A bleaker beer year ahead in Russia - Analysis
Russia's beer market looks set to go from worse... to worse
That Russia's beer market has turned from a roaring bear into a whimpering bunny is not news any more. The country's economic downturn, coupled with government action against alcohol retailing and advertising, has been the norm for the better part of three years.
An analyst's note this week, however, suggests that the future for those brewers who had previously mined Russia's rich beer vein offers fewer golden sunrises, rather, more bleak hurdles.
Looking at market leader Carlsberg, Bernstein senior analyst Trevor Stirling today flagged four reasons for the beer players in Russia to approach 2016 with caution.
The biggest concern will come from the effect of transactional foreign exchange on raw materials such as barley and PET resin. "We estimate approximately a 50% increase in the price of barley in rouble terms," warned Stirling. The hike would usher in inevitable retail price increases to help cushion the gross margin pressure, "putting further pressure on beer volumes and operating leverage in 2016".
Next up could be the introduction of a maximum PET size for beer in the country. Although the Union of Russian Brewers made a pre-emptive move in August, voluntarily readying the industry-wide withdrawal of 1.5-litre PET bottle lines, the country's authorities are considering a reduction of the maximum PET size to 50cl. In making the industry-wide move last year, the trade association warned that there were "no objective reasons" for limiting bottle sizes and that it was "counteractive" to recent government attempts to lower alcohol consumption.
Such positioning may not cut it with a government keen to be seen to do all it can to counter excessive consumption.
Later in the year, Stirling noted, the Russian Government is set to introduce the Unified State Automated Information System (also known as EGAIS), by which the state will track the production and sale of alcohol in the country. "The introduction … has the potential to cause a lot of disruption at peak selling season," Stirling warns.
Finally, and more broadly, "the further recent fall in the oil price is likely to add even more pressure to the Russian economy and its beleaguered consumers".
So, if you were looking for a happy New Year, it would appear you'd be better off not looking to Russia.
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