Results and prospects
Industry results in figures
Price segmentation of Ukrainian market
Who rules Ukrainian market

Results and prospects

While year 2010 was the recovery period of the market and production, and the next two years were the period of stabilization, year 2013 tested Ukrainian beer production to destruction. The general negative trend included factors of inner character such as those connected to consumption as well as of external character, namely, Ukrainian beer export.
The dynamics of beer production and trade balance started facing a downtrend as early as in May 2013. The high season of sales was not successful, and the autumn turned out to be a total failure. The prospects of 2014 so far look quite pessimistic too.

Let us look at the main reasons for such a bad industry performance.
The first subjective but rather predictable factor is an overstated base of 2012. At that time it seemed that Euro-2012 did not promote beer sales. Currently we are getting a feeling that the unprecedented for Ukraine championship could have concealed the potential fall of beer sales, due to obviously positive effect of football on the market. If we take into consideration that beer does not get into the market immediately after its production, and that brewers were preparing for the football festival, then the production growth in May-June 2012 (Euro-2012 lasted from 8 June till 1 July) can be called a one-time bonus to brewers. This bonus comprised nearly …% of the market.

Another, this time objective factor is bad weather in 2013. Though the winter was short but spring variable and very cold March did not “heat” beer lovers. The weather at the beginning of April was not good either, at some places there was still snow in the streets, which made the season change in the second half of the month even more spectacular and positively effected the beer sales.
However the main season of beer sales for consumers and brewers turned out to be considerably cooler than in 2012. Thus in Kiev the average day temperature in July was …°С and …°С at the same time in 2012. The season closure, September, was also disastrous. The average temperature equaled 14.9°С, which is …° lower than in 2012, that made the trend even worse.

The third factor is beer affordability which depends on price and consumers’ income.
When it became clear that the natural volumes of sales dived down, beer producers decided to make up for their revenues by raising cost prices for beer. The period from June to August 2013 saw the main price leap, which affected the retail prices immediately, the peak being attained by September. Over this short period of time, the growth of producer’s price amounted to nearly …% and retail prices increased by nearly …%. Certainly, many beer lovers noticed the new shelf labels and could cut the beer consumption.
The consumers’ income level is usually estimated on the basis of the official statistics. However, as a big part of Ukrainians’ incomes is not included into statistics, data from independent companies are used in order to estimate their consumption level.

If we compare the data of research company GFK Ukraine on consumer sentiment to the trade balance, we can see that the main fluctuations correlated with each other. Thus, over the period from April till August 2012, the index of consumer sentiment grew considerably. According to the company estimation, the deflation of the previous months, pending Euro-2012 and absence of economic shocks drew up the consumer sentiments. The social infusions prior to the parliament elections also stimulated the consumer activity. The subsequent recession was a respond to fears for the results of elections, gryvna rate fluctuation and negative prognoses by the world and Ukrainian economists. During this period the beer market sagged considerably.

The period from the end of 2012 to the beginning of 2013 saw a partial restoration of consumer sentiment. Winter holidays and political stress drop conduced positive dynamics of beer sales. However bad weather and the economical recession which became obvious by the year end, as well as negative expectations as to employment led to deterioration of both consumption sentiment and the beer sales dynamics. Sunny days in April improved the mood of consumers who started purchasing more goods including beer. Hangover after the spring arrival and May holidays, due to poorer economic activity and incomes inflation expectations as well as gryvna instability made Ukrainians economize again. Despite fine weather, beer consumption declined, only July heat and good harvest somehow relaxed Ukrainians for a short time, however, only till cold September. Warm weather in November concurred with many Ukrainians’ expectations of positive changes connected to signing the agreement with EU.
Uncommonly sharp decline of consumer sentiment in January resulted from long term political crisis that broke into an armed conflict and caused gryvna devaluation, which naturally worried consumers. The threat of losing jobs and deposits devaluating reduced the domestic demand considerably.
Further aggravation of the relations between Ukraine and Russia, fear of military action, gryvna collapse against the background of resources deficit and negative trade balance have extremely affected the economy and employment and was far from improving consumer sentiment and increasing beer sales. The only thing that could console brewers was exceptionally warm March.

