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. ...
Ukraine Beer Market 2012
Despite rather favorable conditions, Ukrainian beer market has not changed its volume in liters. However, the market by value is going on growing dynamically due to increasing producers' sale price. Ever deeper market stratification into the premium and economy segments is taking place against the background of retail beer price increasing. This tendency was of benefit to two new alliances, formed with participation of international companies which raise their market share at the expense of major producers. Their expansion as well as the reaction of the market leaders to slower rates of sales led to launching of in many new brands with growing market weight.
Until 2012 Ukraine was experiencing sharp fluctuations of beer market dynamics *. Riot growth continuing till 2008 changed into decline during the economic recession. The decrease of physical production volumes was not notable to the full extent till 2009, but then it amounted to …%. But as early as in 2010, the market won about …% back, that is, Ukrainians quickly returned to their former consumption rate, but it did not grow fluctuating at nearly the same level. Thus, in 2011 according to our estimations based on Goskomstat data, the marked shrank by …% to … mln dal and it grew by …% to … mln dal in the first half of 2012.
* Here and below we assume that the sum of trade balance
(production + import - export) reflects the beer market volume.
However, judging by the first half-year results, one cannot be sure of consumption stabilization. In 2012 beer sales were expected to benefit from rather hot summer, Euro-2012 and social “infusions” in the run-up to elections. Obviously these factors had their influence, but they are not permanent, so in this case, stability can mean moderately negative forecast for the nearest future, i.e. the second half-year of 2012 and 2013. Everything will depend on the dynamics of retail beer prices and consumers’ income.
The retail price will be determined by government excise policy and raw material cost. The raw material cost fluctuations are not likely to affect price dynamics, since the malt production volumes as on July 2012 remained relatively at the same level.
At the same time, the excise growth outrunning the inflation rates is an absolutely real prospect, as Ukraine government is seeking sources to fill the budget. Branch association “Ukrpivo” has already voiced concern as to this issue. Beer opponents, producers of strong alcohol who have representatives in parliament majority, call for dramatic rise of beer excises.
In 2011 the beer production decreased by …% to … mln dal. During the first half-year the dynamics became positive and the beer production growth amounted …%. The main contribution into the positive performance of the half-year was made in May and June, when brewers were getting ready for summer and Euro-2012.
The frank negative dynamics of Ukrainian beer export in 2011 became positive mostly due to resumption of supplies to Belarus. Exporting to other main consumers, namely, Russia and Moldova, is gathering momentum as well.
Beer import continues growing not losing its pace, at the level …% both over the first half of 2012 and over 2011. More than half of import beer is supplied by Russia that has increased its supplies by …%. But the positive dynamics of this half-year was mostly secured by Belgium and Germany, which increased supplies twofold. As absolute growth rates of import and export were nearly the same, the trade balance dynamics was determined by production growth having comprised …% as we mentioned above. Average retail prices for beer in the first half of 2012 grew by …% to … grn./l, so we can say that the price growth dynamics has slowed down. Accordingly, the beer market in monetary terms expended by …% to … bln grn., which is less than in 2011 too. Expressed in dollars, the prices in the first half-year grew by …% to $… for a liter and the market saw …% growth, which amounted to $… bln. The average retail beer prices generally grew in proportion to the growth of producers’ prices and revenues of brewing companies. Thus, according to our estimation, within the first half of 2012, producers’ cost prices grew by …% to … grn./l. Hence, producers’ price share amounts to …% which, by the way, approximately corresponds to brewers’ price share on Russian market. Due to the production growth the revenue of Ukrainian beer producers over the half year increased by …% to … bln grn., according to Goskomstat data *. In dollars the growth reached …% to $… bln. As reference, in 2011, producers’ revenues from beer sales amounted to … bln or $… bln.
* The volume of realized products in cost price of
the enterprises (without VAT and excises)
Price market segmentation went on developing by long ago formed trend, namely, market polarization. While till autumn 2011 the price segments seemed to have stabilized, this year there has been a dynamic reduction of mainstream segment. During the cold season it yielded its positions to economy beer sorts and during summer to premium ones.
The premium segment has grown thanks to license sorts which appeared on the market a short time ago or over the last years (…,…,…, “Belyi Medved” etc.) Major Russian brands such as … and … also performed well, but their share did not grow so rapidly. All these brands not only took positions of “old” ones, but also drew attention of mainstream segment, despite perceptible price difference.
Similar situation could be observed in the economy segment too. Renewed classic of the Soviet period … and … have caught fancy of many consumers. … goes on gaining weight and brand … still has not exhausted its potential. But old brands are losing their weight and increasing share due to price cutting. The share growth of the economy segment took place shortly after price rise in the mainstream segment.
