Sun, Jul 01, 2007 page12

• Big brewers look east as Europeans turn to wine and spirits

  • By Julia Kollewe / THE GUARDIAN
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  In Russia, beer is regarded as a soft drink and China is now the world's largest market for it. Brewing executives are looking further afield as the smoking ban comes into force in pubs and clubs in England this weekend. Beer consumption is already in decline in most of western Europe and the US as drinkers turn to wine and spirits.

  But business in emerging markets is booming -- with Russians, Chinese and Indians among those thirsty for western-style beer. Scottish & Newcastle, the UK's biggest brewer, has already gone east. It formed a joint venture with the Danish brewing giant Carlsberg in Russia called BBH and its brew, Baltika, is the market leader in Russia and inching closer to the declared goal of knocking Heineken off its pedestal as the number one beer in Europe. Just five years on, the St Petersburg-based brewer now accounts for 40 percent of Carlsberg's profits and nearly 30 percent at S&N.

  The change is indicative of the shifts under way in the US$450 billion global beer industry. SABMiller's Chinese beer Snow has just become the company's biggest brand, ahead of Miller Lite which is brewed in the US. Thanks to Snow, SABMiller, the world's second-largest brewer, now brews most of the beer made in China, moving ahead of the previous market leader Tsingtao -- in which SABMiller's US rival Anheuser-Busch, the world's number three, holds a large stake. Analysts expect Snow to shoot into the world's top four beer brands behind Budweiser, Brazil's Skol and Mexico's Corona.

  Smoking bans are likely to accelerate the shift already under way. S&N estimates that the ban in England that begins today will hit beer sales in pubs and bars by 5 percent.

  Smoking bans in Ireland and Scotland have knocked beer sales by up to 7 percent, and England will not fare any better, reckons Mark Hastings at the Beer and Pub Association.

  Market researchers predict that more than a third of the global beer consumption will move to Russia and China. Thanks to its vast population, China is now the world's largest beer market by volume after overtaking the US in 2002, according to Euromonitor data. Russia leapfrogged Germany last year with 10 percent market growth that took it into fourth place worldwide, just behind Brazil. The UK, in turn, was overtaken by Mexico which jumped into seventh place.

  In Russia, beer is regarded as a soft drink and is sold at street kiosks that do not require a license.

  "People will drink a beer on the metro on the way to work," Nigel Fairbrass at SABMiller said.

  Beer was only lightly regulated in Russia until recently. Its growing popularity was seen as aiding government efforts in weaning Russians off vodka. Now, however, there are restrictions on advertising, and drinking in public places is about to be banned.

  "The concept -- youth, party and music -- works well in Russia," said Jorgen Buhl Rasmussen, Carlsberg's executive vice president.

  "Russia has a long way to go before it's like a western European market," he said.

  Russians drink, on average, about 70 liters each a year. They are vastly outdrunk by the Czechs, who guzzle 160 liters a head; the Irish with 124 liters and the Germans with 110 liters.

  Even Britain is now benefiting from the East European thirst for beer. The influx of Polish workers to Britain since the country's admission to the EU in 2004 has sparked a boom in sales of Polish beer, Tyskie and Lech, which are brewed by SABMiller's Polish subsidiary.

  Others are trying to breathe life into Britain's market. Heineken has just launched its first TV campaign in the UK in over two years. Almost 35 years after the slogan "Heineken refreshes the parts other beers cannot reach," the new ad features a woman "inappropriately" using a lobster in a bath.

  There has been a spate of brewery closures in Britain and family-owned brewers have either closed or been sold to bigger players such as Greene King.

  The Chinese beer market is booming along with the economy. As in Russia and India, there has been a big shift from spirits to beer and all the big brewers are battling it out. Carlsberg wants to make Asia its second growth region after Europe and Russia.

  But Anne Nugent, global alcoholic drinks manager at Euromonitor, noted that distribution to China's far-flung regions remains a problem. She said it is going to take some time before Chinese per capita consumption catches up with western countries.

  In Russia, consumption per head jumped to 69 liters last year from 18 in 1997 while China only moved from 14 to 24 liters in the same period, she said.

  In India, people drink less than 1 liter of beer a head a year, so the potential for growth is huge. However, foreign investors face problems such as electricity shortages and delays in transporting products, as well as differences in drinking laws and taxation between states.
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