Finally, the fourth factor of beer production in Ukraine is the dynamics of export deliveries. In 2013 there was an 18% cut of beer export to the rate of 24.1 mln dal. The volume difference against 2012 roughly comprised 5.1 mln dal. If not for this reduction, the volume of beer production would have been 1.7% bigger. This was caused by blockage of Ukrainian goods delivery on Russian border in August 2013, due to strict examinations by Russian customs. Eventually the export was restored but the sales season was completing too. Russian beer market contraction also played its role.
Year 2014 is not likely to be a very successful one for Ukrainian brewers.
Difficult relations with Russia create high risks for the export of Ukrainian beer. The worst scenario, the complete locking of Russian border, will mean nearly …% slump of beer production. The integration of the Crimea into the economic system of Russia will also play its role in case the trade flows will be cut down too. Annually the Crimea consumes nearly … mln dal of beer, … mln of which is brought from the continental part of Ukraine. The volume from the continent roughly corresponds to …% of Ukrainian market, and the total volume is …%. But even in case the existing trade flows do not change their direction, rather probable reduction of tourists’ number is likely to take approximately …% of output volume from Ukrainian brewers.
Severe policy of economizing of budget social expenditures, the change of politic paradigm, unstable economic situation and sharp gryvna devaluation at the year beginning are not likely to improve consumer sentiments and will probably have negative effect on the market of unnecessary goods.
Pessimistic sentiment of most of Ukrainian society can on the one hand stimulate choice for stronger drinks and on the other hand it can cause reduction of alcoholic drinks consumption.
The planned excise rise for beer in 2014, aimed to reducing the budget deficit, will amount to 35% to 1.17 grn for a litre. The expected production growth in April to form stocks prior to the excise rise, will most likely be followed by a considerable shrinkage of output volumes. The growth of retail prices is predicted by Ukrpivo experts at the level of 0.5 grn for a litre, which will be perceptible for consumers of inexpensive and medium price beer.
Under our estimation, the decline of consumer activity as well as price rises will entail beer consumption cuts by nearly …% by the year end, if we consider this factor distinctly from the others.
The low base of 2013 can somehow amend the sales dynamics, if we expect the beer correction to have already taken place. The low base was also formed by bad weather of July and September 2013. But one cannot hope that good weather will be able to fully compensate the adverse effect of the politic and economic background.

Industry results in figures

In 2013 the negative internal and external factors reduced the beer production by 8.9% to 273.7 mln dal, according to Goskomstat data. And beer export from Ukraine fell by 17.5% to 24.18 mln dal, while import rose by the same percentage to 4.66 mln dal. As a result the trade balance, which approximately equals the volume of Ukrainian beer market, went down by 7.6% to 254.19 mln dal.

Beer producers tried to compensate the decline of natural volumes by rise of cost prices. Over the year they grew by …% to … grn/l. The major price rise took place in summer, which allowed to almost fully retain the sales volume by the end of 2013. Thus, in 2013 the volume of sold beer by the enterprise decreased by …% to … bln grn or …% to $… bln. Obviously, in the conditions of the production decrease, keeping the income at the same level secured the profit for the brewers.
The growth of the cost price by …% was associated with rises of retail prices over 2013 by …% to … grn/l as can be seen when the data for December 2012 and 2013 are compared. The average weighted retail prices in 2013 grew by …% to … grn/l.

Basing on the growth dynamics of retail prices and calculations of trade balance, one can estimate the dynamics of beer market by value. In 2013 it grew by …% to … bln grn. In dollars on the contrary, there was a small decline of …% to … bln. Certainly, this estimation does not make allowance for the fact that beer price in the bar and restaurant segment is considerably higher than in retail. However, in Ukraine beer consumption off-trade is not very common, amounting to …%, that is why the real volume will not exceed our estimation substantially.

Price segmentation of Ukrainian market

In 2013 Ukrainian market experienced serious changes within its price segments. These changes are associated with considerable weight reduction of market leaders’ role. While several years ago, all the fluctuations were nothing more but reflected policy towards their mass brands of the three market leaders, currently the beer variety as well as the number of strong market players have grown significantly. It is also worth noting that the largest “old” brands are as a rule positioned on the lines between the price segments.
Until recently, Ukrainian consumers due to their growing rationalizing were crossing over to inexpensive beer. Gaining several per cent annually, the economy segment attained …% in 2012 but then lost … p.p. By value the share fell from … to …%. The positions weakening of inexpensive beer was mostly caused by an abrupt market share shrinkage of the largest economy brand, namely … . Although this process was partially offset by an explosive sales growth of … by different producers.

