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Focus - Russian Beer Story Takes Another Twist

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The Russians' taste for beer is to be tested again, following the Government's decision to adopt fresh restrictions on sales. Here, just-drinks looks at the possible consequences.

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In a nation raised on shots of vodka, it's not hard to see why beer is considered to have something in common with Coca-Cola. However, there is little sympathy for this kind of thinking in Russia's Government, which, as of last week, has said it will officially class beer as an alcoholic drink for the first time.

That means, principally, that beer sales from street kiosks will be banned from January 2013. And so, just as brewers have emerged from the clouds of a three-fold duty tax on beer in January 2010, they must now prepare for another bout of turbulence.

Only, this time, they can see it coming. This 18-month preparation period could be crucial, according to analysts.

"The 2013 date is important," said Morten Imsgard, of Sydbank. "There is some time to adapt to these new regulations, compared to the beginning of 2010, when there was almost no time to do anything," he told just-drinks.

Opinions vary on how seriously Russia's beer market will be affected. ING analyst Gerard Rijk estimates that around 15% of beer sales by volume in Russia take place via kiosks. On this basis, he thinks that the overall beer market could shrink by around 5% following the implementation of the new law.

The main problem for investors, according to Rijk, is the uncertainty of the waiting period and the lack of reliable, detailed data on kiosk sales. "15% is not small," he said, "but it is difficult to say how much of this beer is bought on impulse."

This poses the greatest problem for Carlsberg's Baltika Breweries, which leads Russia's beer market with around a 40% share of volume sales.

Consolidation in the retail sector is likely to be boosted by the new law, according to Imsgard. The Government's strategy certainly seems to fit with the time-honoured method for regulating alcohol sales more tightly. By streamlining the number of licensed organisations, the authorities can curb availability and have greater control over the sector, which is similar to the methods used by the British Government in the London gin craze of the 18th Century.

Brewers and consumers will have to adapt to this new reality. It is here where Imsgard sees the main threat to Carlsberg. "The main problem for them is that this takes away some of the advantages of being the biggest player with a very impressive distribution network that can reach every small corner of Russia," he said.

"Now the retail sector will become more consolidated and it's a shift that Carlsberg will have to be aware of."

Both Rijk and Imsgard view the new law more as another bump in the road, rather than a looming catastrophe.

Short-term, though, the new law could create headaches. Carlsberg expects the overall market to return to growth in 2011, but the brewing sector is suffering from overcapacity due to the sharpness of the downturn in consumer demand in 2009 and 2010.


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