BEER…. WHAT A SPECIAL WORD
“Beer – the best proof, that God loves us and wants us to be happy”, once wrote Benjamin Franklin, the man whose face is on the 100-dollar bill. And we should say that his words are true, scientists have almost proven that beer helps produce hormones of happiness.

Be it the willingness of people to get these happiness hormones or for whatever other reason, the beer market grew by 4 times after the collapse of the Soviet Union, between the years of 1992 and 2007. For 15 years the overall production of beer increased from 25 million hectoliters (1 hectolitre equals 100 litres) to 110 million hectoliters. And if at the start of this period the average consumption was 20 litres per head, by the end it had reached 77 litres. But since 2008 this market has begun to decrease. It is that at this particular time, in September 2008, the Russian drinks market gained a new manufacturer, The Moscow Brewing Company (MBC).

The MBC comprises of a factory, equipped with the most contemporary brewing equipment, those of European standards. The company has an initial production capacity of 2.4 hectolitres per year, with a gradual expansion towards 6 million hectoliters per year. It’s project partners are Sberbank Russia and Detroit Investment Fund. Investments have totaled more than 200 million USD. In addition to the cutting-edge equipment, the company has a great location in the Mytischi Moscow Region – a green area that is well known for its delicious water. It is here, on the factory grounds, which occupies 14 hectares, that 5 wells were found that range in depths from 190m to 320m, where the MBC sources its water for production.

“We started in difficult conditions” says general director of MBC Igor Dementiev. “Firstly, we appeared on the market at a time of crisis. Secondly, the market was already divided, with 90%of  the whole industry spread across 5 big worldwide brewing groups and the remaining 10% of the market was shared between 200 smaller regional breweries. Thirdly, with really decent production capacity you can produce 2.4hectolitres a year, which amounts to 2-2.5% of the total beer market in Russia. In early 2008, the brewing market in Russia had fallen by 0.5-0.6%, in 2009 it decreased by 6-8%. There will be a further reduction in 2010, I think the industry will drop to about 100 million hectoliters. The reason being a threefold increase of taxes on beer by the Russian government in the new year. This decision I believe is unprecedented, as already now there is such a small difference in the pricing of beer and vodka in Russia. Like in no other country in the world, you could by a bottle of vodka for the price of 2-3 bottles of beer (against the norm in other states of 6-10). It is clear that the tax will change the price of goods and this will inevitably affect the consumption of beer.

In less than two years of operation, the company launched about eight beer projects and five soft drinks projects that have been rather successful. Already now the company is facing the shortage in prodution capacity. The reason for such a rapid and successful development is the ability to find the key insights of each project, Igor Dementiev believes.

We began with the Oettinger license project. This German beer, which is still not familiar to Russian consumers, is however the No 1 brand in terms of sales in Germany. The German company Oettinger Brauerei GmbH has no marketing department and therefore no expenses for sales promotion, which makes the price really accessible, even though the beer is really of a high quality. Here, in Russia, we are trying to do the same. We only wrote on the label “No 1 brand in Germany” and represented the ratings of the German beer brands  made by independent agencies in Germany – already for 5 years Oettinger has ranked first in the country. more than 45 licensed brands of beer are being produced in Russia now and I think that Oettinger is in the top five for quality, taste and pricing. Now we are waiting for an increase in sales. I think that it will be several years before Oettinger finds its well-deserved success in the Russian market. However, sales have already exceeded our expectations. The license contract with the brand owners has been signed for 40 years for production of Oettinger beer, which is unique by itself.  Typically the maximum term for such a contract is five years but we explained to our German partners that we want a structural and solid approach for future success and they believed in our strategy. However, this is not our only long-term contract with foreign partners. We have a contract with the Danish for 25 years for the licensed production of Faxe beer – the most exported Danish brand. To comply with all the agreed details, we import cans from Denmark, instead of producing them here.

Another example of a niche approach is our own “Zhiguli” brand – this project has been carried out in collaboration with the famous “Zhiguli” restaurant, located at Novy Arbat. The restaurant, owned by Andrei Kobzon, already has 40 years of experience in selling beer under the same name.

