Beyond the Fortress Line – Kommersant

The trend towards outstripping growth in sales of non-alcoholic beer in Russia has reversed: over the past 12 months, the decline in physical terms amounted to 3%, and growth in money terms — only 3.3%, with a 13% increase in both indicators following the results of the previous period. Experts attribute this to a reduction in the range of foreign brands and a decrease in the activity of some transnational companies. Local brewers cannot fully develop the non-alcoholic segment, as it requires expensive equipment, which is profitable only for large volumes.

Non-alcoholic beer, which used to be the leader in terms of cash sales growth in the beer market, has fallen to last place in this indicator, according to a NielsenIQ study. According to analysts, from April 2022 to April 2023, sales of such drinks grew by 3.3% in money terms, and decreased by 3% year-on-year in physical terms. A year earlier, category sales increased by 13.3% and 13%, respectively.

The trend change in NielsenIQ is associated with the departure of foreign brands that occupied a significant share of non-alcoholic beer sales and acted as growth drivers for the category. Some large local players in the non-alcoholic segment show outpacing growth rates, but it will take time to replace the niche and restore momentum, analysts say.

Imports of beer to Russia declined after the outbreak of hostilities in Ukraine and the tightening of Western sanctions. According to market participants, companies from the UK, the USA and Canada stopped deliveries, some enterprises from the Czech Republic, Germany and Belgium continued to ship. Distributor SWAM Group estimated a decline in beer imports to Russia in 2022 in the amount of 30-35% year-on-year. Igor Khavsky, co-owner of SWAM Group and Gletcher brewery, clarifies that a significant part – about 10% – of sales of non-alcoholic beer in Russia came from the German brand Clausthaler, the supply of which has now been stopped.

Alexey Aksel, CEO of Volkovskaya Brewery, recalls that the demand for non-alcoholic beer grew sharply during the COVID-19 pandemic due to the rapid development of online commerce, and with its end, the trend could decline. In addition, the decline in sales of non-alcoholic beer may be due to a general deterioration in consumer sentiment, he adds. Infoline estimated online sales of food and beverages in the first quarter of 2023 at up to 182 billion rubles, which is less than the level of the fourth quarter of 2022.

Independent expert Alexei Nebolsin points out that the category of non-alcoholic beer in Russia is dominated by transnational companies, some of which have reduced their activity in the country. Carlsberg Group (manages Baltika) and Heineken plan to sell the local business. Carlsberg also announced a halt to investment and advertising.

Baltika and Heineken United Breweries did not provide any comments. AB InBev Efes sees a decline in sales of non-alcoholic beer in Russia in the first quarter of 2023 by 1.8% year-on-year, says Acting President of the company Oraz Durdyev. At AB InBev Efes itself, he continues, sales of non-alcoholic beer over this period grew by 4.3% in volume, while Hoegaarden and Velkopopovicky Kozel showed the best results.

The development of Russian brewers, even large ones, in the non-alcoholic segment is hindered, among other things, by the need for significant investments, Mr. Nebolsin notes. As Igor Khavsky explains, non-alcoholic beer with a taste similar to the original is produced by removing alcohol from regular beer, and this requires expensive equipment. Mr. Axel adds that consumers of non-alcoholic beer usually prefer the drink in cans of 0.33 l and 0.25 l, and in Russia, small formats are usually sold worse in retail, and therefore are less interesting for local brewers. For AB InBev Efes, says Oraz Durdyev, the non-alcoholic segment remains one of the key segments, therefore, at the beginning of this year, the company launched Hoegaarden with a new taste in the segment.

According to NielsenIQ estimates, the share of non-alcoholic beer in monetary terms over the specified period in the Russian market decreased from 2.6% to 2.4% in favor of the strong segment, whose share increased from 11.1% to 11.8%. Strong beer also became the leader in terms of sales growth in terms of money and volume. Year-on-year indicators increased by 17.65% and 1.6%, respectively. Market participants explained the growth in sales of strong beer by the expansion of the range of drinks with unusual tastes and the desire of some consumers to buy a smaller volume of a higher strength (see Kommersant dated November 22, 2022).

Anatoly Kostyrev