Aluminium producer’s ‘can do’ spirit helps Russian brewers
The growing Russian beer market is an undoubted success story for the brewers operating there. But, writes David Robertson, they have been aided and abetted by an unlikely ally in the form of an aluminium producer which took the unusual decision to advertise its product - the aluminium beer can - directly to consumers, helping to boost the popularity of buying beer in cans.
Beer was once considered the poor man's drink in Russia but brewers have found an unusual partner in their quest to change the product's image. RusAl, which is about to become the world's largest aluminium producer, has teamed up with the drinks industry to change Russia's attitude towards beer.
Russian beer has traditionally been sold in thin plastic bottles alongside soft drinks and cigarettes at roadside kiosks. It was considered a cheap drink in cheap packaging that was sold to poor people.
RusAl has set about changing that image, benefiting itself and the European brewers who are moving east in the belief that there is a thirsty market waiting to be tapped in the former Soviet Union.
The message they have put out is that hip young Russians should be drinking beer not vodka - and they should be drinking it in aluminium cans. The campaign adds RusAl's financial muscle to the promotion of beer - as long as the product is displayed in aluminium can form, of course.
In 1999, the demand for cans was about 300m a year - or just 0.4% of the market. The cans sector was tainted by low-quality imports, often made of steel cans with expired use-by dates, excessive quantities of preservatives and a bad aftertaste. RusAl spotted an opportunity and opened its first can-making factory, outside Moscow, in 2000.
But RusAl could not simply wait for the brewers or consumers to start using aluminium packaging so it decided to create the demand for itself, running generic advertising extolling the virtues of beer - in cans. It has now run 14 television commercials since 1999 plugging beer, at a cost of more than US$10m.
Andrey Donets, general director of Rostar - RusAl's can-making subsidiary, told just-drinks: "The market research showed it was impossible to change totally this situation by only support and development of breweries. As consumers had zero loyalty to canned beer, it was necessary to extend our activity to the consumer market. We took the non-standard decision to launch an advertising campaign which was aimed at promoting the whole product category - canned beer. That initiative was unprecedented for Russia and extremely uncommon in world practice."
Rostar's first factory had a capacity for 1.5bn units a year and demand has been so strong that it has built another factory outside St Petersburg with capacity for another 1.5bn cans.
Aluminium's share of beer packaging has grown from 0.4% to 11.5% in 2006 and RusAl, which is owned by billionaire oligarch Oleg Deripaska, expects the market to double again in the next three to five years.
Russia is rapidly becoming a dominant force in the aluminium industry and RusAl is in the process of buying rivals Sual and Glencore to become the largest producer in the world. It has aggressive expansion plans that will soon see Siberian aluminium used to make beer cans for the Russian, European and Asian markets.
The use of aluminium cans in Russia is also working out well for the beer industry with the added promotional budget helping to boost sales.
In the first half of this year, Baltic Beverages Holding (BBH), the joint venture between Scottish & Newcastle and Carlsberg, increased its sales by 8.2%, with operating profits growing by 32%. By contrast, sales in Europe for all the major brewers have been relatively stagnant. BBH is now producing 37m hectolitres of beer a year and expects medium to long-term growth in Russia to continue at a healthy 3% to 5% a year.
Heineken is another Western brewer investing heavily in Russia. Four years ago it had no presence but the company has spent US$1.2bn acquiring six brewers and now has about 16% of the Russian market. It has aspirations to grow that share to 20% and challenge BBH, although the difficulty for all the brewers in coming years will be to consolidate the 1,000-plus brands that exist across Russia's 11 time zones.
The link between the brewers and RusAl has bucked a trend seen in most established European markets, where consumers seem to favour buying premium brands in glass bottles. But even without RusAl's involvement the drinks industry would likely have moved towards aluminium packaging in Russia.
The beer industry faces enormous marketing problems in Russia because of its draconian advertising restrictions. Beer can only be promoted on television from 10pm to 7am and the clips cannot show any humans, animals or animation - a serious challenge to creative advertising.
Aluminium cans offer an alternative advertising medium as the metal can be more decorative than glass or plastic: the colours hold better and the brand name and graphics can be larger. This is important not only on the shelves but also on television, as 'product' is just about all the regulators will allow on screen.
An attractive-looking can is, therefore, an advertising boon - and young Russians are responding. Andrey Donets says: "Thanks to the campaign, Russian consumers perceive the can as high-quality, the most up-to-date and environmentally-friendly package. Therefore, the younger a consumer is, the higher his loyalty to the can."
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