in money terms, by ...% to ... bln rubles (or ...% to $... bln). Such rate can be explained by the fact that the settlement of accounts with distributors took place more regularly than beer shipment and also by the growth of ...
Operating cost was reducing faster than income in 2010, its reduction comprised ...% to ... bln rubles (or ...% to $... bln). Notwithstanding that there was an abrupt growth of malting barley and malt market-value in 2010, brewing companies yielded the products produced from the raw material, bought at the previous low price. Commercial and executive expenses of brewing companies increased by ...% to ... bln rubles (...% to $... bln). Correspondingly, net profit reduced by ...% to ... bln rubles (...% to $... bln).
It is necessary to mention, that regardless of the recorded growth of commercial and executive expenses, advertising budgets of beer producers reduced about ...% in 2010, against the background of the advertising expenses growth of other products manufacturers. Besides, the reduction in television promotion expenses has occurred for a number of years. As an expert of the advertising market Roman Kuznetsov commented on this situation: "driven by the law into "late prime time" with a cutdown creative constituent, beer promo videos represented "communal grave" and consequently the gradual fall of activity is logical here".
Investment budgets of large and medium brewing companies underwent more significant curtailment. According to our estimation, the fall of capital investment was ..., at that, the dynamic recession of investment has been already persisting for several years.
Beer production and sales in regions
The geography of beer production distribution was determined by the level of beer consumption in the regions and competitive positions of the leading producers.
In particular, the increase in sales of Efes and sales stabilization of AB InBev conditioned an increase of ...% in beer production in the Central region, where the enterprises of these companies are located. On the other hand, the Federal Service of State Statistics claims that there was a slight increase in the volume of beer sale in the Central region (...%), mainly due to the growth of the largest metropolitan market which covers more than the ... part of the regional sales.
In its turn, the biggest decline in production (...%) took place in the Northern-Western region where the Federal Service of State Statistics also registered a significant reduction in consumption (...%). Negative indices should be analyzed against the background of one city indices, St. Petersburg, as far as it covers about ...% of consumption and ...% of beer production in the region. The fall in sales has been persisting for many years already and was conditioned by a gradual reduction in the high level of beer consumption per capita.
Due to the fact that the leading producers have actively developed the production in the eastern regions, three enterprises were closed or redesigned in St. Petersburg (Carlsberg, Heineken and AB InBev). But, nevertheless, as we can see, the remaining large enterprises of Carlsberg and Heineken companies still continue to reduce beer production.
In 2010 competitive positions of brewing companies significantly changed. First of all, the attention should be directed to the quick growth of regional producers, not included as a compound of transnational companies, which has been going on for ... already. According to our estimation*, in 2010 five leading companies (companies with overseas capital) reduced beer sales volume by 5% to 83.6 mln hl. At that, the enterprises, which are not members of TOP-5 list, increased the sales by 14% in total, up to approximately 22 mln hl.
* Our estimation is based on the sales data of Carlsberg, AB InBev, EBI in 2009-2010 yy., and also calculated sales volume of Heineken and Efes and other producers. We took uncorrected trade balance total, which reflects overproduction effect at the end of 2009, as market share calculation base. Supposedly, if we based on sales volume of the companies in retail, market share distribution would slightly change.
The sales growth of independent producers was inversely proportional to the production volume. For instance, the sixth in order of size brewing company "Ochakovo", according to our estimation, demonstrated an expressed negative trend of beer sales and the seventh in order of size producer, Siberian company "Tomskoe Pivo" preserved manufacturing rate at about the same level. But, these two enterprises managed to raise kvass sales significantly. At the same time the majority of regional enterprises with beer manufacturing rate of 0.1 - 1.2 mln hl, showed an expressed positive trend of beer sales, having increased sales by ...% on an average. Producers with manufacturing rate of less than 0.1 mln hl developed really irregularly, but on the whole demonstrated even greater growth, about ...%.
Positions of Russian beer market leaders have significantly changed over the year. In the first place it should be stated that market share of Carlsberg Group ("Baltika") significantly reduced. According to the company data the gross volume of the products sales in 2010 comprised ... mln hl, which is by ...% fewer than the level of 2009. However, we should take into consideration that the matter in question is beverages sales taken as a whole. For example, according to our estimation, in 2010 the company produced and sold about ... mln hl of kvass, exceeding the indices of 2009 by ...%. Water and sweet carbonate beverages sales probably increased too. Correspondingly, the reduction of beer sales could be even greater and could comprise about ...%, which is considerably lower than the fall of trade balance total (...%).
