InBev invests in rising Russian beer market

Related tags Investment

Two of Europe's top brewers have continued their investments in the
international brewing sector. But while Heineken continues to
invest in some of the world's less established beer markets, InBev
has strengthened its position in one of the rising stars, Russia.
Chris Jones reports.

Heineken announced at the end of last year that it was to take a 40 per cent stake in a new beverage company in partnership with the Israeli brewer Tempo Beer Industries (TBI), in which the Dutch brewer already has a 17.8 per cent stake.

The European beer maker said that it would transfer its stake in TBI to the new company, as well as stumping up a further €11 million for the venture. TBI, meanwhile, will transfer all its beer, soft drink, fruit juice and water activities to the new company, and will own the remaining 60 per cent of the shares.

The agreement also covers a licence for the local production and marketing of the Heineken brand by the new company.

The investment fits well with Heineken's strategy of combining its international premium brand Heineken with strong local brands, a strategy which has seen it take a somewhat different route to many of its rivals over the last few years.

For example, while Interbrew was investing in the well-established Brazilian market through its merger with AmBev, Heineken's move into Latin America has focused on countries such as Panama, Costa Rica and Nicaragua, smaller markets but ones with significant potential for premium brands such as Heineken.

The joint venture with Tempo continues Heineken's rollout in the Middle East - traditionally a market ignored by most brewers because of Islam's strict laws on alcohol consumption. In addition to Israel, Heineken now owns or has invested in breweries in Egypt and Lebanon.

In Latin America and in the Middle East, Heineken's strategy has also differed from that of many of its main rivals in that it has retained the soft drink operations of companies it has acquired there. Al Ahram Beverages in Egypt, for example, is the country's only brewer but in fact produces more soft drinks that beer.

The Tempo deal also includes the soft drink business, although there is clearly more opportunity for growth in the beer industry as well, with Heineken's own brand garnering around 9 per cent of the market in a little over a decade. Local production -rather than relying on imports - should help speed up the pace of growth for the Heineken brand, as well as other imported brands such as Wieckse Witte, Affligem and Murphy.

Tempo accounts for 50 per cent share of the Israeli market - led by its brands Goldstar and Maccabi - which last year accounted for 1 million hectolitres.

InBev strengthening Russian position

InBev's latest acquisition strengthens its position in an altogether different market. Russian beer sales are nearly 8 million hectolitres a year, and while growth is expected to slow in coming years as the regulators clamp down on advertising amid health fears, rivalry between the major players remains intense.

The Belgian brewer was one of the first foreign investors in the Russian beer sector with its acquisition of a stake in Moscow's Sun brewery in 1999, but has increasingly found itself playing second fiddle in recent years to Baltika, the St Petersburg-based group jointly owned by Carlsberg and Scottish & Newcastle.

This has been particularly true at the premium end of the market, where Baltika accounts for nearly 60 per cent of sales, dwarfing the 2 per cent held by InBev's Stella Artois brand.

InBev has been keen to gain tighter control over Sun for in order to take full advantage of the growth rates in Russia and neighbouring Ukraine, where Sun Interbrew is the market leader. This desire was given added urgency last summer by the acquisition of an 18 per cent stake in the brewer by the Alfa-Eco investment company. In August last year, InBev acquired a smaller stake in the brewer held by Sun Trade and has now taken its holding in the company to 98.5 per cent after agreeing to acquire Alfa-Eco's shares.

Taking full control of Sun Interbrew is seen as vital for the Belgian company if it is to fully realise the potential of local markets, in particular Ukraine. The company's growth there last year was more than three times that of the beer market as a whole, and a new brewery acquisition in the summer took the company's total in Ukraine to three.

Russian business has been adversely affected by exchange rate movements over the last year, but the market still has potential, as indicated by the decision to roll out another of InBev's international brands, Staropramen last year.

Related topics Market trends

Related news

Follow us

Products

View more

Webinars