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4/2004 Đîńńčéńęčé č óęđŕčíńęčé đűíęč ďčâŕ. - Ukrainian beer market

Contents
Total information
Export-Import
Information about main producers
    SUN Interbrew Ukraine
    “Obolon” CSC
    BBH Ukraine
    •  “Slavutich” Beer and Soft Drinks Plant”
    •  “Lvov Brewery” JSC
    •  Kiev brewery “Slavutich”
    Donetsk beer group “Sarmat”
    •  “Sarmat” CSC
    •  The rest enterprises of Donetsk beer group
Conclusion

Total information

In the Ukrainian beer market four companies can be clearly defined as leaders. Two companies are foreign-owned:
SUN Interbrew Ukraine – a proprietor of three big plants “Desna” CSC (Chernigov), “Rogan” JSC (Kharkov) and “Yantar” (Nikolaev) JSC,
Ukrainian group of Baltic Beverages Holding including “Slavutich” Beer and Soft Drinks Plant” JSC (Zaporozhye), “Lvov Brewery” JSC and the Kiev plant “Slavutich”.

Two companies are domestic owned:
“Obolon” CSC (Kiev),
So-called Donetsk beer group “Sarmat” consists of a leading brewery “Sarmat” CSC, “Crimea” Beer and Soft Drinks Plant”, “Dnepr” Beer and Soft Drinks Plant” (Dnepropetrovsk), “Firm Poltavpivo” JSC and “Kiev brewery #1” JSC.
All in all leaders produce more than 90% of Ukrainian beer. Quality of their production is approximately at the same level and differences are in the standard of technical equipment, volume of investments and marketing technologies.


According to the information of State Statistics Committee in Ukraine it was numbered 65 breweries in 2003. 42 enterprises of them are included into Ukrpivo JSC which produces about 70% of all Ukrainian beer. Under the data of Ukrpivo total beer production of enterprises affiliated with Ukrpivo and “Obolon” CSC (which is not a member of Ukrpivo) comes to 95% of all beer produced in Ukraine.

For the last four years annual growth rate of production of Ukrainian brewers decreased in percentage wise from 28% in 2000 to 11.1% in 2003 while production grew in absolute expression and according to Ukrpivo association in 2003 16.645 million hectoliters were produced in comparison with 10.74 million hectoliters in 2000. Beer producers connect decrease of growth rates in 2003 with adverse weather conditions of the summer period.

Under forecasts of analysts towards the end of 2004 beer production will manage to grow up to 17.8 million hectoliters that will make the growth approximately 7% relative to the volume of last year production. Ukrpivo predicts that production volume in 2004 will increase up to 19 million hectoliters (the growth will come to 14.1%). According to the data of Ukrpivo for 8 months of this year in Ukraine 13.63 million hectoliters of beer were produced, the growth amounted to 10.2% as contrasted to January – August, 2003. Enterprises of SUN Interbrew Ukraine increased beer production by 15.8%, “Obolon” JSC – by 15.8%, BBH Ukraine – by 25.7%. Enterprises of Donetsk beer group “Sarmat” kept production at the level of the same period of 2003.

The most successful local producers pursue a skilful price and quality policy that allows them to compete (predominantly in regions) with big companies. Among local beer plants one can notice “Efes - Ukraine” (Odessa), "Radomishl" Beer and Soft Drinks Plant”, “Beer Plant on Podol” (Kiev), “Berdichev Brewery”, “Izum Brewery”, “Khmelnitskiy brewery”. Besides, there are “Zaporozhye Brewery #1”, "Umanpivo", the Mikulinec brewery “Brovar”, “Lispi” company (the Lisichansk brewery), “Gambrinus” (Odessa), “Rovno Brewery”. As a rule average volumes of their production are about 0.04 million hectoliters of beer per year.

In the opinion of majority of analysts despite of the constant growth of beer production volumes the Ukrainian market is still far from of satiety. In their estimations its potential capacity still exceeds actual one that creates conditions for expansion of leading companies. By aggregate results of 2003 the capacity of the Ukrainian beer market amounted to 16 million hectoliters, in 2004 it is predicted increasing up to 17 million hectoliters.

During the last 6-7 years the continuous growth of beer consumption was observed. In 2002 consumption per capita made 28.8 l, and in 2003 this rate increased up to 31 l. It is expected that by 2007-2008 beer consumption in Ukraine will increase up to 45-48 liters per capita. Domestic brewers first of all explain the growth of sales as a per capita income increase owing to this the share of alcohol drinks market reduces and the share of low alcohol market increases.