Until 2013 there was a distinct trend of market polarization, where the economy and premium brands took sales from the mainstream. But by the season end, the medium price segment almost achieved stability. While in 2012, it lost …p.p., and … p.p. by the end of 2013, on the contrary, it grew by … p.p. to …%. By value, however, the mainstream share shrinking proceeded, having reached … p.p. to …% of the market, due price positioning of brands Chernigovskoe and Obolon on the line between the mainstream and economy segments. The main contribution into the mainstream stabilization was made by mass brands by Efes and alliance Oasis, namely, PPB with Radomyshl, which experienced a considerable sales growth.
The premium segment of the beer market in 2013 continued growing extensively. It was not affected by the common beer sales drop. This must be due to the fact that the average prices in the premium segment are much higher than in the mainstream, so the consumers to the lesser degree react to changes of social and economy conditions. Besides, the product range in the premium segment has been expending over the recent years, drawing consumers’ attention. While the “old” license brands by 2013 end showed poor performance, the “new” brands such as …, .., … and others, expanded the borders of the premium segment significantly. Its share enlarged by … p.p. by volume to … and to …% by value. The same increase could be observed in the previous years.
The superpremium segment saw even faster sale growth. Currently, the expensive beer weight on Ukrainian market has become almost … bigger than in 2010, and now a considerable beer sales part (…% by value) falls to the share of superpremium. In its turn, within the segment itself …% of sales by volume and …% by value are accounted by license brand …, the rest of beer almost completely consists of import brands. At the same time we can observe a trend of fast diversification and share growth of import beer, which mostly fuels the dynamic growth of the superpremium segment.

Who rules Ukrainian market

Nearly 10 years ago the share of the three leading companies peaked and it seemed that the beer market was almost completely under their control. But the trend of market consolidation started weakening gradually. Initially, there appeared “Persha pryvatna brovarnia” (PPB) offering an alternative to mass brands. After the economic recession of 2008, a segment of “live” beer started developing rapidly, which saved many medium size enterprises. Years 2010-2011 saw two highly important events, namely, market entering of company Efes, which actively joined the competitive battle, and alliance between “PPB” and Radomyshl under the auspices of investment company Oasis CIS. Besides, over the recent years, there has been a subtle but important process, that is, the number of small breweries, started growing rapidly. Each of them so far has a share not exceeding 1%, but as foreign experience shows, it can grow significantly over the time. We should particularly note the mounting attention of Ukrainian consumers towards import beer (see article Analysis of Import Beer Market in Ukraine). Having perceived this tendency, not only distributors but also the leading players expanded their portfolio by import brands.

