Russia's booming beer market increased volume sales by more than 12% last year and will continue to expand for the foreseeable future. Demand could increase by as much as 60% between now and 2008, according to a report by beverage industry analyst Canadean.

Current growth levels may be well below the 28% a year experienced between 1997 and 2001 but nonetheless remain healthy says the report. The vitality of the market is testified to by the fact while rising disposable incomes may enable consumers to switch to more expensive beers, particularly locally brewed premium brands and overseas brands brewed under licence, new products continue to arrive even in the commodity segments which are losing volume.
The growing importance of the brewing industry is demonstrated by the fact that seven major producers are numbered among the country's top 200 companies and Russia is now the world's fifth largest beer market.

However, although there are more than 300 breweries in the country the bulk of the market is still highly concentrated, with 70% of output being accounted for by ten leading players and one third controlled by BBH alone. Ten leading brands take nearly half of all sales.

In this highly competitive situation advertising is seen as one of the most effective ways of fighting for consumer loyalty and because beer is viewed almost as a soft drink, it escapes the television and radio advertising ban that applies to other alcohol products. Cans have featured in an aggressive national campaign and consequently seen their share rise from 4.5 to 14% - especially thanks to increased sales in the higher priced and premium ranges.

At the same time the use of PET as packaging is also growing, particularly the 1.5 litre bottle size. One of the factors bolstering this segment is the switch of low-income consumers from cheaper draft beer sold in kiosks and other outdoor outlets to PET bottled beer. The main victim of these trends has been the 50cl refillable glass bottle, which although is still the leading pack type has seen its share eroded in the last two years.

Looking to the future Canadean expects continued growth in Russian beer sales although the rate will slow considerably due to changes in excise duty and saturation of the market in big cities. Russia may now be the fifth largest beer market in the world but its per capita consumption is less than half that of the traditional brewing nations like the Czech Republic, Ireland and Germany, leaving scope for expansion of around 20 litres. A gradual reduction in the number of small and medium sized brewers will also take place and those who survive will have to reduce their production of mainstream brands in favour of exclusive and more expensive ones, says Canadean.