The growth of consumption traditionally falls to the summer period and exceeds the level of consumption in winter time twice in contrast to Europe where sales distribution is more uniform. As dynamics of production for 2003-2004 shows beer producers began more active preparation for the summer season in spring increasing production volumes. It is interesting to note that the growth of beer production and sales was observed in December of the last year in comparison with the same month of 2002. It can be referred to correct advertising strategy at that period that in its turn effects on a displacement of an accent away from vodka to beer.


In 2004 the Ukrainian beer market is characterized by plenty of trade marks among which the most consumed ones are light grades of beer. Big success was gained by original grades of beer such as unfiltered and red ones. Ukrainian producers try to balance lines of brands offered by them creating new recipes of beer in various price segments. Thus in 2003 the company BBH Ukraine launched the new brand "Arsenal" in the mainstream segment, “Obolon” CSC offered the premium-brand "Hike" this summer, Sarmat group expanded its range of production of low-price beer by the brand “Dnepr”.

The mainstream segment brings main profit to beer producers but the premium segment is more dynamic. Sorts of beer in the superpremium segment are not in great demand in Ukraine that is one of reasons of insignificant volume of import to Ukraine. The most popular brands in Ukraine are "Obolon" (the Ukrainian beer market share made 21.4 % for January-July, 2004), "Chernigivske" of SUN Interbrew Ukraine (19.4%), "Slavutich" of BBH Ukraine (11.1%), "Rogan" of SUN Interbrew Ukraine (10.6%), "Sarmat" (8.6%), "Lvivske" of BBH Ukraine (5.4%), "Arsenal" of BBH Ukraine (4.7%).

Main volume of beer consumption by types of packaging falls at beer in glass bottle which share in 2003 made 58% of total sales volume. The share of beer in PET-packing continues to increase and the share of beer in bottle reduces accordingly. This year the increase of volumes of this segment took place mostly due to the growth of sales of PET with small capacity (1 litre) basically "Obolon" and "Chernigivske" (SUN Interbrew Ukraine). It is predicted that the segment of PET-packing will develop further and within the next few years its growth will come to 5%.

Last year sales of canned beer which Ukrainians drink much less than in Russia were reduced from 2% up to 1,5%. Last year in Russia due to active promotion the share of canned beer amounted to 12% of total sales.

Irrespective of popularity of various types of packaging in Ukraine the share of KEG beer market is kept at a level of 15%. It is expected that within the next few years this segment will keep the same level that is connected to specificity of beer consumption culture in this country.

Structure of beer sales by packing types 2001-2004

EXPORT - IMPORT

Traditionally the share of beer export from Ukraine always exceeded the share of import. From January till July, 2004 export of beer amounted to 1,269 million hectoliters and increased by 34.3% in comparison with the corresponding period of 2003 when 0.945 million hectoliters were exported. In 2003 volumes of beer export increased by 47.2% up to 1.59 million hectoliters as contrasted to 2002. Basic countries where Ukrainian beer is delivered are Russia, Moldova, Belarus, Estonia, Latvia. Volumes of beer export to Russia which is a basic importer of Ukraine are enlarged. Last year 1.35 million hectoliters of beer were exported from Ukraine to Russia.

The largest exporter of Ukrainian beer is the Kiev brewery "Obolon". In 2003 1.249 million hectoliters or 78.1% of total exported Ukrainian beer (1.598 million hectoliters) were a very ŇĚ "Obolon". In 2003 beer of this Kiev brewery amounted to 60% of all imported beer to Russia. For 7 months of 2004 the enterprise exported 1 million hectoliters of beer that was 31.5% more than for the same period of the last year.

In its turn import of beer increases too but by virtue of the fact that according to State Statistics Committee it only comes to 1.7% of total beer consumption for the first half-year of 2004 it exerts no strong influence on the national beer market.

Last year 0.316 million hectoliters of beer were imported to Ukraine that was 125.4% more than in 2002. Within 7 months of 2004 0.162 million hectoliters were imported into Ukraine that was 6.1 % more in comparison to the same period of 2003 when 0.115 million hectoliters were imported. The increase of import volumes is caused by the growth of the domestic market and also by the reduction of the share of illegal import which is not included in official statistics. Main importers of beer to Ukraine are Russia, Belgium, Germany, Holland, Czechia, Netherlands, the USA, Moldova.