“Almost all Russian breweries produce Zhigulevskoe beer” says Igor Dementiev, “This name comes from the Soviet times but it has never been a brand. Therefore  there are no limitations for its production. Zhiguli, though, is a completely different story. This is a real brand, with its owners being MBC and Andrei Kobzon. What makes this beer so special? It is the refinement of old beer recipes, which were sold in bars during the 60s in the Soviet era. Now Zhiguli is available in almost any large city in Russia. There is a shortage of product because of its immense popularity. Undoubtedly this popularity is due to its connection with the famous restaurant, the unique bottle shape, the retro label design, the special taste and its affordability – even when there is a shortage of this product the price was never raised above 28-32 roubles. But most importantly, people love this brand because of it’s taste. Zhiguli is brewed in a special way: where regular beer takes approximately 12-14 days to ferment in the cylindrical tanks, Zhiguli takes 21 days. And thus it gets its unique flavor.

MBC considers each of its brands as a separate business project, managed by a project manager – someone who knows everything about the brand, and is dedicated in promoting the product. As Igor Dementiev says, it does not prevent the development of the company as a whole, but it stimulates the individual business approach and each brand gets maximum attention. Certainly the human factor plays an important role in the success of each brand. So we select our business managers carefully. With regards to the promotion and marketing of the products, MBC is not like any other big brewery.  It does not necessarily spend money and effort on advertising but we focus on the unique benefits of each product and we take a more complex and slower approach, a more challenging path.

We have taken into consideration the experience of other Western breweries and we regularly have people visit the brewery, says Dementiev. Nowadays, almost 10 thousand people visit our brewery annually and there are plans to increase that number by another 10 thousand. When people see for themselves how our beers are made, they no longer have prejudice about the production process, for example, the belief that spirit is added to our beers during the brewing process. The second important instrument that we use is our blog on the “The Beer Experts Club” website, where any user can pose a question to our head brewer or the manager of the brand. And of course finally, we meet regularly with journalists and take part in industry events and thematic festivals.

The company appears not to have any problems with the large retailers thanks to the 17 years experience of DI, according to Igor Dementev. Today MBC offers a wide range of licensed beers, as well as imported beers and other beverages and is becoming one of the leading suppliers of these products. The MBC drinks can be seen on the shelves at “Auchan”, “Perekrestok”, “Seven Continents” and  “Metro”. The whole company works with more than 130 partners in the country. However, due to the lack of capacity at the moment MBC is forced to limit it’s shipments to almost all Russian regions.

It is important to know – warns Dementiev, that licensed beer might taste slightly different to the original. It is up to the brand owner to decide whether to allow a change in recipe. For example, Oettinger beer is produced here exactly the same way as it is in Germany. Similar with the Danish Faxe, the American Coors Light and the Czech Dark Breznak Tmavem, which in my opinion is the best in its category. In particular for this beer, we buy the malt abroad. Although during the last few years you can buy good malt in Russia. Not all beer in Russia is brewed from malt, in order to lower the cost of production some breweries use barley instead, which is half the price. Of course, with such additives the taste of beer deteriorates. But I think that today in Russia, the consumer is knowledgeable enough to distinguish good and bad beer.

A few words about the Russian beer market; about 95% of all beer consumed in Russia is standard lager. About 40% of the population prefers beer from mainstream and premium categories. In Moscow, 60% are premium beer drinkers. About 46% of Russians prefer to buy beer in1.5-2l PET bottles, varying, as opposed to 30% in glass bottles. In Moscow and St Petersburg however we see an opposite trend, whereas the majority prefers to buy beer in glass bottles.

In addition to the beer business, MBC is developing a new direction – non-alcoholic beverages. It already has two licensed energy drinks: the German  Effect and the America Gorilla energy drink, as well as the hugely popular French fruit drink Orangina.

“During 2011, we plan to increase production capacity for beer projects by 1.5-2 times and we want to introduce 3 to 5 new beverage projects. Very recently MBC started producing the fruit drink Afrika and in autumn of 2010 we received the license for the premium juice Pago. We have ambitious plans for all these new projects and we will need the support of Sberbank, which currently helps us in financing the investment projects and backs our operations as our true and reliable partner.  And, as real brewers,  we value good traditions”

Magazine “ Time of savings” 03.10