While governments in Latvia, Estonia and Lithuania have acted in response to high levels of alcohol consumption and binge-drinking, Euromonitor International observes that growth in the premium lager market is also helping to change consumption patterns across the region.

Latvia, Lithuania and Estonia, boast significant and growing beer markets, but all three Baltic states have been dogged by problems of binge-drinking and alcohol abuse, which has prompted governments to introduce tighter regulation, notably regarding the sale of higher-strength beers and drink-driving.

However, while governments have clearly seen the need to act, it is the combination of the greater emphasis on public education and stricter regulation with a pronounced consumer shift towards premium beers which looks to be producing the desired change in consumption patterns across the region.

Government concern over alcohol consumption in the Baltic states is not surprising. Per capita beer consumption in both Estonia and Lithuania, at 85.5 litres and 76 litres respectively, is higher than the Eastern European average of 61.4 litres, and well ahead of the global average of 24 litres. Even though Latvia's per capita consumption is lower, at 58 litres in 2005, this represents a 40% increase over the previous five-year period.

Generally, there has been strong growth in beer volumes across the region in the last five years, with total sales volumes for all three countries rising by 26.5% between 2000 and 2005. While Latvia saw the largest increase, with beer sales growing by 35.9% over the five-year period, the Estonian beer market grew by 33.9% in volume terms, while Lithuania's swelled by 19.4%.

Moreover, the buoyant Baltic beer market has been underpinned by low prices, as intense competition has slowed price inflation. Meanwhile, low prices and consumer loyalty to local products have made it more difficult for imported brands to gain a foothold.

Nevertheless, imported brands are forging a presence and are contributing to a premium shift across the Baltic region. Consumption patterns are changing, with quality becoming a more important purchase criterion. Even though consumers may be drinking more frequently, there is less emphasis on quantity, with both local and imported premium beers showing growth.

Brewers are targeting the higher-margin on-premise market, with stronger brews as out-of-home consumption becomes more popular. Indeed, in 2005, on-trade sales accounted for 33% of total beer consumption across the three Baltic countries, up from less than 29% in 2000, representing a marked contrast to other European countries where off-sales are growing at the expense of the on-premise market.

Increased demand for premium offerings is a key growth factor common to all three markets, as drinkers respond both to government action on the one hand and on the other to brewers' marketing strategies to trade consumers up to higher-margin premium beers. This is resulting in changing habits as traditional binge-drinking behaviour is replaced by more cultured, moderate imbibing.

A more responsible approach to beer marketing is also being taken by manufacturers, with brewers in Lithuania setting down a new code of practice and regulation in late-2004. A key component of the Code of Honour of Lithuanian Brewers was an agreement by all signatories not to produce beer with an alcohol content in excess of 9.5% abv. On the other hand, in Latvia domestic brewers have taken new product development to the very edge of the Lithuanian limit, by introducing beers with 9.0-9.5% abv.  In 2005, Latgales Stiprais from Mamas D was launched with an alcohol level of 9.5% abv, while both Turbo (from Livu Alus Daritava) and Vanaga Ipasi Stiprais (from Aldaris) are produced at 9% abv.

Although the ultra-strong segment currently accounts for just 1% of Latvia's beer market, a favourable change in the country's excise tax levels has made production of beers over 7% abv more viable. The higher margins attracted by high-strength, quality beers have also persuaded local manufacturers, long constrained by intense price competition associated with the standard and economy segments, that such developments offer a route to greater value sales.

Given the already high level of per capita beer consumption in the Baltic States, particularly Estonia, it is no surprise that the three markets are not expected to enjoy the same rates of expansion as other markets in Eastern Europe going forward.

However, a more moderate approach to consumption and greater consumer sophistication will underpin growing popularity of premium beers, providing one of the few avenues for imported brands to steal a march on domestic brews. Euromonitor International forecasts that the premium lager category across the region will grow by 41.1% between 2005 and 2010 in volume terms, compared with only 10.7% growth for the standard category and a 12.3% decline for the economy sector.

Euromonitor International also foresees that innovation in beer will increasingly be tested in the on-trade, while the off-trade is likely to lose its dominance. Establishing a strong brand image in bars and nightclubs in larger cities represents a clear opportunity for beer marketers to reach an increasingly affluent, receptive and premium-orientated young audience.