E-Malt.com News article: Russia: Ochakovo would capitalize on its diversity

Ochakovo, Russia's only big independent brewery, is now looking for growth in soft drinks - including kvas, a national speciality made from fermented rye bread -- as the boom in demand for beer starts to slow, Reuters reporter, Julie Tolkacheva, commented on February 7.

Like the pungent beverage, Ochakovo wants to keep its distinctive identity at a time when global brewing majors have taken over its main local competitors, general director Vladimir Antonov said in an interview.

"The competition will grow stronger, and there will be more mergers and acquisitions among other companies," Antonov said. "Ochakovo has very serious development plans, plans to promote its goods on the market. But we are not discussing any plans to sell."

Ochakovo is Russia's only remaining major independent brewery after Efes bought Krasny Vostok last month in a $390 million deal, which cemented the Turkish company's fourth place on the market. The top three brewers in Russia -- Baltika, which is controlled by Scottish & Newcastle and Carlsberg; InBev; and Heineken -- have snapped up local brewers to meet growing demand and fill gaps in their distribution networks in the world's largest country.

But Antonov reckons the beer boom has run its course and doubts that annual per capita consumption of 60 to 70 liters -- versus 90 to 100 liters in Europe -- will rise much further. "Five or seven years ago the future of the market was brighter, with annual growth of 25 to 30 percent as Russia's consumption lagged behind that of European countries," he said.

"In the Urals, Siberia, the Far East you can still feel the capacity shortage, ... but annual growth is not more than 5 to 7 percent now."

Ochakovo owns breweries in Moscow, Krasnodar, in the south, and Penza, in central Russia. It will soon launch a brewery in Tyumen, in Siberia, which will boost its total beverage capacity of 144 million decalitres by 30 percent. Ochakovo belongs to its 5,000 employees. President Alexei Kochetov is the largest shareholder, with a 38 percent stake.

Antonov said that Ochakovo, with a market share of 5.9 percent, planned to produce 4 to 5 percent more beer this year than in 2005, when it made 50 million decalitres.

But he said Ochakovo would capitalize on its diversity. Besides beer it produces vodka, soft drinks and low-alcohol drinks, and it plans to launch this year a range of gin-based cocktails and a premium class beer, Ochakovo Emerald. The brewer plans to hike kvas output by half this year following last year's increase of 70 percent.

"Frosts have hit us seriously," Antonov said. A 10-day holiday in January also hurt sales because it disrupted distribution.

Cost pressures in the beer sector are also rising. Bottle prices are up 50 percent, transport and power costs are up several times, while new, higher taxes were enforced from the start of the year.

Antonov said Ochakovo could raise prices by only 2 percent without damaging demand. "Profits will rise this year due to kvas and soft drinks," Antonov said, estimating a profit increase of 5 to 6 percent.



08 February, 2006