Review of the Russian Beer MarketResearch by the Company “Euromonitor International”
In 2016 the Russian beer market continued to demonstrate a decline. The state of things is not only caused by the economic situation, but also by the stricter market regulation as well as close attention of consumers to product quality.
Given the overall market reduction, the development of niche beer categories becomes particularly noteworthy – wheat beer varieties, ales and non-alcoholic beer. The segment of craft beer is demonstrating active growth.
2016 ended with an overall reduction in sales by 3% in physical terms. The decline in the dark beer segment (ales, wheat beers), despite the overall mood in the market, did not exceed 1%. This indicates a keen interest in non-standard varieties by Russian consumers, which is reflected especially clearly in the popularity of craft beer.
It should be noted that today the share of lagers (light beer) in total beer sales in Russia remains predominant today and occupies not less than 97% of the volumes in physical terms. Therefore despite the substantial growth in niche beer categories, one cannot speak of a revolution.
Similar trends and love for non-traditional beer are more profound in Western Europe, which the fashion for craft and non-alcoholic beer reached much earlier, having managed to attract a wider audience. The share of lagers in this region amounted to 81% of the total sales volumes in 2016, with a trend for a further decline.
In Russia, interest in beer other than lager is growing. The market of craft beer, originally having started to develop in Saint Petersburg and having then spread to other large cities, is contributing to growth in the segment of dark beer. The potential of non-standard beer categories in Russia is indicated by average per capita consumption of these varieties. According to "Euromonitor International", in 2016 average per capita consumption of dark beer in the Russian Federation was remaining at 0.5 liters, whereas in Western Europe and the USA, where craft beer originated, it reached 7 liters. In Eastern Europe the figure is only slightly higher than in Russia – 1 liter per capita. The only exception is Lithuania, where the average dark beer per capita consumption equaled 6 liters during the time period in question. This confirms once again that niche categories of beer in Russia are still far from saturation.
The level of dark beer consumption in Russia still being low today can be explained by the weak presence thereof in both retail networks and the HoReCa channel. In addition, one cannot disregard the overall culture of beer consumption, which, until recently, could be characterized as ‘quantity over quality’. However, along with the ubiquitous urbanization and trends dominating in cities, the approach to beer consumption will be undergoing significant changes. Even though slowly, consumption is starting to gain the characteristics of tastings. Russians will continue traveling more, thus getting to try beer varieties unusual to them abroad and bringing their new findings home. Caf?s and restaurants specializing on grill and burgers emerging everywhere will also indirectly contribute to the craft boom. One can already notice that more and more often Russians opt for premium status and quality and would rather decrease the frequency of consumption than sink down to a lower price segment. This trend will remain in the future.
The modern consumer is taking their choice of food products more and more seriously. They are interested in the product’s composition and the quality of its ingredients; they find it important to be unique in their preferences while following global trends. It is virtually impossible to imagine a hipster with a plastic beer bottle in their hand. The introduction to craft culture is one of the steps of becoming a true modern beer ‘connoisseur’.
The macroeconomic situation in the country has been another impetus for active development of domestic craft beer production. The ruble collapse in 2014–2015 made imported craft beer even less affordable, and the market switched to import substitution to the largest possible extent. Small independent breweries became more demanded.
Today, the following Russian craft beer producers are the most progressive and familiar to the local consumer: “Vasileostrovskaya Pivovarnya (Vasilevsky Island Brewery)” LLC (Saint Petersburg), “Volkovskaya Pivovarnya” LLC (Moscow region), “Gletcher” craft brewery (Moscow region), “Jaws Brewery” (Sverdlovsk region), “Salden’s” brewery (Tula). Breweries constantly expand their beer range with original recipes and limited editions.
Speaking of the leading players dominating in the Russian beer market, one needs to highlight their desire to be on-trend. Consumers wishing to see non-mainstream varieties of beer on the store shelves affected the activity of these large breweries. For several years in a row, “Pivovarennaya Kompaniya (Beer Brewing Company) “Baltika (Baltics)” LLC (Saint Petersburg), MPBK “Ochakovo” CJSC (Moscow), “Obyedinennye Pivovarni Kheineken (Heineken United Breweries)” (Saint Petersburg) and “SAN InBev” OJSC (Moscow) have been following consumer needs and demands, offering their niche varieties such as ales or wheat beer. For instance, “Heineken” launched the brand “I am Stepan Razin”, and “Ochakovo” introduced “Strong Cask Ale” craft beer to their buyers.