More than 90% of imported production falls to Russian beer. In 2003 0.279 million hectoliters of beer were delivered from Russia to Ukraine. Within 6 months of 2004 the import share of Russian beer amounted to 96.6% in money terms. "Baltika Brewing Company" promotes its production in the Ukrainian market most actively. In total amount of import its production exceeds 50%. In the current year the "Baltika" company plans to multiply deliveries of beer to Ukraine by 2-2.5 in comparison with 2003 particularly due to launched the brand Carlsberg in the Ukrainian market in spring.
There is a probability that in the future the brand "Baltika" will be produced on enterprises of ÂÂÍ Ukraine. In that case it is possible to expect the decrease in rates of the import growth due to the reduction of the share of beer imported from Russia.

Information about main producers

SUN Interbrew Ukraine

The company SUN Interbrew Ukraine keeps its position as a leader among other Ukrainian brewing companies. On results of 7 months of 2004 its share of the domestic market of beer amounts to 34.3%.
SUN Interbrew Ukraine consolidates three large breweries: “Rogan Brewery” JSC (Kharkov), “Chernigov Brewery “Desna” CSC and “Nikolaev Brewery “Yantar” JSC. Its brands portfolio consists of two transnational brands “Stella Artois” and “Beck’s” and several national brands: “Chernigivske”, “Rogan”, “Yantar”, and “Taller”.

From January to June, 2004 SUN Interbrew Ukraine increased beer production at its three plants by 14.8% up to 29.4 thousand hectoliters in comparison with January-June of the last year. In total the company produced 5,49 million hectoliters of beer in 2003 that was 23.4% or 1.04 million hectoliters more than in 2002. According to the information of the company in 2003 its market share grew from 32.2% up to 34.3% in comparison with 2002. In 2003 the growth of all enterprises of SUN Interbrew Ukraine (“Rogan”, “Yantar” and "Desna") was approximately equal to 26-33%.

In the first half year of 2004 the sales volume of SUN Interbrew Ukraine increased by 11.4% up to 2.87 million hectoliters of beer in comparison with 2.57 million hectoliters sold in the first half year of 2003.

SUN Interbrew Ukraine continues to increase production capacities. So at the end of May, 2004 at the brewery "Desna" (Chernigov) a new line with the capacity of 48 thousand bottles of beer (0,5 l) per hour was set into operation.

“Obolon” CSC

The brewery "Obolon" was founded in 1980. In 1992 the enterprise was privatized and transformed into CSC. Asset of "Obolon" is completely formed by national capital. "Obolon" possesses control stocks of the Sevastopol Beer and Soft Drinks Plant, "Bershad Brewery" CSC, "Fastov Brewery", and “Ahtirka Brewery”.

On results of 7 months of this year the market share of "Obolon" amounts to 21.4 %.
The major task of the company is to keep the market share and to increase export volumes. During last three years "Obolon" have been considering plans of creation of the transnational company "Obolon" and purchase of breweries in Germany and Russia (the largest importers of beer "Obolon") is possible in the near future.

"Obolon" is a leader by volumes of gross revenue among enterprises of the brewing industry worked in the Ukrainian market.
For 7 months of 2004 "Obolon" CSC produced 3.22 million hectoliters of beer that was 17% more than for the same period of the last year. In 2003 "Obolon" CSC produced 4.44 million hectoliters of beer that was 14.2% or 0.55 million hectoliters more than in 2002.


Within the last years "Obolon" had invested $50 million in a modernization of production. This summer a new mash tun of the German company Ziemann with the capacity of 12 thousand hectoliters of beer (for one brewing) was started to work at the main plant in Kiev. Moreover a new bottling line was set in operation at the plant. The unique German line with the productivity of 110 thousand bottles per hour has no analogues in Ukraine. With starting of new capacities potential production volume of the enterprise increased up to 7 million hectoliters per year.