The company, evaluating the alteration of its market positions, cites Nielsen retail sales audit data, which can be considered as an alternative and independent estimation. Here the market share of "Baltika" in 2010 (...%) is practically not different from the result of 2009 (...%). However, it should be taken into consideration, that this audit does not cover all the territory of Russia. The audit does not also take into account the sales of companies in the formats which are gaining popularity, such as HoReCa and specialized points of sale, where positions of regional brewing companies are especially strong. Besides, "Baltika" excluded beer-based cocktails sales from the audit data.
Commenting on the results of 2010, the company slightly changed the emphasis, by speaking about the augmentation of market weight to a lesser degree and about "profitable market share" to a greater degree. CEO of Carlsberg Group, Jorgen B. Rasmussen, gave such a summary of the last year results in Russia at the meeting with investors: "Profitable market share growth is a key element in how we do business throughout the Group. That was also the case in Russia in 2010 where we balanced our ambitions of continuously strengthening our market positions without compromising profitability. As the market leader in Russia, we had to take the lead on price increases and, with the exception of one competitor, we were leading on prices throughout most of the year. This impacted negatively our market share development for the year. Our Russian in market-sales or consumer off-take was minus ...% for 2010"
Nevertheless, the beverages sales revenue of "Baltika" reduced more than natural value of sales, by ...% to ... bln of roubles. The report of Carlsberg Group states that the downfall of Russian subdivision revenue, among other reasons, is connected with "mix-effect" which comprised -4% at year-end. At that, the company refers to pricing policy impact, as it had to increase the retail prices gradually from November 2009 till June 2010, obviously, by suppressing their growth at the cost of its own margin. However, summarizing the results of the ..., when the consequences of excise tax increase were already won through, "mix-effect" comprised -...%.
If there was not any retail prices control at the expense of selling price, then the negative effect could be explained by the increase in inexpensive brands weight in the company profile. It means that ... launching in the ... of 2010 ...) still has not allowed to improve the sales pattern significantly. But still the company presumes that the situation is going to improve soon.
The President of "Baltika", Anton Artemiev said at the meeting with investors: "We believe that the mix has a fair chance to improve next year, though maybe not very significantly. And the reason why is that the macroeconomy continues to develop strongly in Russia and therefore people will spend more and spend more on the branded beers than the cheaper ones. And of course, we also believe that our mix will improve better than the market because we, as mentioned, will support our premium and mainstream brands more than anything else".
Nevertheless, the attention should be drawn to the fact, that the report for the fourth quarter of 2010 contained some valuation adjustment of "Baltika" competitive ability factors. So, during 2009-2010 there was a gradual reduction in the significance of brands diversified profile, and also of the fact, that the company products are represented in all segments, from superpremium to cheap. Although this factor remains to be the key one. But "Baltika" also mentioned the increasing significance of such factors as: improvement of corporate governance arrangements, implementation of cost underrun program, reorganization of distribution network, active marketing and advertising policy, brand image consolidation. These directions will probably be priorities of the company in 2011.
The reduction in "Baltika" share could be connected with a high marketing activity of other large business rivals. But, first of all, to our opinion, "Baltika" market position weakness was conditioned by a growing business struggle with regional producers who suggest an alternative to federal brands. Through the previous years and up to now "Baltika" has been trying to react adequately to this trend.
In particular, large-scale launching of sorts qualified as "live", took place as early as in 2008-2009. These were mainly regional and inexpensive brands of the company which are in competition with inexpensive beer of medium and small producers. However, the latest marketing steps of "Baltika" could be conbsidered as a course for the development of craft beer, in which mini-breweries inherently take dominant positions worldwide.
To some extent, brand image of "Baltika Razlivnoe" is similar to the products of mini-breweries. In March 2011 unfiltered beer was added to this brand: "As market leaders we consider it to be of crucial importance to pay attention to the development of beer consumption culture, among other things by producing unusual for large producers special sorts of high-quality beer and making them popular for mass consumption" - reported the company press-release.
New Year's launching of "Old Bobby" brand was even more demonstrative, "its each pint keeps an English pub atmosphere inside". Both its sorts (ale and lager) are produced in 1 pint bottles (0,568 l) with the addition of special English malt. The consumers of "Old Bobby" are men of 25-35 years, with average or above the average income level.
The reduction in "Baltika" share and its marketing policy reflect the process of beer market .... The share growth of second in size participant, the company AB InBev, does not contradict this trend, as it indicates ... after the ..., that is the ... of 2009.
According to AB InBev report, the company sales reduced in 2010, with the sales volume of ... mln hl in 2009 (according to the report for 2009), ... mln hl were sold in 2010. That is, the decline comprised about ...%, which is significantly better than market averaged indices. Correspondingly, AB InBev has slightly improved its positions, according to our estimation, the company market share has increased from ... to ...%.
