In 2012 Russia brewed 974 million dal of beer – minus 2.1% against previous year. In comparison to peak production volume registered in 2007 (1,146.2 million dal) decline of production volume constituted 15%. Peculiarity of the review period is that decline of beer production volume was observed on the background of significant increase of hard drinks output – vodka by 13.2%, cognac by 20.4%.
Monthly production volumes of beer in 2012 were similar to those in 2011 except for January, February and September when production volumes were significantly smaller. Low indices of first two months of the year were determined by increase of excise tax by 20% (valid since January 1, 2012) – retail made stock of beer in December 2011, so production volume in January 2012 saw 15.9% decline against January 2011 and 6.7% decline in Q1 2012 against Q1 2011. Meanwhile in Q2 2012 production volume was higher than in Q2 2011. During January-July year-to-year decline was reduced to 2.2% and this index was more or less sustained during the rest of the year.
The best production index was demonstrated by beer industry during January-August when decline against previous year constituted 1.8%. However decline of production volume in September recovered negative dynamics of -2.2%. In Q3 2012 year-to-year decline of production volume constituted 1.6%, in Q4 2012 – 1.4%. It should be mentioned that in November 2012 production volume was practically equal to production volume in November 2011 but in October and December decline was more significant.
Meanwhile comparison of production volumes of March-December in 2012 and 2011 showed only 0.6% decline. Extra 1.5% of negative dynamics was determined by negative impact of increased excise tax upon indices of Q1 2012. Production decline in Q3 and Q4 2012 was related to other negative factors – legislative restrictions valid since H2 2012, including ban on beer advertising in e-media, Internet, on billboards and on transport, and also ban on sales of beer in small retail outlets.
Retail sales of beer in 2012 constituted 1,055.7 million dal. Comparison of this volume with Rosstat’s data on sales volume in 2011 (1,077.5 million dal) shows 2% decline which corresponds to negative dynamics of domestic production. Interestingly, in H1 2012 retail sales demonstrated positive dynamics – plus 4% over H1 2011. However, restrictions on beer advertising valid since H2 2012 had their negative impact upon sales in July 2012 and annual sales dynamics in general. During January-August 2012 sales demonstrated 2.9% negative dynamics; in Q3 2012 sales declined by 12% against same period previous year. Gradually the market adjusted to new game rules, so in January-October sales decline constituted 2.1% and in January-December – 2%. In Q4 2012 dynamics of sales was -1.2% against same period previous year.
In general, it can be concluded that hard restrictions applied to beer industry by the state broke the ascending trend of beer market traced in H1 2012 which was restarted in Q4 2012, so industry managed to recover after the losses suffered in Q3 2012. Increased sales of hard drinks on the background of declined sales of beer and wine was the logical consequence of alcohol market regulation in 2012. Positive sales dynamics of vodka and liquors was practically equal to negative dynamics of beer sales (2.2%).
FINANCIAL INDICES
Excise collected on beer turnover (production and import) in January-December 2012 constituted RUR 114.59 billion, plus RUR 17.79 billion over January-December 2011. In relative terms increase of excise tax collection constituted 18.4%, by 1.6% less than increase of excise tax valid since the beginning of the year (+20%). Share of beer in total increase of tax collection on excisable drinks in 2012 constituted 32.6%; in January-December previous year this index reached 56.5%.
In 2011 excise collected on beer turnover (production and import) exceeded excise collected on hard drinks*already in January-April and this trend continued till the end of that year. Meanwhile in 2012 cumulative excise collected on beer exceeded excise collected on hard drinks only in June and in January-November cumulative excise collected on hard drinks again exceeded excise collected on beer. However in segment of drinks produced in Russia in 2012 excise collected on beer exceeded excise collected on hard drinks by RUR 4.1 billion.
Share of beer in total tax collected on excisable drinks in 2012 constituted 45.1%, by 3.4% less than during the same period previous year (48.5%). Share of hard drinks increased from 42.5% to 48.7%. Share of beer also declined in total amount of tax collected on excisable alcohol produced in Russia – from 51.7% to 48.3%; meanwhile share of hard drinks increased from 40.4% to 46.5%. Share of beer declined even in total amount of excise collected on imported excisable alcohol – from 16.9% to 16.1%. In 2012 imported beer provided 3.6% of total amount of excise collected on beer – plus 0.4% over 2011.
Excise collection traditionally demonstrated distinct seasonality. Minimum amount of collected excise was registered in February (RUR 4.85 million), maximum – in July (RUR 13.28 million). Share of beer in total tax collected on excisable drinks fell to its minimum in December (30.9%) and reached its maximum in August (61.4%). During 6 months of 2012 (in March-June and August-September) monthly collections of excise on beer were higher than excise collected on hard drinks. During 5 months (in April-June and August-September) share of beer in total tax collected on excisable drinks exceeded 50%. Meanwhile in November and December excise collected on beer constituted less than one third of tax collected on excisable drinks.
Efficiency index of excise tax collection in 2012 constituted 92%, plus 1% over previous year **. Same index on hard drinks market in 2012 constituted 66%, on wine market – 65%. As we see, even with no consideration of grey sector of hard drinks market beer traditionally demonstrates the best collectability of excise tax.