"Obolon" CSC is the largest exporter of beer from Ukraine. Export providing 25% of sales volumes is a strategic line of development for "Obolon". The company started export deliveries since 1989. On one hand export activity allowed to open new markets on the other hand to receive profit and due to this the enterprise upgraded production equipment and improved quality of production. In 2003 1.249 million hectoliters (78.1%) of 1.598 million hectoliters of Ukrainian exported beer were exported by "Obolon". For the first half-year of 2004 the enterprise exported 0.85 million hectoliters of beer that was 32.9% more than for the same period of the last year. Export grew owing to the growth of sales in those countries where the company has already worked earlier. Now "Obolon" exports beer to 17 countries including Great Britain, USA, Germany, Poland, Czechia, Portugal, Spain, South Korea, Africa. Beer produced by "Obolon" CSC has a big success in Russia, Baltic States, Moldova, Belarus.

BBH Ukraine

BBH group in Ukraine consists of “Beer and Soft Drinks Plant "Slavutich" JSC in Zaporozhye (share holding comes to 85%), "Lvov brewery" JSC (99.18%) and the Kiev brewery "Slavutich" (started in summer, 2004).
Besides till recently BBH was an owner of Slavuta Malthouse. Under the totals of 7 months of 2004 the market share of ÂÂÍ in Ukraine amounts to 21.6%.
For 7 month of 2004 BBH Ukraine sold 2.286 millions hectolitres of beer (the growth was 21% in comparison with last year). In 2003 ÂÂÍ increased beer sales in Ukraine by 3.095 million hectoliters, the growth made 11% in comparison with 2002.


The main brands of ÂÂÍ in Ukraine are "Slavutich", "Lvivske", "Arsenal", "Tuborg".
For today ÂÂÍ Ukraine delivers beer to Russia, the USA, Canada, Israel, Moldova, Belarus, Estonia, Spain, Germany, Great Britain, Portugal.

A marketing strategy of ÂÂÍ in Ukraine is a running increase of beer production volumes. Plans of the company include penetration of 30% share of the Ukrainian beer market. After starting of the Kiev brewery "Slavutich" which was in June, 2004 the company is going to provide more aggressive market policy. This year the additional productive capacity of the new brewery will allow BBH Ukraine to increase its share of the Ukrainian beer market at least to 23%.

Beer and Soft Drinks Plant "Slavutich"

"Slavutich" was founded on the basis of “Zaporozhye Brewery #2” in 1974. In 1976 “Zaporozhye Brewery #1”, the Molochansk and Melitopol brewers became parts of "Slavutich". In 1993 the enterprise was reorganized to a stock company. Investors spent over $52 million in development of "Slavutich" that allowed to modernize the plant equipment up to the European level.
Under the totals of 2003 "Slavutich" took the second place in Ukraine among the largest Ukrainian beer producers.
Within the first quarter of 2004 "Slavutich" sold 0.451 million hectolitres that was 29% more in comparison with the same period of the last year. In 2003 "Slavutich" produced 1.95 million hectolitres of beer that was 1.4 % or 0,026 million hectolitres more as contrasted to 2002.
At the present time the range of beer offered by "Slavutich" includes beer of trade marks "Slavutich", "Arsenal", "Tuborg", "Hmelnoe".

“Lvov Brewery” JSC

“Lvov Brewery” was founded in 1715 and it is considered as the first industrial brewery in Ukraine. In 1999 the enterprise was included in Baltic Beverages Holding group in Ukraine. Now volumes of investments in “Lvov Brewery” make more than $30 million. The enterprise is included into the top seven beer producers in Ukraine and its market share reaches 7%. “Lvov Brewery” is a leader of the brewing industry of Western Ukraine where its share amounts to 39% and in the Lvov area - to 75%.
For 7 month of 2004 “Lvov Brewery” sold 0.659 millions hectolitres of beer (the decrease came to 2% in comparison with the last year).

In 2003 “Lvov Brewery” realized an active modernization of production and now a considerable raise of the beer production rate is not planned. In 2003 “Lvov Brewery” produced 1.085 million hectolitres of beer that was 24.5% or 0.213 million hectolitres more than in 2002.
“Lvov Brewery” produces 8 sorts of beer of TM "Lvivske".

Kiev brewery "Slavutich"

The Kiev brewery "Slavutich" was opened at the beginning of this summer. The capacity of the Kiev brewery amounts to 1.2 million hectoliters per year. There are 21 cylinder-conic tanks with volume of 3 thousand hectoliters and four filling lines at the new plant. Sum total of investments spent on the construction amounts to about $60 million. Such brands of beer as "Slavutich", "Arsenal" and "Lvivske" are produced at the plant.

