Battling brewers lured by Eastern riches

- Last updated on GMT

Related tags: Cent, Russia, Eastern europe, Europe

Eastern Europe continues to offer an immediate solution for the
world's major brewers in the face of declining western markets, as
SABMiller cautiously buys up Slovakian brewer Topvar, writes
Chris Mercer.

SAB said it had signed a deal to buy Topvar, located in the western city of Topo¾èany, in three stages for €12m ($15.2m).

The global brewing giant will first make an offer to minor shareholders, who have a 40.5 per cent stake in Topvar. Then, depending on the level of success, controlling shareholders will hand SAB up to a 49 per cent initial share.

The controlling shareholders would then sell more shares to SAB six months later, yet SAB would have 18 months to exercise its right to buy additional shares to gain around a 95 per cent stake in the firm.

The move, albeit drawn out, is another example of how important Eastern Europe has become for many of the world's top brewers, for better or worse.

SAB, for example, struggled to make progress in Slovakia during 2004. A 13 per cent dip in the domestic beer market sent SAB's volumes down eight per cent in the first half and the firm recently said in a trading statement that it had relied on strong performances in Russia and Romania to offset weaker business in Slovakia and Hungary.

But, the acquisition of Topvar would at least give SAB a strong local brand and an extra 569,000 hectolitres to improve volumes, and the brewer's good performance in neighbouring markets indicates a strong potential for beer across the whole region.

In truth, there are a number of brewers that have come to rely on Eastern Europe for growth as opportunities dry up in some of the more mature, western markets.

Both Carlsberg and Scottish and Newcastle recently praised their joint-venture firm, Baltic Beverage Holding (BBH), for bailing them out. BBH owns the leading Russian brewer, Baltika, and two weeks ago announced a 14 per cent sales rise to more than €134 million.

BBH has increased its share of the strongly emerging Russian market by four per cent over the last year, now holding a 36 per cent stake, and claims to having increased sales around five times faster than the country's beer market growth.

SAB too, has seen sales for its premium Genuine Miller Draft rocket in Russia over the last year, while Foster's, Molson Coors and Guinness are all in the process of being launched there.

Regularly repeated data cites Russia as the world's fifth largest beer market and the fastest growing in Europe since 1996. Yet consumption is still only half that of the UK and the country is not without risks - having imposed a ban on most televised beer adverts and drinking in public.

The problem is that core western markets have lost their momentum. Western European beer volumes declined five per cent in the first quarter of 2005, and Scottish & Newcastle said markets in France and Belgium were particularly weak, forcing a major restructuring of its business in the latter.

America has suffered too. Domestic beer sales rose by a mere 0.5 per cent during 2004, and market leader Anheuser Busch said beer sales to domestic wholesalers dropped 2.7 per cent to 24.4 million barrels during the first quarter of 2005, as margins came under pressure from rising raw materials costs.

Faced with such difficulties, the promise of a new goldmine in the East has gained momentum among brewers over the last year, causing a flurry of activity.

Russia, in particular, is now one of the most important emerging beer markets in the world. Some analysts believe the country, alongside China, will constitute half of the world beer market by 2010.

The intense competition developing on the Eastern European market, however, means brewers will have to watch market trends carefully, especially as growth in Russia is expected to slow to around 5.5 per cent in 2005.

Related topics: Market Trends

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