Anheuser-Busch InBev (AB InBev) is set to close its third Russian brewery in less than two years as the country's beer market continues to disappoint. This move from AB InBev is in line with our moderate view on the Russian beer sector, which had been touted as a global outperformer last decade.
Including the plant it is to close, AB InBev operates seven breweries in Russia, after having nine in operation in 2012. Several years ago, breweries were clamouring to increase their exposure to the Russian market, seeing a niche in beer as lobbyists looked to clamp down on vodka consumption. At that time, not only was the consumption outlook in Russia considerably better than it is currently, but beer was barely taxed because it was considered a food staple.
As such, AB InBev, SABMiller and Carlsberg invested heavily into the BRIC economies of Brazil, Russia, India and China in the late 2000s. Russia, for example, now accounts for about 35% of Carlsberg's operating income. However, tax hikes and a soft consumer outlook have drastically changed our outlook on the Russian beer industry. In 2010, the industry was hit by a 200% tax hike, and further hikes were implemented at the start of 2013 along with certain regulations on points of sale and advertising. Around the time of this announcement, SABMiller transferred its Russian and Ukrainian assets to Anadolu Efes in exchange for a 24% stake of the latter.
|Only Moderate Growth Forecast|
|Russia - Per Capita Beer Sales & Total Market Value Growth|
Though this latest divestment from AB InBev comes during a politically and economically sensitive time for the Russian market, we contend that such a decision has been predicated on alternative factors. Indeed, it is BMI's view that events in Russia and Ukraine are unlikely to have significant long-term trade restriction or consumer expenditure effects (see 'Crisis Hastens X5 Exit But Not Responsible For It', March 24).
That said, companies will probably have to be more cautious and may well delay or scale back planned investment until the situation stabilises. Hard-hitting sanctions, which in the opinion of our Europe Country Risk team remain a non-core scenario, would perhaps impact sourcing and therefore input price risks depending on terms. In terms of input prices, the weakening rouble is of concern to food and drink and wider consumer-facing companies given that this will make importing raw materials into Russia more expensive. It will also weaken the purchasing power of the consumer base. This is the core risk, in our opinion. For a company such as Carlsberg, for example, which has faced numerous issues in Russia on the back of much higher beer taxes and stricter regulation of the off-trade retail sector, this would pose yet another challenge.