In the report for 2010 AB InBev states, that market share growth was achieved due to the brand "Bud" launching in May and also due to the steady development of the key brand "Klinskoye", the sales of which increased by ...%. Subbrand "Klinskoye Fresh", which was unexpectedly launched in September 2010, could have made a small contribution to the sales growth of "Klinskoe".
The company positions restoration is reflected by the regional production statistics. The largest Omsk division, according to our estimation, ... the manufacturing rate approximately at the ..., which can be considered as a .... Enterprises of the Central Region have ... beer production. It is true that there was a ... in production in Saransk division (Republic of Mordovia) and, probably, at the new enterprise in Irkutsk Oblast.
The main increase in beer production by AB InBev took place in the ... quarter of 2010, when the ... Against the background of reverse indices in July and August of 2009, the positive trend was ... It is reasonably safe to suggest that the company managed to take the advantage of market growth to restore the sales volume ...
Efes Breweries International (EBI), according to our estimation, in 2010 took the ... position in the leader top list in terms of beer sales volume, catching up and even a little bit surpassing Heineken.
According to the company report, beer sales in the last year in Russia increased by ...% to ... mln hl. Against the background of sales slowdown of the majority of other large producers, such an outstanding income resulted in the market share increase by ... points to ...%, in accordance with summary evaluation.
The company considers the following factors to be the key reasons for the advanced sales growth:
• Consumer promotions and pioneered innovation contributing to the outperformance of EBI's strategic brands in their respective segments;
• Successful initiatives to increase availability in the country;
• Well-planned pricing moves;
• Superior performance of lower mainstream segment in which EBI has a strong position.
It is necessary to mention, that the company labels as ... segment the brands which in other classifications are labeled as ... segment - "Belyi Medved", "Krasnyi Vostok", "Gold Mine Beer" and "Green Beer". While business rivals were hoping to sustain the existing sales pattern and were advertising their ... brands, Efes was successfully working on the image of ... beer sorts, which paid dividends in conditions of ...
Efes has also staked successfully on the ... According to the company data, in 2010 the growth of ... market comprised about ...% in volume terms. The development impulse for this segment was in a great measure added by the company Efes, which has produced a ... within recent years, such as beer for women "...", beer subbrands "..." and "..." and continue to develop this direction.
At the time of the article preparation the annual report of the company was not yet published. However, it is evident, that the focus shift to the inexpensive segment could have a negative effect on financial performance.
According to our rough assessment, Russian subdivision of Heineken has reduced beer sales by ...%, which is ... lower than trade balance total (...%). In 2010 there was a ... decline in production in all Russian regions where Heineken enterprises are located.
Correspondingly, at 2010 year-end Heineken ... yielded its positions in Russian market. According to our estimation, the company share reduced from ... to ...%. Carlsberg Group report states that an abrupt fall of market share lasted up to the ... of 2010, then it stabilized and even ...
The abrupt fall of Heineken market share in Russia can be partially explained by the ... According to the business rivals' estimation, the price rise for Heineken products, which was taking place after excise tax increase, was the ... We remind, that "Baltika", which also raised prices significantly, called just this step to be the reason of its market share reduction.
In particular, according to our estimation, which is based on regional data of Federal State Statistics Service, in February 2010 the largest Heineken enterprise ("Volga" in Nizhniy Novgorod) raised beer selling price by ...% (in relation to January), while the majority of other large Russian enterprises ... The company might have preserved the margin, but the absence of ... has evidently produced an effect on sales.
On the other hand, the fall in Heineken market share can be considered as a long-run trend or ... To our opinion, with the beginning of the recession, the company assigned relatively few resources for the reorganization of its Russian division business, having, again, set profitability and cost saving as a goal.
In particular, Heineken declared its intention of concentrating on key brands and produced several unusual sorts in mainstream segment ("Zlaty Bazant Cerne" and "Doctor Diesel Sexy Lime"). However, their support, in terms of advertising volume, was poor, and the launchings themselves can be considered rather as a reaction to the dynamic actions of business rivals. An international brand, Heineken beer, has permanently obtained powerful marketing support, however, in consolidated sales it is of minor importance.
The activity of Heineken in ... market segment increased noticeably from 2009. Despite the declarations about the reduction in SKU, the company produced a ... Besides, brand "..." received a fair advertising support. However, there was an increase in competitive pressure in ... beer segment, not only from federal companies, but also from regional producers. Since ... beer consumers are ..., then the ... of the company could have had a negative effect on the sales in ... segment.
