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DANCES WITH BEARS
Untapped
beer
By John Helmer
MOSCOW -
Beer advertising is pervasive on Russian television, but
not because it's hot weather and Russians are thirsty.
President Vladimir Putin has criticized the advertising,
chiding media officials, including the press minister,
for promoting profits ahead of health and physical
fitness. The point he didn't make is that, in Russia,
the alternative to beer isn't health. It's vodka.
The growth of South African Breweries (SAB)
explains why. SAB will shortly launch new Russian brands
of beer in a plan to double its brewing capacity in
Russia from 2.2 million hectolitres to 4.6 million
hectolitres, Alan Richards, SAB's chief Moscow
representative, announced recently. Richards heads
Transmark, the European affiliate of SAB, which recently
acquired the big US brewer Miller.
The US
brewers were too timid to invest in Russia for the past
decade; SAB's initiative shows them how. The expansion
is the third at SAB's Kaluga brewery site, 180
kilometers southwest of Moscow. According to Richards,
US$60 million in fresh capital expenditure will be
required. More than $100 million has already been spent.
Industry sources claim that SAB's
Russian-branded beer, Zolotaya Bochka ("Golden Barrel")
currently has a market share of 3.4 percent. The SAB
brewery also produces three imported beer brands under
license - Holsten of Germany, Staropromen of the Czech
Republic and Miller of the US. Their volume amounts to
about one-third of the Kaluga's brewery's current
capacity. The additional brewery production should come
onstream next February, Richards said, and capture a 6.5
percent market share.
The new brands have been
devised with a new taste and a new marketing strategy
aimed at a different segment of the Russian
beer-drinking market. Exactly what that means, SAB
executives say, will be kept under wraps for the time
being.
SAB began its Kaluga operation in 1998 in
the wake of the crash of Russia's financial markets and
banking system, when trade had seized up, the rouble had
lost 300 percent of its hard-currency purchasing power,
and imports to Russia dropped by more than 40 percent.
The conditions encouraged SAB to invest $40 million for
a domestic brewery at the moment when imported beer
became too expensive for Russian consumers.
SAB's move into Kaluga followed the decision by
Fosters of Australia, a year earlier, to turn down the
same brewery, and stick to selling imports in Russia.
Fosters said at the time that it was unwilling to invest
in foreign brewing unless the Fosters brand was on every
bottle and can. That was a marketing decision Fosters
now rues.
For Russia's beer-drinkers, the old
days weren't good ones. Beer was cheap, but the
pivniye (pubs) that served it usually added
water, topped up with detergent to create the impression
of beer-suds. Genuine beer was in frustratingly short
supply until the Soviet Union ended in 1991. Since then,
however, the Russian thirst has been frustrated in a new
way. Genuine imported beer of every type, taste, and
source has flooded into the country. The only problem
was, the average Russian beer-drinker couldn't afford to
drink it.
When the Russian Market Research
Company surveyed consumers nationwide in 1997, asking
what alcoholic beverage brands came to mind, those who
could named a dozen vodkas, cognac, champagne, wine and
liqueurs before beer even got a mention. And this was
Baltika, a brand produced by the powerful Scandinavian
group, Baltic Beverages Holding (BBH) of Stockholm.
Young, high-income Russians were the only ones who said
that they could afford Baltika's price.
In
theory, the Russian beer market should be mouth-watering
for big Western brewers with international marketing
clout such as Heineken, Guinness, Holsten and Bavaria.
According to a study by the Boston Consulting Group,
Russian beer consumption in 1995 was 17 liters per
capita, one of the lowest in Europe. On the other hand,
the population of Russian beer-drinkers, multiplied by
their 25-liter appetite for beer in the Soviet period,
creates a large unsatisfied market, the fastest growing
one in Europe.
What happened in Russia, explains
Stanislav Tsyrlin, Boston Consulting Group's expert on
beer, "was that cheap Soviet beer was replaced by beer
that was relatively expensive. Vodka is cheaper to
produce than beer. As prices shot up, real incomes fell,
and a 40 percent excise tax was added to beer in 1992.
So the Russian drinker switched. In terms of price he
had been able to buy five or six liters of beer to one
liter of vodka before 1991. This dropped by 1995 to
three liters of beer to one liter of vodka. Uncontrolled
imports of pure spirit made it much cheaper to get drunk
on vodka." Data gathered by the Boston Consulting Group
for domestic and foreign brewers looking for ways into
the Russian market show that beer consumption has begun
to climb back towards the 35-40 liters per capita that
was the average during the 1980s. This is well short of
Germany, where drinkers average 138 liters of beer per
annum, or Denmark with 120 liters. If European
consumption is close to peak, or falling, brewers must
look to Russia to fill the biggest unsatisfied thirst
for beer still left in Europe.
The strategy of
the international brewers such as SAB has been to
capture the biggest share of the Russian market as it
grows by cutting costs, lowering prices, and spending
heavily on advertising. This is good for consumers, but
bad news for domestic breweries. From around 300 in
1991, their numbers have slipped to less than half.
Other foreign investors competing with BBH
include the Sun Brewing Group, controlled by Indian and
British interests; Carlsberg of Denmark; and Turkey's
Efes, which has built a brand-new brewery in Moscow at a
cost of $150 million. The cost-cutting strategy is also
leading the foreign brewers to contracting for their own
supplies of barley, grown in Russia.
SAB
believes that part of its larger market share will come
from the acceleration of Russian consumption. Part, too,
will come from regional breweries losing sales as they
face steadily rising costs in competing with the
nationally-advertised beer brands.
(©2002 Asia
Times Online Co, Ltd. All rights reserved. Please
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