New rules of distribution of collected excise tax between federal and local budgets significantly increased importance of beer for local budgets in 2012. In 2011 share of beer in excise collected on excisable drinks and delivered to local budgets constituted 52.1% and in 2012 it reached 67.2%. During the review period beer provided two thirds of excise revenue of local budgets while hard drinks provided a little more than a quarter of that amount – 25.9%. This gives extra benefits to regions where favorable conditions for beer industry have been already created. During January-December 2012 excise collected on beer turnover provided RUR 110.43 billion revenue to local budgets. Compare: during the same period local budgets spent RUR 73.3 billion on emergency medicine and RUR 39 billion on sports (both spheres are either not financed by federal budget or financing is insignificant).
ACTIVITIES OF MARKET PLAYERS
Significant reduction of advertising possibilities on beer market in H2 2012 made launch of new brands a hard task. In Q4 2012 large market players made practically no new launches to bottled beer market. The only exclusion was “Ochakovo” MPBK with its new economy brand “Narodnoe Pivo (National Beer)” – light pale beer in 1.5 liter PET bottle. In the future the brand will be also offered in 0.5 liter glass bottle. “Ochakovo’s” marketers highlight that this new style will be distributed without promo support; the accent is made on bright design able to catch consumer eye in sales point.
Meanwhile foreign manufacturers keep launching new brands to Russian market. “SUN InBev” presented popular Ukrainian brand “Chernigivs’ke” brewed by “SUN InBev Ukraine”. In November premium German brand “Krombacher” started to sell in Russia new style of this family “Krombacher Weizen”. This pale wheat unfiltered beer brewed by “Krombacher Brauerei” is offered in 0.5 liter and 0.33 liter glass bottles and 30 liter kegs. Manufacturer plans to launch non alcoholic variety of this brand in 0.5 liter bottles.
Squeeze of beer advertising into sales points stimulated manufacturers’ interest to retailers’ private labels. For instance, “Deka” OJSC (Veliky Novgorod) in 2012 increased supplies of beer and kvass under private labels by 42%. Share of private labels in production volume of the company increased in 12 months from 14.2% to 20.5%; besides, share of beer in product range produced for retail chains grew by 11.5%. Another trend getting stronger under the pressure of advertising restrictions is increasing sales of tap beer in HoReCa channel. Successful development of Irish chain “Harat’s pub” with doubled number of pubs and by 4 times increased sales of tap beer is the bright example of dynamics in this segment.
Stiffening of beer industry regulation affected market players including the largest companies. For instance, “SUN InBev” reported 12% year-to-year decline of sales in Russia. One of the reasons of this negative dynamics was the growth of unit prices stimulated by increase of excise tax. In 2012 “Carlsberg” saw increase of retail sales in Russia by 2% in volume but supplies from production facilities reduced by 4% against 2011 because of reduced stock in Q1 2012; unit prices were also growing during the year.
Difficult economic situation makes many market players – especially in SME segment – face a hard choice: either switch production from beer to some other category of beverages or invest to renovation of production facilities and improvement of competitiveness. “Chitinske Klyuchi (Springs of Chita)” CJSC is the example of the first choice; the company decided to stop beer production because of expensive raw materials and inability to compete with federal brands. Meanwhile “Vyatich” OJSC (Kirov Region), “Borikhinsky Pivovarenny Zavod (Beer Brewing Plant of Borikha)” (Altai Territory) and beer plant “Maikopsky” are the examples of the second choice.
“Borikhinsky Pivovarenny Zavod” made complete renovation of production facility and increased its production capacity up to 1.08 million dal of beer annually. Next year the company is to increase production capacity by another 30% by starting a new fermentation line. The company “Vyatich” is going to renovate the plant and start the line bottling beer into 30 liter PET kegs (this package format will supplement the existing varieties); this should facilitate transportation of beer to other regions of Russia. Beer plant “Maikopsky” (“MPK” OJSC, Republic of Adygea) will increase production capacity of beer and non alcohol drinks in 2013 almost by 1.5 times to reach 850 thousand dal. In October 2012 the plant started a new PET bottling line with new German equipment. In the frames of multi-stage renovation the plant bought 6 cylindrical-conical brewery fermentation tanks with total capacity about 100 tons for € 1 million. The plan is to install them to fermentation line in spring 2013 already.
Large companies are interested to expand their network of local branches. For instance, “Baltika (Baltic)” fulfilled complete reconstruction of malt block with elevator tower in its Voronezh branch. Total volume of construction jobs constituted 47 thousand cubic meters. “Baltika” announced its plan to invest about RUR 200 million to its Voronezh branch. “SUN InBev” OJSC informed about the plan to invest RUR 100 million to construct a wastewater treatment facility at its Ivanovo brewery.
In the context of increased importance of beer industry for local budgets it makes sense to improve cooperation between beer brewers and local authorities interested to increase tax basis and create new working places. In 2011 Parliament of Nizhny Novgorod granted “Volga” brewery (part of “Heineken Russia”) RUR 372.6 million as tax benefits for five years, from 2011 till 2016. Since 2007 this brewery is working on large-scale RUR 5.6 billion reconstruction project the goal of which is to increase production capacity up to 52 million dal annually. Increase of production capacity already allowed the brewery pay RUR 3.126 billion of tax and excises to the budget of Nizhny Novgorod since tax benefits were validated. As we see, local authorities and legislators can do a big favor to their regions via help to beer brewers during their times of challenge.
* Since January 2012 in reports of Russian Federal Treasury the category “alcoholic beverages with 9% to 25% abv (except wine)” ceased to be singled out; all data on this category since then was referred to hard alcohol. This review unites both categories for analysis purposes; data on time before January 2012 was recalculated.
** Efficiency of excise tax collection was evaluated through comparison of Rosstat’s data on retail sales with reports of Federal Treasury on actual excise inpayments.
Research of the Company "Euromonitor International"
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