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Heineken exits Russia while rival Carlsberg (probably) rues big 2008 beer deal

As global brewers struggle with changing consumer tastes, declining beer consumption in established markets such as the US, UK, and Japan, Russia has proven to be remarkably resilient.

Russia, which is the fifth-largest country by beer consumption, was one the few major markets where beer consumption actually rose in the wake of the 2020 pandemic. It also increased its beer consumption by 3.3% in 2021.

It was therefore difficult for Heineken to decide Monday to withdraw completely from Russia.

Russia accounts for around 2% of the world’s sales, according to the Dutch giant. It is second only to US giant AB InBev on the global brewing league tables. As it seeks to “orderly transfer” the business, the company will have to take a EUR400m loss. The company will not profit from the sale.

Image: Russia accounts to 2% of Heineken’s annual sales. Pic: AP

It stated that it was shocked and saddened by the escalation of war in Ukraine.

“Following the already announced strategic review of operations, we have concluded Heineken’s ownership in Russia is not sustainable or enduring given the current context.”

Heineken’s decision highlights how difficult it has been for other fast-moving consumer goods businesses to deal with Russia.

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The Russian Heineken brand had been stopped by the company in Russia, and the company had also suspended any new investments or exports to Russia.

It had not yet decided to leave Russia, which was a drastic move that has been taken only by a few businesses, including Imperial Brands and British American Tobacco. These are the UK’s tobacco giants.

Its approach was more in line than the ones of Reckitt and Unilever and Danone. They all have opted against a total pull-out from Russia and continue to sell products they consider essential.

This has been controversial, and Nestle has been criticized for its approach.

Denys Shmyhal (the Ukraine’s prime minister) had tweeted 17 March: “Talked with Nestle CEO Mr Mark Schneider regarding the side effect of remaining in the Russian market. He doesn’t seem to understand. To pay taxes to a terrorist country’s budget means that you are killing defenseless mothers and children. We hope Nestle will soon change its mind.

The Swiss giant has since increased the number of brands that it will not sell in Russia.

Image Nestle was criticised by Ukraine for continuing to sell certain goods in Russia

Heineken’s decision not to withdraw completely from Russia will increase the pressure on these companies.

It will also shine a light on other large international brewers that are active in the highly consolidated Russian market.

Heineken is the third-largest player in Russia with approximately 10% of the market.

With a market share 27%, AB Inbev (owner of Budweiser) and Anadolu Efes (the Turkish brewer), are in second place.

They own 11 Russian breweries, three malt factories and approximately 3,500 employees in Russia. Efes is the controlling shareholder and it is believed that there were disagreements between them about how to proceed. AB Inbev reportedly requested its Turkish partner to suspend Budweiser’s sale and production in Russia. However, Efes is believed to have opposed a total shutdown of the business on grounds that it would harm its local workers and farmers.

Although the partnership continues to produce Budweiser-style beers, AB Inbev has sought to ring-fence their interests in Russia and has promised to give up any Russian profits. Efes would feel pain if it decided to exit Russia completely, as Russia accounts for approximately 44% of its sales revenue and 34% of its earnings.

Carlsberg is another major brewer that has caused a lot of problems in Russia. Baltika, Russia’s largest brewer, is owned by the Danish group. It has a market share just shy of 30 percent. Carlsberg already stated that it will cease selling its flagship brand in Russia, and will not invest in new projects in Russia. The country employs approximately 9,000 people.

Image Carlsberg has a greater exposure to Russia than its international competitors

Both Russia and Ukraine are major markets for Carlsberg. These two countries are part of a central- and eastern European division that includes 11 other countries. Together, they account for about 25% of Carlsberg’s total sales. Russia accounts for less than 10% of total sales.

Interestingly, Baltika’s story is intertwined to that of Scottish & Newcastle. They were the last of the so called ‘Big Six’ British brewers. All of them have since disappeared into foreign hands.

S&N bought a 50% stake in BBH, which is the owner of Baltika. It also purchased Hartwall, a Finnish drinks company, for PS1.2bn 20 year ago. Carlsberg was the co-owner. The business flourished under their joint ownership. They bought up many smaller competitors and became a significant source of growth, especially as Russian beer consumption increased in the mid-noughties.

S&N also made Baltika, Europe’s third-largest beer brand, with a deal in 2007 to produce it.

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Sanctions cannot be lifted unless Russia withdraws

The move was a great success and allowed S&N to tap into the increasing number of Russians who are moving to Britain.

This was the first time that a Russian brand was licensed to a Western company. Baltika’s president Anton Artemiev stated: “The start licensing production in western Europe for Baltika is a natural part of the process of integrating Russia in the global economy.

It seems so long ago. Heineken and Carlsberg teamed up to purchase S&N for PS7.8bn, just as the global financial crisis was in full swing. It is widely believed that the pair overpaid for the business.

Baltika was given to Carlsberg as part of the agreement. It’s reasonable to assume that the Danes regret this decision.


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