Beer Makers Hit by Slump in Sales

MTBeer production fell 6 percent in the first quarter, but hopes are high for a revival in the second and third quarters.��
The largest players on the Russian beer market, Baltika and Anheuser-Busch InBev, saw their domestic sales drop in the first quarter as consumption declined for the first time since 1996.

Russia and Eastern Europe are key growth markets for global brewing giants, who have been actively scooping up strong domestic brands in recent years.

Baltika, owned by Denmark's Carlsberg Group, said first-quarter sales by volume were down 5 percent year on year, the first fall since 2003.

Anheuser-Busch's first-quarter sales by volume in Russia fell by 9.3 percent compared with the same period last year, more than in any other country where drops were recorded in the company's earnings report.

The fall in sales was not quite as bad as expected, however, as customers stayed true to their brands despite a tough economic environment.

"We had more pessimistic forecasts for the quarter," said Natalya Kolupayeva, an analyst at KIT Finance

"Baltika increased its prices this year, but the consumer stuck with them, and volumes declined only slightly. This customer sensitivity is a good indicator for the rest of the year."

Despite the downturn in demand and dip in sales volumes, both companies' earnings were up. Baltika's first-quarter profit rose 18.5 percent year on year to 2.5 billion rubles ($77 million), the company said in a press release on Thursday. And Anheuser-Busch InBev saw its first-quarter profit jump 92 percent year on year to $716 million.

Baltika was able to offset a fall in demand because of an 11 percent price increase on its brews and savings on ingredients, Carlsberg said in its earnings report.

Russian beer production in the first quarter fell 6 percent year on year, according to data from the State Statistics Service, while Baltika put the contraction at about 7 percent.

"The current economic crisis undoubtedly affected the purchasing power dynamic of the population and the volume of production and consumption," the company said.

But the company's president, Anton Artemyev, said he expected the beer market to recover from the low first-quarter results by the end of the year.

"Regardless of the current 7 percent decline in the first quarter, we are sticking to our forecast that the market will decline by 2 percent for the year and basing this expectation on a slight acceleration in consumption," Artemyev said.

Baltika's market share rose 1.5 percent during the quarter to reach 40 percent of the Russian beer market, eating into that of Anheuser-Busch, whose market share fell to 16.8 percent in the first quarter from 19.1 percent in the same period last year.

In its earning report released Thursday, the company attributed the contraction in Russia to "weak industry volumes and a share loss in the value segment."

Kolupayeva from KIT Finance said the brewers are right to expect higher consumption and sales volumes in upcoming quarters.

"The first quarter is a weak indicator for the year because it is composed of winter nonholiday months, where demand for beer is low," Kolupayeva said by telephone on Thursday.

"The second and third quarters are peak consumption seasons, and sales will do better."