Market segmentation by package has not undergone serious changes during the first half-year. PET share has grown a little, and there has been a slight decline of glass bottle and can share. But one could see some changes inside PET segment.
Firstly, by the warm season the weight of all bonus packages was cut but not as much as in 2011. This change was mainly connected to launching of … in 1.2 l package. Besides, at the very end of the period being considered, the share of 2.5 l PET grew sharply. And in this case the main contribution was made by Carlsberg Group, which offered consumers … and … in very big package. Certainly, PET package of 2.5 l “ate up” the market share of 2 l package. Generally the sales were taken from its own brand, but noticeable increase was achieved at the expense of competitors too.
Revenues of company “SUN InBev Ukraine” in 2011 amounted to … bln grn. * (approximately $ … bln) which is by …% more than in 2010. AB InBev is still the absolute market leader, but the first six months of 2012 turned out to be unsuccessful for the company, regarding sharp sales decline in volume terms. According to AB InBev report for the half-year, the volume reduction comprised …%.
* Hereinafter the companies’ revenue is cited without
VAT and excises, according to Ukrainian standards of tax accounting.
The company yielded its positions at the very beginning of the year. Sharp decline could be observed only during two months, … and …, but the marked share has not been restored since then. The report explained the negative dynamics by substantial price growth of AB InBev production, which outran the price growth dynamics of competitors.
The company obviously took that decision not so much regarding the market situation as basing on their leading position. Probably, AB InBev management expected the competitors to make the same steps or simply decided it was time to convert market position into revenue as the retail price had been kept down for a very long time. However, the competitors not only did not synchronically raise their prices but also reduced them for some time, like for example …, which resulted in dramatic fall of AB InBev market share.
We can not though assert that AB InBev company lost from the attempts to raise their profitability. The price dynamics from the year beginning outran the negative dynamics of sales in volume terms. That is, the financial performance could have even improved. But if the loyalty to AB InBev brands of rather rational Ukrainian consumers continues falling after the price growth stopped, the company’s benefit will turn out to be temporal.
From the point of view of market segmentation, AB InBev share reduction took place while having stable large share in the thinning mainstream segment against the background of slight reduction in the growing economy and premium segments.
Particularly, in the economy segment the market share shrank noticeably due to sharp growth of retail price and sales decline of … beer. By mid summer this brand was practically brought outside the economy segment. While in the first half-year, … cost in retail nearly the same as …, in July its retail price grew by …% which is a lot for consumers of inexpensive beer. The shrinkage of … market share was partially offset by sales growth of …, beer, the price of which was kept in the economy segment. However, the market weight of … is still twice lower than that of ….
Despite …% market share decline, “Chernigovskoye” is still the absolute sales leader in Ukraine, exceeding the performance of the competitors, namely brands … and … . … of the mainstream segment belongs to brand “Chernigovskoye”, which determines its influence on the market segmentation. The market share shrinkage and sales decline took place not only due to price rise, but also because of high activity of competitors in the neighbouring segments, including launching of many new sorts. Rather active and even aggressive TV commercials, appealing to national feelings of Ukrainians in the run-up to Euro-2012, failed to keep the brand sales at the level.
The positions of … sorts of “Chernigovskoye” proved to be quite stable, but they rather belong to the premium segment. Premium … by “Chernigovskoye”, namely, …, though showing some growth of market share, can not make significant contribution into brand development because of their limited consumption and presence of “old” competitors. At the same time, youth brand “Chezz” so far has not managed to offset the sales decline of the main brand, its share being about …%.
In 2012 there was a substantial price rise for all key brands of AB InBev, for the exception of premium Staropramen. Last year the market share of the brand was in general stable. But this season, firstly there was a sale growth of competitors’ brands, namely, Zatecky Gus and Zlata Praha in the mainstream segment, which asserted their Czech origin, secondly, a significant part of premium segment was taken up by new brands. They included Bud, the title American brand of AB InBev company.
However, if we speak of Bud per se, its retail price is noticeably higher than Staropramen, thus, they occupy opposite boarders of premium segment. At the same time, Bud price is more democratic than that of Stella Artois, leave along differences in positioning. Tuborg could be considered the main competitor of Bud, but again, these brands barely meet in the advertisement space. Expensive American brand is rapidly gaining market weight, and has helped the company to offset the decline of the natural indices of comparatively not expensive … .
In superpremium segment there has been a slight share reduction of the leading brand …, which can be explained by growing pressure from the import beer. Also one could notice a significant sale slump of another license brand, …, which we earlier referred to the premium segment. … has not received advertisement support lately and lost some retail exposure. At the same time, there was proportional growth of sales by volume of rather expensive … and …. Thanks to them AB InBev performance in superpremium segment can be considered positive.