Donetsk beer group "Sarmat"

The Donetsk beer group "Sarmat" is the fourth company by production volumes and now it owns control stocks of five breweries forming "Sarmat" group: leading “Donetsk Brewery “Sarmat” CSC, “Lugansk Brewery” JSC (share holding amounts to 90.6%), “Crimea” Beer and Soft Drinks Plant” JSC (93.98%), “Dnepr” Beer and Soft Drinks Plant” JSC (99.9%), “Firm Poltavpivo” JSC (90.5 %), “Kiev Brewery #1” JSC (77.26%). “Donetsk Brewery "Sarmat" JSC and less powerful breweries in Dnepropetrovsk, Poltava and Lugansk belong to the company "Interproduct". Six enterprises are members of the group but only two of them the Donetsk "Sarmat" and the Simferopol "Crimea" have capacities which allow to cover with their production all regions of Ukraine. The rest ones provide with own beer only local areas.

In the first quarter of this year the Donetsk beer group "Sarmat" increased beer production by 13% up to 380.84 thousand hectoliters as contrasted to the same period when 337.09 thousand hectoliters were produced. In 2003 group "Sarmat" produced 2.55 million hectolitres of beer that was 16.8% more in comparison with the last year.


"Sarmat" company is going to build near Kiev by 2007-2008 and to set in operation a malthouse with the capacity more than 80 thousand tons of production per year to provide all enterprises of "Sarmat" group with own malt and become independent from malt suppliers. At the present time the production power of "Sarmat" JSC allows to produce 13.8 thousand tons of malt per year, particularly malthouses of "Dnepr" Beer and Soft Drinks Plant” JSC produce 12 thousand tons per year, malthouses of "Firm “Poltavpivo" CSC produce 1,5 thousand tons. These volumes are not already enough for "Sarmat" group.

“Sarmat” JSC

"Sarmat" CSC was created on the basis of the Donetsk brewery which was founded in 1951. The trade mark "Sarmat" appeared in 1998. In 2003 "Sarmat" JSC increased sales by 16.8% up to 1.53 million hectoliters that was 0.22 million hectoliters more than the last year index. In the first quarter of this year "Sarmat" increased beer sales by 15% or 34.5 thousand hectoliters up to 263.69 thousand hectoliters in comparison with the first quarter of the last year. "Sarmat" JSC produces the brand "Sarmat", the range of which includes 16 types of beer.

The rest enterprises of Donetsk beer group

In the first quarter of this year “Crimea” Beer and Soft Drinks Plant” JSC increased beer sales by 4% or 1.89 thousand hectoliters up to 51.32 thousand hectoliters in comparison with January-March of the last year. In 2003 “Crimea” increased beer production by 7.4% (up to 0.445 million hectoliters), beer sales – by 8% up to 4.4 million hectoliters in comparison with results of 2002.

For the first quarter of 2004 "Firm Poltavpivo" CSC increased production volume up to 25.2 thousand hectoliters that was 8.2% more than in the same period of 2003. In 2003 the brewery increased beer production by 26.3% or 44.4 thousand hectoliters in comparison with 2002 up to 213.4 thousand hectoliters.
"Lugansk Brewery" JSC in January – February, 2004 increased beer production volume by 13.1% up to 10.6 thousand hectoliters as contrasted to January-February of the last year. Last year “Lugansk Brewery” increased beer production volume by 29.6% up to 0.137 million hectoliters.
Last year “Dnepr” Beer and Soft Drinks Plant” JSC produced 0.191 million hectoliters of beer that was 31% more than in 2002.

Conclusion


The beer market in Ukraine in 2004 is characterized by the further expansion of production and strengthening of positions of the largest companies: "SUN Interbrew Ukraine", "Obolon" CSC and ÂÂÍ Ukraine

There is a tendency of leveling of production quality for all beer producers in the Ukrainian market. The structure of the market is characterized by abundance of sorts that does not leave a place for large volumes of import. Volumes of export (mainly to Russia) extend. At the same time the Ukrainian market has not reached its potential capacity that creates conditions for expansion of production of the leading companies. Now there is a favorable atmosphere for attraction of western investments in the Ukrainian beer market.

For today a level of the per capita consumption of beer in Ukraine amounts to 31-33 l and many experts are sure that the internal market of Ukraine will grow and develop while this index does not reach 50 l as an average rate of the per capita consumption of beer in Russia.