After a significant decline in sales and a reduction in the market share, which took place in 2009, indices of SABMiller began to equalize. In 2010 sales dynamics of the company were reasonably good, according to our estimation, sales reduced by about ...%. It goes without saying, that the main fall occurred in the beginning of the year, the company, not to a lesser degree, than other manufacturers, made a point of overflowing the warehouses of distributors, expecting the excise tax increase. However, if excess volume were transferred to 2010, then, probably, the dynamics of the company would be above the mean. Consequently, the share of SABMiller, calculated on non-adjusted trade balance base, ... and retail share of the company ..l
On the basis of regional statistics data, the income of SABMiller for 2010 also reduced by ...% to ... bln roubles (or by ...% to $... mln), which corresponds to ... Cost price reduced by ...%.
According to our estimation, the third quarter of 2010 was not altogether bad in terms of SABMiller income growth (...%), but in the 1st, 2nd, and 4th quarters the indices of the company were negative. The report for the first financial six months (from April to September 2010) explains such dynamics to the full extent:
"In Russia volumes declined by 1% in the first half, with growth in the second quarter* aided by exceptionally warm weather in July and August... Premium and super premium segments were down 8% somewhat offset by growth in the economy segment. In this context our market share performance was solid, as our share remained level with the prior period. Our premium portfolio has leadership in its segment in Moscow and the Zolotaya Bochka brand took the number 1 position in that segment due to pack and product innovations. Following double digit growth in the prior year, Kozel grew 4%. Our overall volume performance was assisted by the strong growth in the 3 litre PET Tri Bogatyrya pack launched in the prior year".
* The second quarter in the financial account corresponds to the third quarter in calendar dates.
Production indices of the company-owned enterprises over the last year have significantly changed which is connected with redistribution of products supply. New SABMiller branch which produces popular beer sorts, providing ... region and ... regions of the country, took on greater importance. Thus, according to our estimation, in 2010 ... branch production volume increased ..., up to about ... mln hl, which comprises one fifth of the total make. At that, production at the main brewery in ... has perceptibly reduced, the decline exceeded ...%.
It is expected that the law will be enacted in 2011, which will equate beer to alcoholic products. Its entry into force is possible as early as this year. In compliance with the draft bill, the novation will, at least, mean a reduction in market share of beer with alcoholic content of more than 5%. Such beer falls under a number of restraints being imposed (requirements for the size of the point of retail sale, prohibition to sale beer from 23.00 to 8.00 and others).
Although, for instance, alcoholic content of "Baltika #3" and "Klinskoye Svetloye" is less than 5%, brewing companies will have to adjust the alcoholic content in many other popular beer brands and sorts (which provide up to 20% of sales), to preserve their distribution at the same level.
It is evident, that new game rules will affect the retail and brewing companies performance, they will have to introduce alternations to the manufacturing (technologies and composition adjustment), marketing (new positioning of some brands and popularization of light sorts), and also the system of products sales (distribution separation of beer sorts with different alcoholic content). But, if these arrangements are made in time, then the consequences of equating beer to alcohol can have just a slight effect on the volume of beer sales. Just a more demanding consumer who wants to buy the beer sort with greater alcoholic content will have to buy it not at any time and not in any nearest stall.
But if the law does not come into force till the end of the current year, then the beer market will develop seamlessly and government regulation will not play a decisive role in its dynamics. In this case, as beer market is quite glutted already, economic factors and weather will play the key role in its development. If they are favorable to beer sales, then a slight increase can be expected, if not, there will be a certain reduction.
For example, "Baltika", inspite of negative bulk information, gives positive forecast for 2011, expecting market growth within the limits of 2-4%. The preview of the company is based on the positive dynamics of beer market in the second half of 2010, pointing out that economic basis for sales restoration has already been formed.
Thus, along with gradual improvement of human wellbeing, there was retail price stabilization. Besides, low base effect of the beginning of 2010 will produce a significant effect on comparative figures of growth. By the way, low base effect of the beginning of 2010 will play even more significant role for the production dynamics and shipment of brewing companies. Here the leading point will be not even the beer market restoration, but such a nominal factor as distributors' activity, who as late as at the end of 2010 did not buy excess volume of products.
By April 2011 the low base effect will have already worked out. Besides, the beer market will be slightly affected by the price surge on account of an increased cost of malting barley and malt. Till the end of 2010 beer price was suppressed at the expense of the generated stock, introduction by the brewing companies of their own capacities for the production of malt and employment of unmalted material. But in January and February of 2011 the price dynamics already changed, there was a noticeable increase in retail beer price. However, growth rates of beer price were still significantly lower than that of food products, consequently, beer price hike was not as noticeable for consumers.
Abnormal heat of 2010 had a positive effect on beer sales during the last year summer season. That is why, in connection with high base effect, it could be possible to expect negative dynamics during the summer of 2011. However, the influence of weather on the sales of 2010 should not be overestimated as many consumers refused to drink any alcoholic beverages whatsoever during the hot summer days. That is why if the summer of 2011 is moderately warm, then the weather will probably have a positive effect on the sales dynamics.
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