The revenues of “Slavutich” company comprised … bln grn. (nearly $… bln) in 2011 and the net profit amounted to … mln grn. In the first half of 2012, Carlsberg Group managed to somewhat raise its market share by volume, but by value, on the contrary, the company’s share shrank.
Until now the success of Carlsberg Group resulted from attacking two mainstream segment leaders by developing two brands, namely economy “Lvovskoye” and premium “Baltika”. The growth of natural indices against the background of immediate competitors’ decline, shows that this strategy is still effective, but not as beneficial as it used to be. The competition has grown fiercer in the both key for Carlsberg Group segments and the company’s share has reduced significantly. It was a sensible decision to turn attention to superpremium and mainstream segments, which undergone some growth of the company’s market share.
In the economy segment “Lvovskoye” sales and market share continued growing dynamically. This year “Lvovskoye” ranked the second in the list of Ukrainian leading brands, having forced “Obolon” down. This growth was to the full extent secured by quite democratic price and attributes of more expensive beer, strengthened by very active TV promotion and marketing innovations such as launching non-filtered sort or 2.5 l PET launching. “Lvovskoye” growth could not but affect its fridge neighbour, beer …, but over and above offset its market share decline. At the same time, the sales of youth and renewed economy brands were growing even faster. As a result, Carlsberg Group, though leading in the segment, but is losing its positions on the market of cheap beer.
Carlsberg Group again attacked a more expensive brand of a competitor on its geographic area by its new mainstream brand Zatecky Gus. Thus, in our opinion while beer “Lvovskoye” attacked “Obolon”, Zatecky Gus is an attack on Staropramen. The price of Zatecky Gus somewhat distances it from the mainstream mass sorts, which logically follows from the legend of Czech beer. By the year end the brand market share can reach …%.
Premium part of the company’s portfolio includes brands “Baltika” and … which continue demonstrating multidirectional dynamics of market share. But while so far sale growth of “Baltika” has been essentially offsetting … sale reduction, in the first half-year of 2012 the share of “Baltika” was close to stability at the level of about …%, and … share went nearly … p.p. down to …% of the market. The market share decline of … is taking place in spite of the active marketing support, which can be explained by rather high retail price of the brand and substantially higher competition in the segment.
Superpremium brands of Carlsberg Group demonstrated a good growth. The title brand of the company increased sales in the run to Euro-2012, as Carlsberg was the official sponsor of this event. It accounted for nearly … of the company’s sales in the segment. But other brands such as Mexican … and …, Irish … and …, Russian … and German …, though not claiming to be sale leaders, all together improved the company’s positions in the segment.
The revenue of “Obolon” in 2011 amounted to … bln grn. (nearly $… bln) which is by …% more than in 2010. Besides, in spite of …% growth of the cost price, the company managed to increase the net profit by …% to … mln grn.
According to the company’s information in the first half of 2012 it increased the production by …% to … mln dal. Under our approximate estimate, export of “Obolon” during this period has grown by 8%, having exceeded … mln dal.
Thus, basing on the data of trade balance, “Obolon” supplies to the inner market had to grow up by …% to … mln dal, and the company’s market share increased by … p.p. to …%. However, the data of market monitoring witness to a reduction of “Obolon” share in on-trade segment by … p.p., to …%.
However, one can say that now there is no sharp decline of the company’s market share, which could be observed over the last years. The stabilization took place against the background of steady company’s “drift” to the growing economy segment, which allows to partially make up for sale fall of the title brand.
Last year it became obvious that the sales of Ziebert almost reached its potential. At the same time more expensive economy brand “Zhiguliovskoye” was rapidly gaining weight. In the new season, in spite of the marketing support and the status of the cheapest “branded” sort, Ziebert started losing its positions. But significant sales growth of “Zhiguliovskoye” and slow but steady increase of … allowed the company to enlarge its share in the economy market segment. The potential problem of such strategy is that the both brands can not belong to “Obolon” company and the brands growing popularity can be used by competitors. On Russian market almost all large companies and lots of regional ones bottle “Zhiguliovskoye”.
Currently, about half of the company’s sales are made by “Obolon” brand; in 2010 its share comprised …. At the same time we can not say that the dynamics of the title brand is becoming slower. The main competitor, …, despite its higher retail price over the period from January to May 2012, yielded its market share just a little and only for a short time to …. Obviously, the company management decided that the price policy was not worth profitability loss. The price differences of competitors started levelling and by … almost disappeared, as the prices were growing synchronically. Consumers’ reaction was negative as “Obolon” beer share shrank by … p.p. during the period from … till … .
