Russia full of potential
capita consumption less than half that of more mature markets in
the west, there is still considerable room for growth.
Beer sales in Russia have grown phenomenally over the last few years, not bad for a country where vodka has been the alcoholic tipple of choice for centuries. Most of the major international brewers have a growing presence in the Russian market, and some local beer brands are now so strong that they are in turn being exported to more mature western markets such as the UK.
But there is little sign of the Russian market reaching maturity in the foreseeable future. A new report from drinks industry analysts Canadean shows that while volume growth last year was an impressive 12 per cent, demand for beer in Russia could grow by as much as 60 per cent by 2008.
Current growth levels may be well below the 28 per cent a year experienced between 1997 and 2001 but double digit growth of any sort is rare in many western beer markets, Canadean said. The vitality of the market is shown clearly by the fact that while rising disposable incomes 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.
Beer is now big business in Russia, with seven major beer producers numbered among the country's top 200 companies. Russia is now the world's fifth largest beer market, and its standing is likely to grow further in the years to come. However, although there are more than 300 breweries in the country, the bulk of the market is still highly concentrated, with 70 per cent of output being accounted for by 10 leading players and the top 10 brands taking nearly half of all sales.
One third of the market is controlled by Baltic Beverages Holding alone. The company, a joint venture between Denmark's Carlsberg and the UK's Scottish & Newcastle, own the Baltika brand, the biggest selling in Russia, and has recently announced plans to launch the beer on the British market.
With such high levels of competition, advertising is seen as one of the most effective ways of fighting for consumer loyalty. Furthermore, since the hard-drinking Russians consider beer 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 per cent - especially thanks to increased sales in the higher priced and premium ranges.
But Russia is also being used as a test market for PET beer bottles - about which consumers in western Europe are far more sceptical. The 1.5 litre PET bottle size is particularly popular, helped by low-income consumers switching from cheaper draft beer sold in kiosks and other outdoor outlets to PET bottled beer. Sun Interbrew, the Russian arm of the Belgian brewing group, has been one of the main proponents of the PET bottle format.
The main victim of these packaging trends has been the 50cl refillable glass bottle, which although it is still the leading pack type has seen its share eroded in the last two years.
Looking to the future, Canadean said it expected 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, said Canadean.
For details of how to buy Canadean's Russian Beer Market report, click here.