The bar culture, which has been gaining popularity in Russia in recent years, has a strong impact on the development of the craft culture in the country. This sales channel is what small breweries start to work with, presenting their experiments to consumers.
Despite the craft beer boom and the direct participation of bars in this process, on-trade in Russia is far from being the primary sales channel for beer. In 2016, only 9% of all beer in physical terms was sold through caf?s, bars and restaurants in Russia. This figure is even lower for dark beer, where on trade occupies a share of as low as 5% of the volume. For comparison, in Western Europe the figures equaled 39 and 47% respectively in 2016. This confirms the fact that the Russian beer market still has a way to go, and has prospects for development. Growth in dark beer sales through on trade in Russia equaled 4%, as opposed to just 1% in Western Europe.
It should be noted that draft beer sales in Russia are well established, which gives small breweries a good chance to increase their sales volumes. Large federal retail networks create requirements hardly manageable for them in terms of volumes and delivery conditions.
Despite the rapid growth in the craft beer segment in Russia, its further spread into the masses is limited by the low presence in networks as well as the relatively high price. Network retailers can no longer completely ignore Russians’ interest in craft beer, and therefore some try to cooperate with as many niche players as possible.
On the other hand, true craft beer connoisseurs are used to look for said beer in specialized stores and bars, or to purchase it online. The sales channel highlights the specificity of the product and adds to the premium sense.
The approach to communication with the consumer and advertising solutions of mini-breweries may be unusual to some. These avoid corporate clich?s and stamps, aiming to simplify the communication and to make the approach to consumers more personal. This appeals to young consumers, making them follow the company’s news.
Another characteristic of craft beer is its unique, outstanding design. Various beer festivals and other related events that are taking place increasingly often indicate a certain level of introduction to the culture of beer brewing and beer consumption.
It is no secret that packaging is not only meant to protect the goods inside but also to serve as a message to the consumer, a form of positioning, a way to increase comfort. Craft beer is most often in the premium segment, and thus it is sold in glass. 2-liter PET bottles having left the market mini-breweries regard as purification of the market from cheap drinks spoiling the reputation of beer brewing.
Craft beer has no outlined gender orientation. Modern young women are among the target audience for mini-breweries. Craft beer is more expensive than regular lager, and therefore consumers with a higher level of income are in focus.
Non-alcoholic beer was the most dynamic category in the Russian beer market in 2016. The trend for a reduced ethanol content in Russia has been formed within the overall introduction to healthy eating and a healthy lifestyle. The lack of limitations for advertisement of non-alcoholic beer was an important factor, too – more and more market players have been using this opportunity in order to draw consumers’ attention to non-alcoholic products directly and alcoholic beer under the same name indirectly. This resulted in the non-alcoholic beer market growing by 16% in volume terms in 2016. This breakthrough caused additional investments by players in the non-alcoholic category, widened the range and affected market campaigns to attract a larger audience. Companies are working on changing the image of non-alcoholic beer, and as a result, it is less often seen as a low-quality ‘lifeless’ product by consumers.
In 2017, all the leading Russian breweries offered their non-alcoholic novelties to the market. “Baltika” started bottling unfiltered wheat non-alcoholic beer. “SAN InBev” launched the non-alcoholic “Klinskoe”, and “Heineken” offered both non-alcoholic and low-calorie beer to the consumer. The non-alcoholic “Heineken” will become a sponsor of the Moscow Marathon in 2017.
Russians’ attitude towards consumption of alcohol while driving is changing as well. As social responsibility increases, this type of behavior becomes less acceptable, which affects the choice of drinks and has a positive impact on non-alcoholic beer sales.
The demographic situation with the aging nation will contribute to the growing share of non-alcoholic beer in the Russian market.
Despite the aforementioned trends, sales of non-alcoholic beer in Russia remain rather modest – in 2016 they were not exceeding 2% of the overall volumes. In Western Europe this indicator is 2 times higher, which suggests opportunities for further development in the Russian market. The level of Eastern Europe in terms of average per capita consumption of non-alcoholic beer, however, remains at the average level of 1 liter per person during the time period reviewed.
Despite their niche nature, non-alcoholic beer, dark beer and products of small breweries will continue their development. The shares of the main players will decrease somewhat despite staying predominant. Further consumer interest will be contributed to by trends visible in large cities starting to become clearer in other regions. Non-alcoholic beer will intensify the growth of its share and will have occupied 3% of the beer market by 2021. These categories will retain their driver status in the declining beer market.