The company managed to offset its loss in the mainstream segment by nearly …% due to brand Zlata Praha having a now popular image of Czech beer. Interestingly, the launching term of Zlata Praha almost concurred with the appearance of Zatecky Gus. The levels of their retail prices were different at the beginning, i.e. the brand by “Obolon” cost much more. But in 2012 price converging began. As Carlsberg Group started increasing Zatecky Gus price, “Obolon” began cutting price of Zlata Praha. By May the retail prices of the two brands were practically the same. The sales of Zlata Praha are so far twofold lower than the competitor’s sales, which can be explained by the higher price start, poorer distribution level as well as by different intensity and phases of brand marketing support.
“Obolon” activity in margin market segments till recently could not be called successful. Its own product, beer “Magnat” as well as license Bitburger failed to win a substantial share in the segment, and the both brands have practically disappeared from the retail. The sales of youth Hike which had been supported by moderate price and advertisement started falling rapidly without the latter. The launching of premium sort “Slava Strany” was a seasonal project.
However, the launching of license beer Carling has already proved to be quite a successful project. The “Kommersant” attributes the brand success to high marketing expenses, with participation of the brand owner, British Molson Coors. The interest in common brand promotion results from the conditions under which the licensee receives not a fixed royalty (as with Bitburger), but a share of sales.
The revenue of “Miller Brands Ukraine” in 2011 grew by …% to … mln grn. (approximately $…). However, the active expansion and high expenses including paying for credit to the associated company prevented Ukrainian subdivision from getting the profit.
As the enterprise was transferred under Efes control, the company’s management was changed too. The position of Igor Tikhonov was occupied by Omer Ogyun (Omer Ogun). His career in Efes started in 2000 at the position of production director in Rostov subdivision of the company. Since 2008 Omer Ogyun was general manager of the subdivision in Kazakhstan, where the market share grew substantially during his work.
The main contribution into the organic growth of “Miller Brands Ukraine” was made by beer “Sarmat”. Its retail price was changing according to the competitive situation on the market of “image” economy brands. “Sarmat” growth can be explained by inadequacy of brand popularity to its sales volume, new “eastern” alternative to … and sharp growth of beer … prices.
In the mainstream segment there was no special activity of “Miller Brands Ukraine”. Though … and … demonstrated some sales growth, their contribution into national sales amounts to …%, and their share of the company’s portfolio comprises less that …%.
Over the four years, the premium brands gained approximately the same weight as the economy sorts. Though the sales of … stopped growing, the company reinforced its positions in the premium segment thanks to … development. Active advertising certainly gave Russian brand a positive impetus.
Superpremium brands of SABMiller did not improve their positions during the first half-year; however, the market positions of the alliance grew noticeably better due to joining. The import brands of Efes company had been present on Ukrainian market for some time. In 2010 the retail representation of … and that of … in 2011, grew substantially. Although the brands are positioned correspondently in the superpremium and premium market segment, in the first half of 2012 their joint share exceeded …% which not bad at all for an importer. Integration processes did not worsen the positions of Russian brands, thus we can consider that the market share of the alliance over the first half-year grew by …% due to joining .
In August 2011, Cyprus company Oasis CIS bought 99.9% of “Radomyshl” shares. In April 2012 the “Kommersant” informed about the merge of Ukrainian assets of Oasis CIS and “Persha Privatna Brovanya” (PPB) with equal companies’ participation in the capital of common business. PPB is still run by Andrey Matsola, who worked at ground zero of the business development. At the same time, one of the founders of Oasis CIS, Evgeniy Kashper stated that he intended to buy out the last share from PPB owners.
We should say that so far Oasis CIS owners has not had any unsuccessful projects. The organization of new company in this case means that other major player will most likely have to yield their market share.
The starting working positions of the alliance are excellent. The net capacity of breweries in Lvov and Zhitomir reaches … mln dal. We assume that these capacities are only loaded by …. Distribution network of PPB though not covering all Ukraine, but is quite developed, which is demonstrated by rapid growth of representation and of the shares of Oasis CIS brands. In turn, since the new investor came, the joined company has intensified its marketing activity as advertisement budgets have obviously enlarged.
We should note that need for investor for PPB could appear due to fiercer competition. In 2011 the growth dynamics of PPB market share slowed down a lot and in 2012 the share of the company’s brands, if taken separately, reduced from … to …%. However, fast sales growth of new brands …, … and, most importantly, … permitted the joined company to increase its market share to …%. Beer … managed to win …% of the market within just a half-year, which is incredibly fast for not a large company. It is quite possible that its share will exceed …% by the year end.
Future prospects of company’s sale growth are quite likely to be connected with using distribution network of PPB for realization of worldwide known beer sorts. Portfolio of Russian Oasis CIS subdivision includes such brands as Budweiser Budvar, Kirin Ichiban, Spaten, Erdinger, Bernard, Bitburger and many others. One can expect foreign producers, when possible, to forward the contracts on distribution or even license production of their brands in Ukraine to the old partner.
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