Comment - Brewers Feel Chill of Prolonged Russian Winter
Russia continues to be tough for the likes of Heineken and Carlsberg
Being a brewer in Russia continues to be a struggle, and that's putting it mildly.
Carlsberg and Heineken both revealed today that their first-half beer volumes suffered in the country. The Danish brewer, Russia's beer market leader, is even considering closing some of its ten breweries. This comes on top of plans by Anheuser-Busch InBev and Anadolu Efes, part owned by SABMiller, to shutter some of their operations in the country. Last month A-B InBev said its first-half volumes fell by 10% in Russia.
The reasons for the problems are a well-documented perfect storm - higher taxes, regulations on beer sales, weak consumer spending, bad weather and ongoing political tensions with the West.
Carlsberg warned the rest of this year will continue to be tough as it cannot see the macroeconomic situation improving anytime soon. It expects “considerably less stocking” among Russian distributors in the coming months.
However, there are glimpses of hope among the gloom. Essentially, the Russian beer market is shifting in its nature. In the first half of this year, the value of the market grew. Carlsberg flagged that, while it has suffered most at the economy end of the market, its premium brands have performed better, resulting in what it claims is a “very healthy” price mix.
This tallies with comments made by Heineken’s CEO, who said the brewer's premium beers, including brand Heineken, are in growth in Russia. Beer lovers are drinking less, it would appear, but paying more for the pleasure.
In the first decade of this Century, Russia’s beer market enjoyed around 40% sales growth, rising to become the world’s fourth largest market behind China, the US and Brazil. But, now it appears those glory days are over. As Carlsberg, in particular, has warned, there will be more pain to come. “We will make tough decisions,” CEO Jorgen Buhl Rasmussen said.
With around 36% of its operating profits coming from Eastern Europe, including Ukraine, the Danish must be hoping those tough decisions pay off.
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