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SABMiller brewing it up big in Ulyanovsk

14 Oct '08
SABMiller Rus, a subsidiary of one of the world’s largest beer manufacturers, SABMiller plc, has announced a $50m increase in investment in its new brewery in Ulyanovsk. The project’s total cost is expected to reach $220m before 2010.

The increase will enable the company to double the brewery’s projected capacity from originally approved plans. Now it is six million hectoliters of beer per year. This is the company’s second business in Russia aimed at beefing up its position in the Volga Federal District (VFD) and West Siberia. SABMiller hopes to expand and start operating neck and neck in the VFD with its powerful competitor, the Netherlands’ Heineken, which has established strong presence in the District with $265m worth of investment between 2005 and now in breweries and related facilities in Nizhny Novgorod alone.

Ulyanovsk welcomes the bighearted investor

SABMiller officially announced its new brewery plans last April when it unveiled plans to lease a 38-hectare site. With such a big investment, the company also made sure it has to the right to buy the property in the future. When complete, the world-class brewery will also include a 10,000-square-meter warehouse.

The first stage, ready by next spring, calls for the brewery to produce three million hectoliters a year. A second stage will follow in 2010. There will reportedly be more than 300 new jobs created at the factory.
James Wilson, CEO of SABMiller Rus, said the company spent several months before deciding on the Ulyanovsk Region. According to Wilson, the competitive advantages included being close to suppliers of raw materials, good logistics and government support.

Regional officials acknowledge the brewery project is the region’s largest commercial investment. This helped fast-track the approval process in just four months—less than half the time it normally takes for such a complex project.

The brewery’s priority status gives the investor tax breaks and other forms of government support.

Competition worries diluted

SAB Miller isn’t the only brewery in town. Ulyanovsk is also home to Vityaz, a brewery owned by Moscow’s Astoria Group. But it’s a much smaller firm and in his interview to Expert the region’s Governor Sergey Morozov said the two companies would co-exist peacefully as “they operate in different price segments.”

At Ulyanovsk SABMiller intends to produce both its regional and international beer brands. An exact list has not been announced yet. The firm’s eight brands include Miller Genuine Draft, Redd's, Holsten, Pilsner Urquell, Velkopopovicky Kozel, Zolotaya Bochka, Tri Bogatyra and Moya Kaluga (sold exclusively in Kaluga Region).

Patience and persistence bring success

SABMiller first entered the Russian market in 1998 with a factory in Kaluga. Investment in the project exceeded $100m.

In November 2007 SABMiller Rus was set up.

According to data published by AC Nielsen, in 2007 SABMiller’s share in the Russian market was 10% by value and 6% by volume. Rating agency Business-Analitika ranks SABMiller fifth among Russia’s largest beer makers. (Baltika is in the lead, followed by InBev’s subsidiary Sun Interbrew.)

With the Ulyanovsk facility operating in full swing the firm may increase its share to 9% by volume, says Antanta Pioglobal’s Andrey Verkholantsev.

It’s interesting to note that the only foreign beer brand that made its way into the Top-10 of 2007 brands (based of consumption preferences) was Miller, which ranked ninth (15.4% of all votes).

Going east and west

Marking its tenth anniversary in the Russian market SABMiller has begun aggressive expansion.

In June 2008 the company announced the takeover of Vladpivo Brewery in Vladivostok (one million hectoliters) from a trio of owners - Detroit Investments, A1 and IFC. In July the company bought 99.84% of Ukraine’s Sarmat Brewery (2.9 million hectoliters).

The Vladivostok deal will come into full force after all formalities are settled. The deal’s value has not been disclosed. The company’s official website says the asset’s market value is estimated at $69m.

SABMiller’s total investment in the Russian economy after the purchase of Vladpivo is expected to exceed $350m. The company’s Russian division employs over 1,600 people.

The acquisition of the Ukranian brewery is more strong evidence the company is on the offensive. Now SABMiller’s operational presence spans an impressive territory between Russia’s Far East and the U. K.

Replacing vodka for beer?

Beer consumption statistics in Russia differs from year to year. Since 1998, the year of SABMiller’s advent to the Russian market, figures have increased dramatically.

The Russian National Breweries Union reports the internal beer market grew in size from 50 million hectoliters in 2000 to 111 million hectoliters in 2007. The Union forecasts annual growth will stay within 3-4% over the next several years, which is still robust performance compared to Western European markets. Other analysts are not so conservative, eyeing steady annual growth within 10 or 15%. Russia’s national statistics agency Rosstat says that the growth of the domestic beer market in 2007 was almost 10%..

A variety of factors in combination are behind beer’s growing popularity, analysts say, including beer producers’ shrewd marketing which include promoting a wide range of products (with alcoholic content from 0 to 9%) to appeal to everyone from the young and hip to teetotalers. Beer is also being positioned as a real alternative to “stodgy” vodka. Russia’s increasingly warm summers and less severe winters and authorities’ successful fight against counterfeit alcohol are also cited as contributing factors.

For reference:

SABMiller plc
is one of the world’s leading beer makers. Registered in the U. K. as a result of South African Breweries (established in 1895) purchasing the U. S.’ second-largest beer producer Miller Brewing Company (a division of Philip Morris Companies, Inc.). The company sells its products in 60 countries worldwide. The aggregate capacity is reported to be 216 million hectoliters a year. The company’s financials for the fiscal year 2007 (that finished on March 31, 2008) show pre-tax profit for the year came in at $3.64m, while revenue was $21.41m.
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