Recently published figures from the Russian Agricultural Ministry show that the 10 per cent growth experienced by the overall beer market in Russia in 2002 fell back to around 4 per cent in 2003 - proof enough that the beer is becoming more of a staple for Russian drinkers.
In a recent interview with the Moscow Times, Alexander Troitsky, deputy head of the Russian Brewers' Union described the period of "romanticism" for the industry being over. Now industry heads such as Troitsky are consolidating their plans for expansion and focusing on key areas where there are still the most promising signs of growth.
"The growth of the Russian beer market has been phenomenal, with consumptionalmost doubling over the last five years," said Paul Tarling, senior anlayst at Zenith International. "However, there are now signs thatthis rate of growth is slowing. The brewers are faced with constantlychanging legislation and rising excise duties, which hampers their abilityto expand production capacity and ultimately leads to an increase in thecost of beer. Whilst there are also signs that many of the more developedbeer markets in the major cities and towns are reaching their saturationpoint."
The last ten years has seen a flurry of activity within the sector, with many of the key Western European players becoming heavily involved in establishing operations there. Such was the race to get a foot in the door that in 2001 the European Bank for Reconstruction and Development could claim that it was financially involved in every fifth beer produced in Russia.
In 2002 a series of deals involving Western European brewers were struck. Scottish & Newcastle bought 50 per cent of BBH, which controls Russia's biggest brewer Baltika, then Heineken bought the Bravo brewery in St. Petersburg, paying $400 million for the privilege.
However, things haven't all been a bed of roses of late for the industry, which is perhaps reflected by the fall in the rate of growth for the year. The vodka industry was never going to take the rise in the popularity of beer sales lying down. Although still Russia's favourite alcoholic tipple, the rise in beer sales has been felt by the vodka industry.
Probably influenced by its long established reputation in the country, and the fact that the industry is controlled by a small number of fiercely protectionist business individuals, beer duties have risen steadily over the past three years, whilst vodka duties have remained steady. Currently duty on beer is levied at 47 per cent - following a recently announced hike from the government - while duty on vodka is levied at 35 per cent.
Now analysts believe that to maintain its competitive edge the Russian beer industry must focus on more profitable aspects of the industry. And that is exactly what it is doing. Of late there has been an increasing number of launches onto the premium and super premium end of the market.
"As the Russian standard of living has been increasing, so have theexpectations and sophistication of the Russian consumer," Tarling said. "It is thereforenot entirely unexpected that the premium and super-premium segments areareas that will see the largest growth in the near future."
Such a trend is evinced by the recently announced sales figures for the Tinkoff group, which specialises in microbrew beers. With the help of its restaurant chain, which served as an outlet for its beers, the group managed to quadruple its output to $33 million in 2003, compared to 2002.
More success stories like this are expected to unfold in this sector of the market as Russian incomes grow and consumers increasingly opt for more sophisticated brews.
Although Russian beer consumption is currently estimated to come in at around 50 litres per head each year - compared to around 120 litres a year by German counterparts - the Russian culture for alcohol consumption is expected to feed further growth for the beer sector. Added to this the fact that consumption patterns for the food and drink sector overall are rapidly catching up with that of Western Europe, the potential for steady growth in the future remains strong.