current issue

ą1/2017

CONTENT

DRINKS
The Problem of Growth in the Minimum Retail Price for Vodka
Research by the Center for Investigations of Federal and Regional Alcohol Markets (“CIFFRA”)

Review of the Russian Beer Market
Research of the Company “IndexBox”


CONFECTIONERY
Branding in the Russian Market of Confectionery Products
Research by the Branding Company “Labelmen”


MEAT
Review of the Russian Mutton Market
Research of the Company “IndexBox”


FISH & SEAFOOD
Review of the Russian Fish Market
Research by the Company “I-Marketing”


DAIRY PRODUCTS
Review of the Russian Cheese Market
Research by the Company “Global Reach Consulting”

Review of the Russian Ice Cream Market*
Research by the Russian Union of Ice Cream Producers


INGREDIENTS
Review of the Russian Market of Malt
Research by the Company “ID-Marketing”


FRUIT & VEGETABlES
Review of the Russian Foreign Trade Market of Nuts and Dried Fruits
Research of the Information-Analytical Company “VVS”


RETAIL
Review of the FMCG Retail Market
Research of the Company “RBC.research”


TRADE SHOWS
The 3rd exhibition “Anufood China 2016”



FINANCE & LOANS
Leasing Market in Russia in the First 9 Months of 2016
Research by the Rating Agency “RAEX” (“Expert RA”)





Review of the Russian Beer Market
Research of the Company “IndexBox”

Due to the continuous downturn in the Russian market of beer, domestic producers urged the government to lift the restrictions on beer sales and advertising. Will there be any response to their hopes from the regulating authorities?
In late November, the Higher School or Economics (HSE) and the Union of Russian Brewers presented the Concept of separate regulation of production and turnover of beer products to the Ministry of Economic Development (MED). The document proposes to allow beer sales in non-stationary retail, to lift the limits on its advertising and to deprive regional authorities of the power to set their own barriers for producers.
The industry participants’ initiative to make said proposals was caused by the downturn in the beer market that had lasted for 5 years. In 2010–2015 production of beer in Russia was declining at the average annual rate of 7%, eventually reaching 7.3 billion liters. The market is negatively affected by both legislative restrictions in the alcohol industry and the economic crisis as a whole: consumers became more conservative in their purchases against the backdrop of declining real incomes having decreased by 0.7% in 2014 and by 4.3% in 2015
However, in 2016 the situation in the industry shifted: over the first 9 months production of beer in annual terms increased by 3%. Said growth has to do with beer in PET containers of a large volume having started to be sold, and with favorable weather conditions in most parts of Russia in the summer*. It should be noted that production of alcoholic beverages in plastic containers larger than 1.5 liters will be banned starting with January 1, 2017, and retail sale of alcohol in said containers will be banned from July 1, 2017. The original edition of the bill implied that sales of alcoholic beverages with ethyl alcohol content over 6% in plastic containers larger than 1.5 liters were to be banned from 1 January, 2015, and sales of beverages containing more than 4% of alcohol in plastic containers greater than 0.5 liters in volume were supposed to be banned in early 2016. The bill has not been reviewed since then. Analysts at “IndexBox” believe that UEFA Euro 2016 also had a positive effect on beer sales – its TV broadcasts were accompanied by brewers’ advertising campaigns.
Experts at “IndexBox” believe that the 2016 UEFA European Championship also had a positive effect: its TV broadcasts were accompanied by advertising campaigns of beer producers.
Maksim Kurokhtin, Head of Marketing Department at “Tomskoe Pivo (Tomsk Beer)” JSC (one of the largest producers of draught beer in Russia), is less optimistic: in his opinion, production growth is a statistical fiction caused by the implementation of the Unified State Automated Information System (EGAIS), which contributed to small breweries emerging from the shadows. However, according to him, in reality there is no growth in production, as consumption of beer keeps declining.
The fastest growing segment in the industry has been non-alcoholic beer, the share of which amounts to 1.2% of beer production in Russia: its output grew by 90% in the second quarter of 2016 and by 19% in the third quarter, reaching 30 million liters. At the same time, throughout most of 2015–2016 monthly production in annual terms was demonstrating growth.
Positive dynamics in said segment are largely due to the fact that only non-alcoholic beer is allowed to be advertised without restrictions on TV. Advertising of alcoholic beer is only allowed during sports broadcasts and on specialized sports channels. Therefore manufacturers often act as sponsors for sports event broadcasts on TV and place their own commercials within them.
In January–September 2016, production of beer in monetary terms increased by 13% to the similar period of 2015, and average consumer prices grew by 10%. The price increase was caused by the ban on recycled glass usage and a reduction in the number of low-alcohol beverage sale outlets (kiosks), according to analysts at “IndexBox”. Another factor was ruble devaluation, which made international companies raise beer prices in order to compensate for the decline in foreign currency earnings.
The leading companies of the industry today include: “Pivovarennaya Kompaniya “Baltika” LLC, “Obyedinennye Pivovarni Kheineken (Heineken United Breweries)” LLC (Saint-Petersburg), “SUN InBev” OJSC (Moscow region), “Pivovarnya Moskva-Efes (Moscow-Efes Brewery)” CJSC, and “Moskovskaya Pivovarennaya Kompaniya (Moscow Beer Brewing Company)” CJSC. Overall, there are over seven hundred large and small companies in the beer market, and the position of some of them are particularly strong in certain regions: for instance, in Saint-Petersburg the beer brand “AF Brew” is in high demand; in Tomsk it would be “Tomskoe Pivo”; in Penza – “Samko” and “Vizit”; in Nizhny Novgorod – “Okskoe” and “Malz & Hopfen”; in Krasnodar Krai – “Karachaevskoe” and “Khadyzhevskoe”; in Irkutsk – “Admiral Kolchak”; in Novgorod – “Khvoyninskoe”; in Glazov (Udmurtia) – “Chepetskoe”.
In the third quarter of 2016, the region leading in beer production was the Volga Federal District, the share of which in the structure of overall Russian production equaled 28.3% (579 million liters). Second and third were the Central and Siberian Federal Districts, which produced 576 million liters (28.1%) and 332 million liters (16.2%) respectively over the period of July–September 2016.
According to industry participants surveyed by “IndexBox”, Russian beer producers’ potential for exports remains low. Today, the leading Russian exporter is “Baltika” brewing company, which accounts for 48% of beer exports from the Russian Federation** – its products are present in over 75 countries of the world.
Maksim Kurokhtin notes that Russian craft beer, due to its exotic nature, may be interesting to foreign consumers. However, establishing exports from Russia statistically significant enough is problematic due to logistics costs, he says – it would be more profitable to establish contract bottling and launch production in recipient countries in question.
Today the government and brewers are interested in increasing beer sales and production – this will, in turn, increase revenue of the industry participants and thus their contribution to the budget through excise duties. Therefore regulating authorities may separate beer regulation from alcohol. However, regardless of their actions the segments of non-alcoholic and craft beer will remain the fastest growing in the Russian market, analysts at “IndexBox” conclude.

* Report of “Pivovarennaya Kompaniya (Beer Brewing Company) “Baltika”.

** Data of the company.

Elena Koltykova

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