All these processes resulted in rapid share reduction of the leading threesome of the market. While in 2010 it comprised …%, in 2013 it amounted to …%. Against the background of the stagnation and subsequent recession of brewing industry in Ukraine, such shrinkage seems to be even more serious. The leaders are losing their sales. However, it is worth mentioning that one of the leaders, Carlsberg Group, has so far been able to oppose this tendency via rather active marketing policy.
In order to estimate the positions of Ukrainian brewers we used the data on beer output volumes, as well as the data on import and export of separate companies. Though the production does not always coincide with the sales, but such estimation allows rather exact evaluating of players’ share annually.
The market leader is still AB InBev, though 2013 was recessionary for the company and made the prospects for further leadership in the mid-run rather vague. The share of AB InBev shrank by … p.p. to …%, which is an unprecedented decline in the company’s history.
Thus, beer production by AB InBev breweries in 2013 fell by …% to … mln dal. And under our estimation, based on data by “1 Mosinfo” the export deliveries by the companies were cut by …% to … mln dal. At the same time, the import beer volumes grew by …%, having attained … mln dal. Thus, according to our calculations, the estimated volume of sales decreased by …% to … mln dal. The company in its annual report gives somewhat smaller figure of the decline, that is, …%. The main cutbacks, according to the report took place in the fourth quarter and amounted to …%.
AB InBev owes its leadership to good awareness and wide distribution of a variety of major brands, which are well known to Ukrainian consumers. But due to product expansion, they opt for alternative sorts in increasing frequency. In 2013 AB InBev was the only large company, which considerably raised its marketing expenses. Under the data by Doors Consulting, its expenses grew by …% to … bln grn. Yet the key “old” brands of AB InBev experienced their market share cuts.
The negative dynamics was mainly caused by brand Chernigovskoe. The market weight of the sales king started decreasing first in 2012, despite the company’s efforts to draw consumers’ attention by new sorts. The company retained the retail price of Chernigovskoe and in 2013 the brand price could target the consumers of inexpensive beer, but the market share continued declining rapidly. At the same time, there was … retail price drift from the premium segment to the upper border of the mainstream which allowed for position holding. The market share shrinkage of economy brand … slowed down, whereas the brand yielded its positions considerably over the recent years due to price rises.
Though new products by AB InBev drew consumers’ attention, it was not enough to offset the total decline of volumes. A contribution which was not very big in market scales but substantial for AB InBev was made by medium price version of … . …, being the key international brand of the company, received an active TV promotion and due to wide distribution it continued growing rapidly. Besides, against the background of license … stagnation, the company increased the sales of Belgian brands … and … . May be, in the future the company will more actively employ its distribution network for promotion of German brands … and …, which have recently been included into its portfolio.
Ukrainian subdivision of Carlsberg Group has almost managed to keep the output volumes at the level of 2012, and accordingly to demonstrate higher than the average performance in the industry. The company market share grew by … p.p. and reached …%, which drew Carlsberg Group considerably closer to the first position in the list of leaders owing to the sales decline of AB InBev.
The market share was estimated basing on the fact that the beer production of Carlsberg Group in 2013 fell by …% to … mln dal. And under our estimation, based on “1 Mosinfo”, the export deliveries of the company grew by …% to … mln dal. Besides, due to launch of Tuborg and Baltika #7 in one litre can the beer import volumes increased by …% having reached … mln. Thus, the estimated volume of company sales in Ukraine decreased by …% to … mln dal.
This, generally speaking, good performance was attained due to active branding policy, market innovations and large advertisement budgets. According to Doors Consulting, Carlsberg Group was still the largest advertiser among brewers having spent … bln grn, even though it cut advertisement expenses by …%.
We should note that the relative stability of sales and market share growth of Carlsberg Group do not correspond to the data by independent monitoring companies on market positions decline of the leading brands. In city retail the brands by Carlsberg Group were considerably affected by competition growth (though the brands by two other leaders were affected too). But such controversy is explained by press release summarizing 2013 in the following way: “Despite the decline of company share in the off-trade channel (traditional retail shop and modern trade), the sales of which AC Nielsen counts, Carlsberg Ukraine managed to enforce its presence in HoReCa channel. As a result, under internal estimations, the company was successful in holding market positions in general, as the total reduction of sales volume corresponds to the level of the category decline.”
Carlsberg Group positions in the economy segment of Ukrainian market have remained stable. The market share of … has decreased considerably, but it was offset by sales growth of … which has already won nearly …% of the market. At the same time Arsenalnoe share has seen some minor decline.
The medium price brands of the company yielded their positions in 2013. The reduction of beer … market share has been in process for some time and young brand … has obviously failed to win consumers’ loyalty. However, the mainstream segment is not the priority one for Carlsberg Group.
In the premium segment of the retail the company yielded its positions to competitors and import. The market share of the largest license brand by Baltika decreased a little and still exceeds the shares of its immediate competitors by many times. In order to promote brand …, several design decisions on package were proposed, and one litre can appeared on the market. This allowed reversing the tendency of fast decline of market share, but the general result was in our opinion, negative.

