Turkey’s leading brewer Anadolu Efes announced on August 9 that it has reached a non-binding agreement with Anheuser Busch InBev SA/NV (AB InBev), the world's largest brewing group, for a 50:50 merger of Anadolu Efes' and AB InBev's Russia and Ukraine businesses.
Both the Russian and Ukrainian beer markets have experienced years of decline, but analysts do see signs that the latter market could be taking a turn for the better. In Russia, the main hope for some niche beer market expansion may rest with non/low alcohol beer. According to market intelligence provider Euromonitor International, the Russians consumed 7.68bn litres of beer in 2016, down from 10.3bn in 2011. The figures for the Ukrainians are 1.9bn litres in 2016 against 2.9bn in 2011.
AB InBev is the number two beer company in Russia, with a market share of 11.8% compared to the 31.8% of the number one, Carlsberg, Euromonitor’s figures show. Anadolu Group is number four with 8.5%. In Ukraine, Carlsberg leads with 28.6% with AB InBev slightly behind at 27.5%.
The merger announcement follows Belgium-headquartered AB InBev's acquisition of a 24% stake in Anadolu Efes as part of the former's combination with SABMiller, which completed in October 2016, the Turkish brewer added in a filing with the Istanbul stock exchange.
“This intended combination of the companies' operations in Russia and Ukraine would strengthen the competitive position of both Anadolu Efes' and AB InBev's brands in these markets, with the potential for further growth,” the filing added.
The name of the combined company would be AB InBev-Efes and both Anadolu Efes and AB InBev would have equal representation on the board of directors, with Tuncay Ozilhan, current chairman of the Anadolu Group and Anadolu Efes, serving as chairman.
It is expected that the transaction will be completed by the end of the first half of 2018. Until the completion of the transaction, both Anadolu Efes and AB InBev' businesses in Russia and Ukraine will remain separate and will continue business as usual.
The transaction is conditional on the completion of satisfactory due diligence and is subject to regulatory approvals in Russia and Ukraine.
Euromonitor International’s figures show that the Russian beer market is presently worth $7.9bn, down from $12.2bn in 2011, while the Ukrainian beer market is currently worth $1.87bn, down from $1.75bn in 2011.
For Russia, the market research firm added, the forecast is for beer sales to continue contracting at a compound annual growth rate (CAGR) of -2%, falling from 2016’s 7.68bn litres to 6.9bn litres in 2021. For Ukraine, the expectation is that, although there will be some further decline in annual sales volumes in years ahead, sales will overall expand at a CAGR of 2% and by 2021 will equal 2016’s 1.9bn litres.
Black market beer squeeze
Georgij Grebinskij, research manager at Euromonitor, said that the high level of illicit trade is one reason behind the longlasting negative beer market trend in Russia, along with the economic turmoil that started in 2014 and continues to negatively affect the Russian economy and consumer disposable incomes.
He added: “This by no means implies that this is the only reason for the drop in alcohol consumption - governmental bodies are indeed putting effort into fighting alcoholism in Russia. Over the years we saw such measures as a ban on advertising to a ban on sales in some particular outlets. For example with the ban on sales of beer in PET bottles larger than 1.5 litres.”
Healthy lifestyle trends have also been on the increase in Russia over recent years, putting a further dent in beer sales, observed Grebinskij. “Health bloggers, the constantly increasing number of sport clubs, and the overall perception of the importance of a healthy lifestyle had a negative effect on alcohol consumption.”
Looking at Ukraine, Grebinskij anticipated that “beer sales will see a better performance than in the last five years, when the recorded total volume CAGR was -10% and the value CAGR was -6% at constant 2016 prices.
He added: “The forecast period performance [to 2021] is expected to be better because in the review period the category was hit by drastic increases in excise taxes and a dramatic drop in purchasing power.”
* Anadolu Efes on August 8 reported that its net income increased by 2% y/y to TRY175mn (€42mn) in the second quarter. Its revenues moved up 21.6% y/y to stand at TRY3.76bn.
In the first half of the year, the brewer’s profit declined to TRY90mn from TRY232mn a year earlier. The company’s H1 revenues increased to TRY6.2bn from TRY5bn in the same period of 2016.