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. Last Updated: 07/27/2016

Baltika to Invest $360M in Breweries

The country's largest brewery, Baltika, plans to invest about $360 million building six new breweries in the former Soviet Union, Baltika vice president Adam Tlekhurai said Monday.

Four of the breweries will be in Russia, one will be in Central Asia, probably Uzbekistan, and one will be in Belarus, Baltika officials said. Once completed, Baltika will have nine breweries throughout the former Soviet Union.

Baltika's parent company, Baltic Beverages Holding, also controls breweries in the Baltics and Ukraine.

Tlekhurai said each of the four new Russian breweries will cost about $60 million.

Last week, the company announced construction of a $50 million plant in Samara would start at the end of this year, to be completed in 13 months.

"We needed the Central Russia market and have chosen the Samara region as potentially one of the most interesting regions," Tlekhurai said.

Baltika president Taimuraz Bolloyev and Samara regional Governor Konstantin Titov reached an agreement on the brewery last week, he said.

The Samara region has a per capita beer consumption of 31 liters a year, an amount that corresponds with the country's average but is half that of Moscow and St. Petersburg, according to Baltika.

The plant is to produce initially up to 100 million liters a year, and capacity will be increased to 300 million liters if sales prove to be brisk.

Negotiations are under way for the sites of the other three plants planned for Russia, but they will be located in Siberia and the Far East, Tlekhurai said.

In Belarus, reconstruction work is going at full speed at the Minsk-based Krinitsa brewery, while the Central Asia site is still being decided upon.

Baltika, which is 75 percent owned by the Scandinavian-controlled Baltic Beverages Holding, currently has three plants in Russia — in St. Petersburg, Rostov-on-Don and Tula.

BBH, according to Business Analytica data from April, controls 32.6 percent of the national beer market, followed by Sun-Interbrew with 14.7 percent, Ochakovo with 8.1 percent, Bravo International with 6.1 percent and Krasny Vostok with 5.8 percent.

Sun-Interbrew has five plants in different regions of Russia.

Smaller rivals are also cobbling together expansion plans. Three months ago, Ochakovo said it would invest $100 million into a brewery with an annual capacity of 230 million liters in the Central Russian town of Penza.

Breweries are expecting strong growth in the regions — especially in Central Russia.

"There should be space for everyone," Ochakovo president Alexei Kochetov said earlier this year.

Tlekhurai said Baltika is very optimistic. "We know human psychology, we have Western experience and we have studied the market," he said.

Some experts warn, however, that beer consumption, which has jumped by up to 15 percent a year for the past three years, would likely weaken.

"It is very unlikely that Russian consumption will increase even by 10 percent in the following three years," said Andrei Sterlin, director of Business Analytica.

Beer consumption is about 6.5 billion liters a year, while breweries are trying to boost production by 15 percent, he said.

If consumption peaks, the increase in production will put strong pressure on small, local producers, analysts said. But consumers in the regions tend to pick traditional local brands and they could be hard to win over to the national brands, they said.

"It will not be easy for Baltika to compete with Kazan-based Krasny Vostok in the Samara region," said Andrei Ivanov, a consumer analyst at Troika Dialog. "Krasny Vostok produces beer of the same category, has already no less than 20 percent of market share and is very aggressive."