Russia: Carlsberg suffers from “Russian disease”

While other markets are performing well, Carlsberg still suffers from the “Russian disease”. When presenting its half-year results, which were still positive overall ( , 16.8.2017), the Danish beer maker had to admit, that Baltika Breweries, wholly owned by Carlsberg Group, underperformed  in Russia, one of Carlsberg’s most important markets. Baltika’s volume sales in Russia dropped by 13.2% in the first 6 months of 2017 while the rest of the market shrank “only” by 5%.

The reason was a price war following a ban on 1.5-liter plastic bottles at the start of the year. While other breweries slashed prices, Carlsberg resisted doing so in order to keep profitability. In some regions Carlsberg’s beers sold 30% above those of local competitors despite the fact that the Danish brewer is considered to be the lowest-cost producer in Russia. “Obviously, it’s not a sustainable price gap,” Chief Executive Officer Cees ’t Hart said.

But Carlsberg is not the only international brewing group to suffer in Russia. Since 2008, when government tightened regulations including a hike in excise tax and restrictions in advertising, sales and available packaging sizes, the Russian beer market shrank in total 40% and forced 12 breweries to shut down production.

Last week, the number two in the market SunInBev (17% market share in 2015), owned by AB InBev, announced to merge its business in Russia and Ukraine with number four brewer Efes Rus (14% market share in 2015), owned by Anadolu Efes, thus creating a strong number two behind Carlsberg’s BaltikaBreweries (39% market share in 2015). (, 9.8.2017).

Also Heineken, the new number three in the market (15% market share in 2015), had to admit that the situation in Russia is challenging. "We have had very difficult few years in Russia," CEO Jean-Francois van Boxmeer said in an interview earlier this year. "It's a market that is going down. I think one day the Russian market will grow better ...the only thing is, I don't know when," he added.


Baltika Breweries (source: company homepage)

“Baltika Brewery was constructed upon the project of Gipropischeprom-2 institute as one of the breweries of Lenpivo - Leningrad beer and non-alcoholic drinks production association. Construction of the brewery was started in 1978 and was followed by the establishment of state-owned Baltika brewery” enterprise after the construction was finished in 1990.

The first batch of beer was dispatched to the trade outlet in November 1990, when there were only 27 thousand liters of beer produced. The unified Baltika brand did not exist at that moment; the beer was produced under the well-known Zhigulevskoe, Rizhskoe, Admiralteyskoe, Prazdnichnoe brands.

 1992 was a start of brewery privatization and it was reorganized in its legal form for open joint-stock company. 28 legal entities and more than 2000 individuals became the shareholders of Baltika. Baltic Beverages Holding AВ (BBH) – the Scandinavian holding formed by Hartwall (Finland), Pripps (Sweden), Ringnes (Norway) companies in 1991 for the purpose of investing into brewing industry in the countries of former Soviet Union – turned into the biggest shareholder and investor. Later on the companies became a part of Carlsberg and Scottish&Newcastle that shared the BBH assets equally (50% / 50%).

Baltika’s Regional expansion started in 1997 when there was a major share of stock of Donskoe pivo brewery in Rostov-on-Don acquired. Tulskoe pivo brewery also became a part of Baltika in October 1999. At the same time there was an investment program worked out by the departments of Baltika company which was aimed at capacities increase of the breweries acquired and the replacement of obsolete equipment. In 1998 “Baltika” also starts to establish the net of sales departments in the regions.

In 1998 shareholders approved the decision of the Board of Directors to change the name of the company for Baltika Breweries OJSC.

2006 became a pivot point in the history of our company when Baltika started to merge with Vena (breweries in Saint-Petersburg and Chelyabinsk), Pikra (Krasnoyarsk brewery) and Yarpivo (Yaroslavl and Voronezh breweries) brewing companies, whose major shareholder was BBH company as well.

In April 2008 Baltika became a part of Carlsberg Group in full, which became possible after Carlsberg bought out the assets of Scottish & Newcastle (S&N) company. Carlsberg got a possession of S&N share in BBH – major Baltika shareholder – and the assets of S&N in France, Greece, China and Vietnam. At this stage Carlsberg Group became the holder of 85% of Baltika shares, 15% of shares were left in hands of minority shareholders.

In November 2012 Carlsberg Group bought out the rest of the shares from minority shareholders and became the holder of 100% of shares of Baltika breweries OJSC. To make the corporate governance more handy in 2013 there was made a decision to change the legal form of the company from OJSC to LLC. This step became possible after consolidation of 100% of Company shares into the hands of one owner – Carlsberg Group. Reorganization into the LLC was finished in January 2014.”

In 1 January 2015, Jacek Pastuszka was appointed President of Baltika Breweries and Executive Vice President Eastern Europe of the Carlsberg Group, having served before several positions within the Carlsberg Group like  CEO of Ringnes Norway and CEO in Carlsberg’s subsidiary in Poland.

Baltika’s major beers are known by numbers rather than by name, which do not refer to the alcohol content as many people believe.

Baltika №0 Non-alcoholic (Безалкогольноe) is a non-alcoholic beer, which was launched in 2001 and holds approximately 60% of the non-alcoholic beer market in Russia. Baltika №3 Classic (Классическое) is Baltika’s most popular beer with 4.8% ABV and has a slightly sweet malty flavor.

Baltika’s other major branded beers are Baltika №2 Pale (Светлое), Baltika №4 Original (Оригинальное), Baltika №6 Porter (Портер), Baltika №7 Export (Экспортное), Baltika №8 Wheat (Пшеничное) and Baltika №9 Strong (Крепкое).

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