Company Obolon in 2013 found itself under the pressure of internal and external negative factors. Besides, being a major beer exporter, Obolon was affected by trade conflicts between Russia and Ukraine, and a variety of new brands by competitors caused the company market share in Ukraine to decrease. However, the company advertisement expenses were very modest too, that is, … mln, virtually at the level of 2012.
In 2013 production of beer Obolon was cut by …% to … mln dal. By the way, despite the considerable slump, the company became the leader of beer output again, as AB InBev saw even sharper decline. The beer export by the company, under our estimation, based on “1 Mosinfo” dropped …% to … mln dal. And the company did not import beer from other countries. Thus, the estimated volume of sales in the Ukrainian market in 2013 declined by …% to … mln dal. The market share went … p.p. down to …%, according to our estimation. The net profit in 2013 fell by …% to … mln grn.
The structure of Obolon sales is still gravitating toward economy segment. In 2013 brands … and … yielded only a small part of their sales to competitors. On the other end of the price spectrum, the leading role is played by license brand Carling, which became known to Ukrainians in 2011. Carling did not suffer the same fate as Bitburger, but on the contrary, it is gradually increasing its market share, having found its position among premium brands. The positions of … have been relatively stable, while the share of … experienced considerable shrinkage. However, premium brands by Obolon do not have any great effect on the total results of sales.
The main problem of Obolon is still the market share decline of the title brand, which to our mind yielded a part of its sales to …, owing to similar advertisement. The pressure on the mainstream segment is also exerted by premium brands. The company to some extent compensated the volumes slump by … price rise, which became higher than that of the main competitor, beer …. That is why the total results by value seem better than by volume. The price rise was followed by rebranding and advertisements that diminished stereotypes concerning Ukrainians.
Year 2013 was most successful for Efes company, which increased its market weight by … p.p. to …%. In general, Donetsk enterprise since 2008 has been constantly ramping up beer output volumes, changing the ownership forms at the same time. In 2013 there was …% growth to … mln dal. against 2012. A sizable part of the market share of the company accrues to import beer, the volumes of which have been permanently fluctuating, and it has been delivered by independent distributors as well as directly by Efes international subdivisions. The fluctuations were associated with deliveries start of the popular brands from Russia and subsequent launch of their local production (see article Analysis of Import Beer Market in Ukraine). In 2013 under our estimation, based on “1 Mosinfo” the volume of foreign deliveries shrank by …% to … mln dal. Accordingly, the estimated volume of company sales grew by …% to … mln dal.
According to the information by the company, the growth was to a great extent conditioned by the launch of five new brands, namely, Belyi Medved, Staryi Melnik, Kruzhka Svezhego, Amsterdam Navigator and Zhigulevskoe Razlivnoe. In order to satisfy the growing demand, in 2013 a new filling line with a capacity of 60 thousand bottles per hour was mounted at the company plant.
As we can see, the portfolio structure of company brands has seen considerable changes. Under our estimations, while in 2012 more than half of sales accrues to … sorts, in 2013 the majority was accounted for by the … and … brands which provided for the main growth.
Thus, the economy part of the portfolio experienced a change. While until recently, … was the company key brand, now the national distribution focuses on beer … . Thus, the sales and market share of … slumped and of …, on the contrary, rose. The peoples’ brand now accounts for nearly one third of company sales.
Local production launch of beer … turned out to be one of the most influential events on the Ukrainian market in 2013. However, by that time it had been well known to Ukrainian consumers. As early as in 2012, … was a major import brand with a share of …%, and in 2013 this share tripled due to average price cut by …% and considerable distribution expansion. Thus, … took a share from major mainstream and, probably, premium brands.
The growth of Efes market share was promoted by two premium brands of … which is an immediate competitor to … and … . However, the retail price of … . approaches the superpremium segment, that is why, despite the local production launch, the brand market share is not large so far. Other “old” license brands by the company yielded their positions, which was probably caused by absence of advertisement and narrower space allocated for them in the fridges and shelves of supermarkets.
The alliance of companies Persha Pryatna Brovarnia and Oasis (further PPB) had a good year too. The market share of the joined company grew by … p.p. to …%. Such positive dynamics was attained by increasing beer output by …% to … mln dal. Last year the import of company grew from nearly zero to … mln dal, and the export fell by …% to … mln dal. Accordingly, the estimated sales volume of PPB built up by …% to … mln dal.
The main launches and rebranding of some sorts took place prior to 2013. Nevertheless, key brands demonstrated growth of various degrees. The consumers had been already aware of all sorts by PPB, so the sales growth was caused not by the novelty effect as in previous years, but due to distribution expansion in regions, where he company had been poorly represented.
So far, the alliance has not laid claim for the economy market segment, but proposed an alternative to the mainstream. Thus, the main part of the portfolio is currently occupied by … price brands such as …, … and … which are allocated at different levels of the segment. At the same time there was considerable sales growth of affordable premium beer …, which surely found its consumer. Its sales were promoted by steady diversification of package formats. However, such potentially interesting brands as … и … became outsiders today.
The prospects of improved performance in the premium segment are dependent on local launch of licensed production of beer Bavaria, which will probably take share from many “old” license eurolagers.