Russia And Ukraine Conflict Affecting Beer Makers

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The idea that Russians drink a lot of vodka is quite true, but the country is also one of the largest markets for beer in the world. But the crisis is making for slumping beer sales combined with a concerted effort by Russian officials to cut down on the amount of alcohol its population imbibes.

Depending on your geographic location and consequent time zone, millions(?) were drinking beer considerably earlier in the day than normal during this year’s World Cup Finals. And given the success of the U.S. team, I surely wasn’t alone. The fact that both Carlsberg and Heineken reported a slow quarter in the region is either do to the crisis or more likely the fact that the Ukraine national team failed to qualify and the games were on in the middle of the night (morning) in the region.

“We believe the Eastern European beer markets will be impacted further as consumers are facing increased challenges,” said Carlsberg Chief Executive Jørgen Buhl Rasmussen.

Russian alcohol consumption is dropping

In 2011, the country ranked fourth in terms of alcohol consumption globally, with more than 15.5 liters imbibed per capita, according to the World Health Organization. In 2013, that number dropped to just over 13 liters per capita. While those numbers apply to spirits and not beer, they are demonstrative of government policies including increased excise taxes and a comprehensive ban on alcohol advertising on television, radio, the internet, public transport and billboards.

Heineken N.V. (ADR) (OTCMKTS:HINKY) (AMS:HEIA), the Dutch beer maker, estimated today that overall beer sales are down 25% in the last two years citing excise taxes.

Beer sales are down in Ukraine

Carlsberg A/S (ADR) (OTCMKTS:CABGY) (CPH:CARL-A) recently estimated that the Russian beer market was down between 6% and 7% for the first half of 2014, while the Ukraine market dropped around 10% for the same time period. That decrease was more prominent in the second quarter has the crisis with Russia escalated with “significant variances between regions.” Apparently, its difficult to fire a gun while drinking a beer.

“We have been able to operate our business in Ukraine with limited disruptions, although distribution in some cities in parts of eastern Ukraine has been challenging,” the company said.

While a cause for concern for both companies, neither is willing to leave the market with Heineken still believes that Russia is “a good market to be in.”

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