OREANDA-NEWS. November 23, 2010. The Russian beer market, according to internal estimates, declined by 5% in the first nine months of 2010, mainly due to a tripling of beer excise duty that came into effect on 1 January 2010, and the resulting significant increase in beer prices. The market in Q3 grew by 2% compared to Q3 2009.

Despite the growth shown in Q3, in the first nine months of 2010 the company’s beer shipments within Russia declined by 11%, while beer in-market sales fell by 6%, compared to the first nine months of 2009. At the same time, shipments of non-beer beverages increased by 47%.

Hot weather in Russia in Q3 and some positive signs of the market, such as growth in consumer income and a corresponding growth of consumer sentiment, made a positive contribution to the company’s results for the first nine months of 2010. However, this was not enough to completely compensate for the H1 decline in sales, caused by the significant increases in excise duty and stock-building undertaken in the Q4 2009 ahead of the excise duty increase.

Baltika’s market share, according to Nielsen*, declined by 0.8% in the first nine months of 2010 compared to the same period of 2009, coming to 38.9%. Factors affecting the company’s market share included a significant increase in the company’s prices and high competitive activity level. Baltika gained market share in September up to 39.6% which marked the year’s high.

Baltika’s profits before taxes for the first nine months of 2010 declined by a double-digit percentage compared to the same period in 2009. The impact of excise duty hike on company profits was in part compensated for by the optimization of costs, the improvement of operational processes, and favourable situation on the raw materials market.

Over the last several years Baltika has devoted significant efforts to the further development of its agricultural project, the implementation of various energy-saving measures, and innovations.

Baltika continues to develop its own agricultural project, allowing the company to decrease its dependence on the raw materials market and effectively guaranteeing a reliable supply of high quality brewing barley at a fixed price, which is particularly important given current market conditions. In 2009 agricultural enterprises working with Baltika made around RUB 1 billion from Baltika contracts as part of the company’s agricultural project. In 2010 the company signed 71 agreements with 54 agricultural enterprises across 8 regions of Russia.

Baltika pays great attention to implementation of energy efficiency measures. In 2010 the company introduced a new Energy of Leaders project, intended to reduce energy consumption in basic production as well as auxiliary and peripheral production lines. The implementation of such programs is already having a positive effect on reducing energy costs. This influence is expected to be observed over the long term.

Under increasing brewing industry regulation, investments in the development of the company’s brand portfolio, including innovations and sales abroad has become particularly important.

As part of the diversification of its brand portfolio, Baltika continues to develop new products in a variety of categories, including Granary Land kvass, Life Spring water, Crazy lemonade, and Somersby cider.

In Q3, the company’s flagship brand — Baltika — increased its market share by 0.7% over Q2 of 2010, coming to 14.6% (Nielsen). The main drivers of this growth were sales of Baltika №3 Classic and the newly introduced Baltika Draft and Baltika Cooler in premium packaging. In September 2010 the Baltika brand’s market share amounted 15.2%, its highest for the last three years.

Baltika continues to develop its sales abroad: the first nine months of 2010 saw sales abroad grow by 16% over the same period last year. In Q3 Baltika began exports to Mexico and Brazil, the largest beer markets in Latin America, as well as Nepal and Cambodia. The share of sales abroad as part of total sales volume grew over last year, reaching 7.5% in the first nine months of 2010 (around 6% in 2009).

*As of the Q3 of 2010, the company uses data for retail audit from AC Nielsen, as Business Analytica has stopped covering the Russian retail trade.

**According to Russian Accounting Standards for the first nine months of 2010.