COMMENT: Russian beer hibernation
Sales of beer in Russia have been adversely affected by a remarkably cold summer. Traditionally, Russian consumers have viewed beer as simply a refreshing drink to be consumed in hot weather, and most sales of beer occur in the summer months. It is officially classified as a soft drink rather than as an alcoholic beverage. This summer's poor weather has impeded sales of beer, prompting Scottish & Newcastle to revise its forecast from 7-9% growth over the year to only 5%.
Scottish & Newcastle is the UK's largest brewer and it holds a 50% stake in Baltic Beverages Holdings (BBH), a joint venture with the Danish brewer Carlsberg. Hartwall of Finland and Norway's Orkla [ORK.OL], which now owns 40% of Carlsberg Breweries, formed BBH in 1990 and Scottish & Newcastle acquired Hartwall in 2001. BBH now accounts for 30% of Scottish & Newcastle's revenues and brews Russia's leading beer brand Baltika. There are 12 beers in the Baltika range, which, in what may be perceived as a hangover from Soviet times, are imaginatively named Baltika 0 to 10, with Baltika Parnassus being the single exception to this simple branding strategy.
The Russian beer market, although growing rapidly, is less attractive than it was a year and a half ago. In addition to the unfavorable climatic conditions, profit margins are relatively low, as prices are rising slower than the rate of inflation.
In Western Europe, the market for beer is very mature. Beer is also exposed to strong cross-category competition from other alcoholic beverages, notably wine and flavored alcoholic beverages such as Archers Aqua and Bacardi Breezer. This is driven to a large extent by changes in the on-trade designed to attract more female customers to a traditionally male-orientated environment. In comparison, the Russian beer market remains vibrant and dynamic. Provided the Russian weather improves next summer, there remains much potential for future growth in this sector.
Scottish & Newcastle and Carlsberg said today that their Eastern European joint venture Baltic Beverage Holdings had seen sales volumes lift 14% in the first quarter of the year, compared to the same ...
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