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. Last Updated: 07/27/2016

Flourishing Brewery's Cup Runneth Over

This is the second in a series of articles in The Moscow Times profiling business in the Volgograd region.





VOLGOGRAD, Southern Russia -- At the Povolzhye brewery, employees wear crisp green jackets, brew kettles are immaculate and a computer keeps constant track of inventory and sales.


To the casual viewer, this could be the Czech Republic or Germany. But this is outer Volzhsky, an industrial town on the Volga River, 800 kilometers south of Moscow.


In a region where most enterprises are standing still or delaying wages, Povolzhye is an anomaly of prosperity and competent management. It sells all the beer it can produce, reaps estimated annual profits of some $8 million and pays its workers three times the regional average wage.


It is also the latest addition to the growing empire of Sun Brewing, a company of Indian origin that plans to grab one-quarter of Russia's beer market.


"The opportunity for Sun to have this brewery is great," said Joe Strella, chief operating officer of Sun Brewing, which officially took its 75.3-percent stake this month.


Parent company Sun Group has held a controlling stake in Povolzhye since 1995 but has delayed folding it into Sun Brewing while awaiting permission from the Anti-Monopoly Committee.


Not all of Povolzhye's managers shared Strella's enthusiasm regarding the takeover.


"They bought [the shares] quietly from the workers," said one brewery source, who asked not to be named. "The fact itself is a little insulting."


Company director Pyotr Nekryti was philosophical about the change in ownership. "What? Do you need an agreement?" he asked. "That's the law of the market."


Nekryti, a 30-year veteran of the beer industry, has built an impressive track record in his 17 years at Povolzhye, constantly upgrading his plant and building strong brands.


"Nekryti is probably one of the best general directors in Russia," said Strella.


Capital improvements are constant. The company has an information-technology system that monitors production, inventory and sales to make sure the brewery produces what people buy. Employees all carry computerized identity cards that record their hours.


Over the summer, Nekryti upgraded the malting plant, boosting capacity 20 percent to 24,000 tons. The British company Briggs is now renovating the brew kettles, which should be ready by the spring along with new German filtration equipment and a caramel roaster for better dark beers.


Strella said that all the renovation will increase Povolzhye's capacity to 1 million hectoliters, putting it on a par with Baltika's facility in St. Petersburg. Povolzhye has financed nearly all the work itself: Sun has so far invested only about $1 million.


"We're looking at investment programs totalling about $90 million over four years over six breweries," said Strella. "That is a combination of putting profits back into the breweries plus our injection."


Aside from what will be a 40 percent addition to Sun's present 2.4 million hectoliter brewing capacity, the Povolzhye acquisition brings a slew of benefits. "Certainly it will contribute more than just the capacity would indicate," said Jim Nail, head of research at Morgan Grenfell in Moscow.


Few breweries have their own malting plants, and Povolzhye only needs about half the malt it can produce, according to Nail.


"If you buy barley, it costs you about 3.3 cents in raw materials per liter of beer," he said. "If you just buy the malt it comes to about 9.6 cents per liter."


Most importantly, Povolzhye gives Sun a strong position in one of Russia's most beer-loving markets.


"It's located in a region of 45 to 50 days of additional good beer-drinking weather each year," said Strella. "It's strategically positioned to sell beer not only in its own region but to sell in Rostov-on-Don, which is a dynamic region."


Beer consumption in the cities of Volgograd and Rostov-on-Don, he said, is about 30 liters per capita, significantly higher than the Russian average of 17.8 liters.


Brewmistress Tatyana Solodimova makes seven beers, two dark and five light, that she believes pretty well cover the market. Among the most popular are the Akhtuba light and the Stalingrad dark.


"We're working on improving the design and packaging to satisfy all levels of the population," she said, adding that while she has no plans to produce Sun's national brands, such as Viking, "I think it would be an honor for Sun if Povolzhye were to produce Viking."


Sun's designs differ. "We're looking at launching a brand that we see more as a drinking man's brand positioned under Viking," said Strella. "If they brew the national brand, they will brew it to the recipe specified."


Strella forecast that the addition of Povolzhye as the group's sixth brewery will boost revenues and profits in 1997 by as much as 35 percent. The other five breweries are located in Perm, Ivanovo, Kursk, Saransk and Yekaterinburg.


Sun Brewing's 1995 net profit was $370,000, or three cents per share, on sales of $108.6 million. Strella expects both those figures to increase by 75 percent when 1996 results are released. The company's shares trade as GDRs, and are listed on the Luxembourg exchange.