Feature stories |

Heineken pours another $255m into Nizhny

30 Nov '09
Oleg Kouzbit, Online News Managing Editor

Global beer maker Heineken has announced completion of another $255m round of production upgrades at its Nizhny Novgorod-based subsidiary, Volga Brewery. With its new advanced equipment Volga is boosting its annual capacity to 50 million decaliters of its renowned Amstel, Doctor Diesel and most sought-after Heineken brands. The “investment fever” that the Dutch company has been showing in Nizhny Novgorod since 2004 is in sharp contrast to an almost 10% contraction in the overall Russian beer market and an 8% decline in European and North American consumption. Following the closure of its St. Pete’s Stepan Razin factory and Orenburg’s Ivan Taranov facility earlier this fall, Heineken N. V. is positioning Volga Brewery as one of its key assets.

Earlier this week one of international beer majors, the Netherlands’ Heineken N. V., announced it had invested another $255m in expansion and modernization of its Nizhny Novgorod-based asset, Volga Brewery. The upgrades have reportedly enabled the brewery to produce premium class beer brands, including Amstel and Doctor Diesel already launched in October, and its flagship Heineken brand.

Heineken in Russia: suds of success

Heineken has a history of successful expansion in the Russian beer market since 2002 when it opened its first Heineken Brewery in St. Petersburg. As the years of Russia’s consumer confidence went on, the Dutch beer maker set up shops spanning Russia from west to east as far as Irkutsk and Khabarovsk. By the fall of 2009 there were ten sparkling pearls in Heineken’s Russian crown.

The Nizhny Novgorod brewery joined the family in 2004 together with Bashkortostan’s Shikhan plant. By the time Vimm-Bill-Dann sold the businesses to the Dutch, Volga Brewery’s capacity was a marginal 8 million deciliters a year. Putting up more than $70m in investment in the first round of modernization between 2005 and 2008 Heineken boosted Volga’s capacity to 22 million deciliters a year.

In parallel, phase 2 upgrades were launched in May 2007 following the purchase of a Nizhny-based refrigerant producer, Oksky. Across-the-board re-equipment and dramatic improvements of the brewery’s marketing strategies were then used to launch the company’s marquee Heineken brand at the Nizhny facility this past fall.

Volga Brewery has a reported 40-45% share in the regional beer market. Its brands include Bochkarev, Okhota, Tri Medvedya (Three Bears), and PIT. As of mid-2008 Heineken, the world’s third largest beer maker after SABMiller and Anheuser-Busch, reportedly controlled over 63.5% of the Volga Federal District market.

The crisis brews and consumption dries up

Between 2002 and late 2008 Russian beer producers expanded production by 9-10% each year, according to RAMIR Marketing. Business was solid and growing.

The credit crunch hit both consumers as well as many brewers. Among the majors Anheuser-Busch InBev was the first to pull the plug; in December 2008 it shut down its plant in Leningrad Region.

Heineken proved to be more resilient, but it too felt the crunch. In September it closed its second St. Petersburg asset, Stepan Razin Brewery, making it a logistic complex and moved the brand to its Heineken Brewery to increase efficiency.

In October Heineken had to mothball Orenburg-based Ivan Taranov Brewery, the maker of Russia’s popular PIT beer. Like Stepan Razin, Heineken will convert the brewery to a logistics hub. The company also announced that it was firing 140 people to reduce costs in the Urals area.

Back to drinking vodka?

In early 2009 Carlsberg reportedly predicted a modest 2% drop in Russian beer consumption. Then Russia’s statistical agency, Rosstat, came out with a shocker: the national beer market actually dropped 8% between January and September 2009. Carlsberg, quoted by RBC daily, quickly revised its estimate and said Russia’s beer market shrank 10% in the nine-month period. European and North American beer consumption also declined, falling 8% over the same period.

The domestic market may still have worse times ahead. The Russian Parliament has approved a tripling of the beer excise duty beginning early 2010. The move caught brewers by surprise. Alarmed, they forecast lay-offs of up to 100,000 people.

Collectively, they warned that the decision cleared the way to rapidly re-domesticating Russians, especially young men, to cheap vodka. An envisioned rise in vodka excise is an embarrassing 10%—almost nothing compared to the announced beer excise hike. Long the Russian alcoholic beverage of choice, vodka sales are experiencing a sharp rise in sales—production grew 13.7% between September and October vs. a 4% fall in beer production, according to Rosstat.

Still more foam than solid sales

Despite Heineken’s investment and cautious predictions for resumed growth, BusinessStat forecasts Russian beer sales will only reach $14.5bn by the year end, an estimated 10 billion liters. Two years ago, at its historical peak, the Russian market consumed 12 billion liters.

The long term trend, however, is with Heineken. Citing BusinessStat, RBC says that Russians are showing a definite swing to low-alcohol, less carbonated brews—exactly what Heineken makes...

It seems clear that this trend is a key factor influencing the Dutch firm to continue to pour investment into its Nizhny Novgorod brewery. The Volga plant is now poised to become the company’s key production facility and distributor in the vast Volga and Central Russia area. Given Russia’s vast appetite for beer and other alcoholic beverages and Heineken’s proven marketing savvy, betting big on Nizhny looks like a smart move.
Oleg Kouzbit, managing editor: “I’m glad you join us here and take The Bridge walk for Marchmont’s weekly review of the Russian regions’ innovative present and future. Stay close and you’ll find out more of how Russia is bridging the existing gap between its researchers and businesses.”
Publish in Twitter
Write to Facebook
Google Buzz
Write to LiveJournal
Show in MM
Share MK
COMMENT ON THIS STORY
Find Related Content

Locations:

Latest News: Feature stories
2 Aug '21 | Industry, manufacturing | Technology & innovation
 
Search (News archive - 22917)
Technology Scouting Solutions For Industry
NATT
Advertising
Marchmont News

Latest News

27 Jan '22
Siberian scientists have developed new hybrid...
26 Jan '22
K-Sky, an IT developer from northwestern Russia, is...
20 Jan '22
A research team at the Samara Polytechnic University...

Most read stories from last week

26 Jan '22
K-Sky, an IT developer from northwestern Russia, is...
26 Jan '22
The Perm-based company Where are My Children has...
27 Jan '22
Siberian scientists have developed new hybrid...