Russia, Ukraine tensions are hurting the world’s largest brewers

by  

John Kell 

Carlsberg and Heineken are two of the largest beer providers in Russia, which is one of the largest beer markets in the globe.

The geopolitical crisis in Eastern Europe has led to weaker beer sales in Russia and the Ukraine, a slide in sales that’s hurting some of the world’s largest brewers.

Carlsberg and Heineken each reported a softer performance in the region during the second quarter, results that looked especially poor as the World Cup fueled beer sales in Western Europe and other markets.

“We believe the Eastern European beer markets will be impacted further as consumers are facing increased challenges,” warned Danish-based Carlsberg Chief Executive Jørgen Buhl Rasmussen. Carlsberg trimmed its expectations for the year, citing the challenges in Eastern Europe.

Russia is an important market for the beer industry, though the climate there is complicated as Russia’s government hasincreased excise taxes and banned many forms of alcohol ads. Carlsberg and Heineken are two of the largest players in Russia, one of the largest beer markets in the globe.

But alcoholic beverage sales in that market have been affected by the government’s efforts to reduce the consumption of alcohol in the country, Euromonitor and others have reported, amid some concerns that overconsumption has hurt life expectancy in the country, particularly for men. Dutch-based Heineken on Wednesday estimated the overall beer market in Russia has dropped 25% the past two years, though it said most of the woes were due to tax hikes.

Carlsberg said the value of the Russian beer market slipped an estimated 6%-7% in the first six months of the year, while Ukraine’s beer market was down an estimated 10%. The decline in the Ukraine accelerated in the second quarter, with “significant variances between regions” there, Carlsberg said.

“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.

Heineken appeared less affected, reporting volume grew 0.8% in Central and Eastern Europe in the second quarter. That’s still a deceleration in growth from the first quarter, and also underperformed all other markets. Heineken executives told analysts that it was “difficult to access what the geopolitical situation and all the rising sanctions will have on our business,” but said the bigger issue appeared to be tax hikes levied against beer the past five years. The company said in the long term it still sees Russia as “a good market to be in.”