E-Malt.com News article: 2655

Russia, St. Petersburg: Europe's biggest brewery in Russia's second city has created the continent's No. 2 beer brand in just 12 years as it tries to meet the almost insatiable thirst of Europe's fastest-growing beer market, David Jones from Reuter revealed in a statement. The Baltika brewery in the sprawling northern suburbs of St. Petersburg started brewing the Baltika brand only in 1992, and said Friday that it outsells beers in Europe with hundreds of years of history like Carlsberg, Kronenbourg and Stella Artois.

Baltika's success has mirrored the remarkable growth of the Russian beer market. Ten years ago it was half the size of the British market, now it has leapfrogged ahead and is the world's fifth-largest after China, the United States, Germany and Brazil.

The St. Petersburg brewery has been virtually rebuilt over the last 10 years to make it Europe's biggest and its top brand Baltika now has Europe's top brand, Heineken, in its sights.

British-Danish Baltic Beverages Holding, which controls Baltika, says it aims to be the "Anheuser-Busch" of Russia, and mirror the world leading brewer, which has a half-share of the giant U.S. market led by its Budweiser brand.

BBH, owned 50-50 by Britain's Scottish & Newcastle PLC and Denmark's Carlsberg controls a beer empire that stretches across nine time zone from the Ukraine to the Pacific coast, brews one in three of Russian beers and sells through half a million outlets across Russia.

But the remarkable growth of the Russian market has attracted other big beer players, increasing competition for market share and putting pressure on beer prices.

After six years of 20 percent per annum volume growth, the Russian beer market stumbled to mere 6.5 percent growth in 2003 and for 2004 BBH is seeing some pain with loss of market share, margin erosion and prices failing to keep pace with inflation.

A market that increases by the size of the Danish beer market each year has already attracted brewers such as Interbrew, Heineken NV and SABMiller -- all the big names except the biggest of all -- Anheuser-Busch, but even it is rumored to be eyeing Russia.

But BBH CEO Christian Ramm-Schmidt is still optimistic. If Russians drink as much as the average beer drinker in the European Union, then the Russian market will match the big beer-drinking nation of Germany, he said.

He is raising marketing spend to try and regain lost market share -- down to 32.6 percent in 2004's first quarter from 33 a year ago -- as No. 2 player Sun Interbrew has pushed up beer volumes especially in increasingly popular plastic bottles.

Ramm-Schmidt says BBH's big investments in new breweries and new distribution, which caused the margin erosion, are coming to an end and he is happy with his 18 breweries and distribution system in Russia and the rest of the former Soviet Union.

He expects margins to stabilize this year at 2003 levels and still claims BBH, the tenth-biggest brewing group in the world, is probably the most profitable.

Finally, though BBH prices rose 9 percent in the 12 months up to the first quarter, they did not keep pace with local inflation estimated at 10 percent to 11 percent in 2004, but Ramm-Schmidt says BBH absorbed tax rises rather than passing them on to the consumer.

Ramm-Schmidt believes the Russian market will grow 5 percent to 7 percent in 2004 and although BBH's Russian volumes in the first-quarter at 7 percent lagged the whole market at 15 percent, he has said he hopes to get 40 percent of the market. Russian beer consumption for its nearly 150 million people is around 51 liters per person annually, ahead of the Ukraine at 31 and Kazakhstan at 20, but below the EU average of 76 and well over 100 seen in Germany and the Czech Republic. Consumption of Russia's traditional tipple, vodka, is around 15 liters a year.

"Russia should be able to reach 70, while we are not happy with BBH's beer market share -- it should be higher," he told a news briefing.

Meanwhile, competition is building up. Sun Interbrew has a 15.3 percent market share, while two Russian private players, Ochakovo and Krasny Vostok, each with around a 7 percent share are being eyed up by foreign buyers.

Of the other players, Heineken, which bought Bravo in 2001, has 4.8 percent; Turkish brewer Efes, which has announced plans to list its shares in London, has 4 percent; Stepan Razin in St. Petersburg has 2.1 percent and SABMiller has 2 percent.

After 13 years of building up its beer business throughout the former Soviet Union, BBH's future strategy is to simplify its structure and move toward giving out dividends to its two shareholders -- S&N and Carlsberg -- by 2005 and onward.

Ramm-Schmidt hopes to bring its five Russian business operations -- in which BBH holds majority stakes and which account for around 80 percent of BBH beer volumes -- under one company, probably Baltika, as it is the largest of the five.


19 May, 2004