Siberian "Baltika"

The largest Russian brewing company is going to build two new plants

Yesterday it finally became clear how the Baltika brewing company intends to keep its promise made 2.5 years ago - to control more than 40% of the Russian beer market. In order to increase its already significant lead over its competitors, the concern wants to increase its capacity by approximately 20-25% by building new plants in Samara and Novosibirsk in 2007-2008. The cost of these projects is estimated at 200 million euros. In early November, Novosibirsk Vice-Governor Vasily Yurchenko spoke for the first time about Baltika’s plans in Siberia. Consumer market analysts say that the geographical location of the new plant was chosen very well - it will fill the “white spot” between Khabarovsk, Krasnoyarsk and Chelyabinsk, where Baltika plants already operate.

At the turn of 1990-2000, Baltika was actively buying up old plants and building new ones, as a result of which it acquired production sites in Tula, Rostov-on-Don, Samara, Khabarovsk, and also almost bought the Belarusian Krinitsa (the deal was prevented intervention of politicians). The company then entered a period of organic growth for several years. A year and a half ago, Baltika decided to annex three factories that are controlled by its shareholder, the BBN holding - Vena, Pikra and Yarpivo. Now this process is in its final stage.

Just recently, the company's management assured that it had no plans to build new factories. Now Baltika says that two factories will actually be built in Samara and another one in Novosibirsk. The concern was probably prompted to make this decision by the events that took place in the first half of 2006, when the company lost market share in Russia. Moreover, this happened in the midst of the operational integration of VVN plants. If Baltika ended 2005 (taking into account all BBH enterprises in Russia) occupying 36.3% of the market, then in January-March of this year, instead of steadily striving for 40%, it reduced its share by 0.7%. According to the marketers on whom Baltika relies, its position in the market for nine months is equal to the result of last year, and the concern wants to end this year with the same figure - 36.3%. However, in the future the company needs to increase its market share by more than 1% annually.

So, as it turned out, it is impossible to do without increasing production capacity. Yesterday, the head of the company, Anton Artemyev, admitted for the first time that he plans to build a new plant in Novosibirsk with a capacity of at least 2 million hectoliters. “We are in the final stages of approving this project,” he said. “If everything goes according to plan, we will aim to launch by the 2008 season.”

In addition, construction of new production facilities in Samara has just begun. The existing plant in this city will be expanded from the current 2 million to 6-6.5 million hectoliters. All this will not only provide a significant increase to the 28.6 million hectoliters that were brewed at all production sites of the enlarged Baltika over the nine months of 2006, but will also speed up market penetration. By the way, Baltika managed to save approximately a third of the investments planned for the construction of new factories due to the merger with Vena, Pikra and Yarpivo: Mr. Artemyev said that already this year the synergistic effect from the merger will be about 80 million dollars.

Baltika needs new enterprises primarily in order to increase its presence in expensive segments - licensed and premium. As Mr. Artemyev says, not only the share is important for the company, but also the price of this share. Although, according to him, Baltika maintains its long-standing strategy of leading in all market segments, which means that new plants, along with expensive ones, will develop the production of local “folk” varieties.

Baltika executives are now very cautious when commenting on the time frame within which the company can take a 40 percent share of the Russian beer market. In the spring of 2005, the company promised to reach this milestone in about three years. This year, after the process of merging Baltika with the BBH factories somewhat stalled (due to lawsuits from minority shareholders dissatisfied with the consolidation mechanism), we were talking again about the same three years, but from the moment of the legal unification of four Russian subsidiaries. VVN. Yesterday, Mr. Artemyev cautiously hinted that the 40% bar could be surpassed in more than three years.

Ivan GORDEEV