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Trends on the Russian beer market

By: Jennifer Fottrell

(beveragemanager.net) - There is hardly a market that is more shaped by legal regulations than the beer sector of Russia’s gigantic market. We are talking about a volume of 102,930 million liters, which puts the country in fourth place behind China, the USA and Brazil in the global rankings.

But the power of innovation, especially from global corporations like AB InBev, Heineken and Carlsberg, is doing its part in ensuring that brewed beverages are able to hold on to their status.

One figure that probably does the best job of describing these ups and downs is the per capita consumption of beer since the end of the Soviet Union when the country opened itself to the rest of the world. In 1960 this figure was a modest 13 liters. By 1970 it had grown to 16 and another decade later to 24 liters. In the early 1990s the cheap “Royal Spirits” became fashionable, which resulted in an unbelievably low level of beer consumption of just 12 liters per person per year. Many Russians did not return to their former favorite - beer - until after the “royal spirit shops” disappeared from the market, after which beer consumption reached record levels.

The third “beer wave” began in the mid 1990s and brewed ales suddenly became popular once again. As a result, the annual consumption by Russian men and women skyrocketed to 37 liters per annum. The beer business in Russia was then considered one of the most profitable and promising businesses in the entire country. Beer was seen less as an alcoholic beverage and more as a drink to go along with food. This was the result of a very targeted and clever positioning of beer on the market.

Between 2000 and 2007, domestic beer production doubled and the per capita consumption reached a historic high of 81 liters, more than is consumed in Britain. Pessimists in Russia predicted the saturation of the market in 2010. Unfortunately, their forecast turned out to be wrong. The peak was reached in 2008 and the market has shrunk continuously since then. In 2010 sales were down by around 10 liters per person compared to 2007 for all breweries in the country. Given the size and diversity of the country, it is no wonder that this figure varies greatly from region to region. After the global financial crisis hit, which was accompanied by high inflation in Russia, the level of beer consumption sank even further. Within just four years the price of beer had risen 33%, while the average income remained almost the same.

Another political action delivered a heavy blow to the brewers in 2011: In July of that year beer was defined as an “alcoholic beverage,” which made it illegal for beer to be sold in vending machines and at kiosks. In 2013 all beer advertisements will be banned in the media. This is part of the government’s strategy aimed at reducing the consumption of alcohol in Russia by 50% by the year 2020.

Ups and downs on the world’s fourth largest beer market

As mentioned above, we see ourselves confronted with a stagnating and, in some areas, a declining market in Russia. This negative trend, however, is not affecting “special beer styles,” meaning beers and beer-based beverages that are not traditional lagers. At present 45% of the population purchases these “special beers” and the trend looks to remain positive. RTD (ready to drink) mixed beer beverages are taxed at a much lower rate and support the government’s call for a trend towards less alcohol. Such drinks also allow women to be targeted, a group that was ignored in the past. Youths are also a part of this target group. Younger people are showing a strong demand for the new, sweeter flavors. Market research has shown that this is due to the fact that they are less far removed from the memory of the sweets they consumed as children than older consumers.

The boom started with the introduction of the “Redd’s” brand. The American-Belgian AB InBev corporation was all alone on the market for six years with this brand. The competition then caught up and the “Eve” brand was released in 2010 by Baltika, Russia’s largest brewing company and part of Denmark’s Carlsberg Group. The Efes brewery (part of Heineken) also joined the fight for a share of this growing market with a product called “Dolce Iris.” Once again, the global corporations are driving innovation and growth and rejuvenating the stagnant beer market.

Baltika – The strong number one brand in Russia

The relatively young brewery Baltika was founded in 1990 and quickly grew to become the number one domestic brewer during the heyday of beer consumption in Russia. After acquiring three large Russian brewing operations (Vena, Pikra and Yarpivo) in 2006, the group ultimately landed under the wings of Denmark’s Carlsberg Group in 2008. Today Baltika is one of the largest producers of consumer goods in Russia and has ten production sites within the country. In 2008 the group purchased a brewery in Azerbaijan. Baltika also operates two malt production plants in Tula and Yaroslavl, as well as other agricultural projects throughout the country, in order to cover their great demand for malt and to be independent of external suppliers. Innovation and continuous development are at the top of the agenda at Baltika.

The company not only focuses on innovations for the market, but also in production and packaging. The market leader’s portfolio includes more than 30 brands, including group brands like Carlsberg, Tuborg and Kronenbourg, as well as Russian brands.

Baltika has the largest distribution network in Russia and is available in 98% of the country’s retail stores. It is also exported to 75 countries all over the world, including countries in Europe, North America and the Asian-Pacific region. 70% of the beer exported from Russia is produced by Baltika/Carlsberg.

Position of Baltika on the Russian market

The Carlsberg subsidiary is the market leader in Russia with its 37.4% market share. It is more than twice as strong as AB InBev, the next strongest producer. The 1.8% decline in market shares in 2011 compared to the previous year is explained by Carlsberg as a result of Baltika, as the number one brand on the market, being the first to implement a necessary price increase.

Carlsberg expects a positive development in 2012

“We believe that things will be better in Eastern Europe and especially in the Russian market in 2012.“ This was recently read in an interview with Jorgen Buhl Rasmussen, CEO at Carlsberg. Rasmussen basis this statement on a number of conversations he has held with businesspersons from Russia. According to these discussions the entire Russian economy is expected to recover. This expectation is based, in part, on the expected stabilization of the price of oil, which is a major factor in the economy. An increase in the GDP of the Russian Federation is also predicted. All these factors lead to an increase in the population’s purchasing power, which leads to more money being spent on consumer goods. This will affect both goods consumed outside the home, as well as goods consumed within the home, like beer.

These positive indicators are affected by the above-mentioned restrictions regarding advertising and communication. This effect, however, will not affect all providers equally. The large, international brands will profit from this, as they are very well known and have strong brand strength. The result will be more small brewing companies going out of business in favor of larger, international corporations like Carlsberg, AB InBev, Heineken, SABMiller and others. (bmg)

 

(photo: SABMiller)